Skip to content
×
Pro Members Get
Full Access!
Get off the sidelines and take action in real estate investing with BiggerPockets Pro. Our comprehensive suite of tools and resources minimize mistakes, support informed decisions, and propel you to success.
Advanced networking features
Market and Deal Finder tools
Property analysis calculators
Landlord Command Center
ANNUAL Save 54%
$32.50 /mo
$390 billed annualy
MONTHLY
$69 /mo
billed monthly
7 day free trial. Cancel anytime
×
Take Your Forum Experience
to the Next Level
Create a free account and join over 3 million investors sharing
their journeys and helping each other succeed.
Use your real name
By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.
Already a member?  Login here
Real Estate Deal Analysis & Advice
All Forum Categories
Followed Discussions
Followed Categories
Followed People
Followed Locations
Market News & Data
General Info
Real Estate Strategies
Landlording & Rental Properties
Real Estate Professionals
Financial, Tax, & Legal
Real Estate Classifieds
Reviews & Feedback

Updated over 9 years ago on . Most recent reply

User Stats

105
Posts
41
Votes
Joshua Durrin
  • Real Estate Broker
  • Alameda, CA
41
Votes |
105
Posts

First Offer! Am I on the right track?

Joshua Durrin
  • Real Estate Broker
  • Alameda, CA
Posted

Hi. I found a property listed on the MLS for $650k in need of approx. $150k in repairs. The property was an historic property in my area that needed lots of work including a new roof (existing was just paper for over a year). Owner was an investment firm that had it listed for over a year.

Upon contacting the agent they said the firm was just looking for an exit strategy. I was very clear that I wasn’t a retail buyer… many times.

Applying all that I’ve learned so far from BP, I cranked the numbers as such:

ARV was conservatively $769k based on three comparable solds within the past month.

Using 70% rule, meant $538,300 was the max purchase price less $150k for repair costs… leaving max purchase price at $388,300.  

The listing agent had a recent quote (within 3 months) for repairs claiming $116k in repairs. However, seeing that some of the interior was partially completed without having put a roof on the building left me skeptical as to the quality of the quote. So I bumped it up to $150k also to cover holding costs while getting permits on the historical property to a $150k estimate.

I had planned to offer $360k leaving me some additional contingency room and potential for a wholesale fee (less than 5% though). However, “if you’re not embarrassed by your offer then your offer is too high.” So I dropped it to $345k.

It wasn’t taken.

Later, I learned from the agent, however, that the investors claimed to have 7 other offers on the property throughout the year between $600k-$630k. This led me to question whether my formula is too aggressive for my market.

Using the 70% rule I would have potentially profited about $150k on the property. I’ve been told “big risks should deliver big rewards.” This property was in such bad shape that I considered it a big risk and thus it seemed appropriate. I did talk with another investor friend of mine who advised not to go any higher than $400k on the property, so I figured after negotiations I’d land somewhere around my original target of $360k. But with 7 other offers over $600k, is that to say that I can’t apply the 70% rule in my market?

Other formulas suggest applying a fixed profit target to the purchase price (i.e. instead of a 0.7 multiplier, calculating the ARV and subtracting repairs costs, profit, and carrying costs, etc. separately). Perhaps targeting a fixed profit (i.e. $50k) is a better way to start here?

Note, I’ve not even started my direct marketing yet. This was the first attempt of many to come but I wanted to make sure I was headed in the right direction with my offers and business strategy before I'm laughed out of the market. 

Thanks for the input.

Most Popular Reply

User Stats

280
Posts
171
Votes
NA Jones
  • Flipper
  • Port Deposit, MD
171
Votes |
280
Posts
NA Jones
  • Flipper
  • Port Deposit, MD
Replied

"I hear that story all the time about "the seller already had several offers above $xxx" to which I say "Well, he should have taken one of those offers."

AMEN!

If the house is listed for $650k for over a year and they got an offer for $630k, they were probably strongly advised to take it.  I call BS on 7 other offers $600K+.

Loading replies...