FSBO Deal, Seller Not motivated, did I do this offer right?

Question

Based on what I've learned about recognizing a deal and understanding the numbers, even-though the seller was not interested or motivated to sell, I saw it as a good practice instead. Did I negotiate or calculate the numbers right?

Octavia

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(( POSTLETS AD ))

FSBO

Irving, Tx.

Single Family Home

4bdr. 3bath,

sqft. 2200

No H.O.A

Free & Clear (100% equity)

Seller: No Repairs

My personal thought: huh!, yeah right

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(( NUMBERS ))

Ask: $198,900

ARV: $264,900k (6 months, sold comps, 1) click here

$198,900 divide by $264,900 = 0.75% (ARV)

$264,900 x.70% - $10krpr - $10kpft = $165,430 (MAO)

$165,430 divide by $264,900 = 0.62% (ARV)

*** Knowing a buyer / rehabber has many other costs that need to be considered, I was told to not worry about those, just only my profit and the repairs needed. I still consider them though, I just didn't add them in the calculation. ***

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(( TEXT CONVERSATION ))

Me: Why selling?

Seller: Moved to a new home

I Offered: $150k, as is, all cash

Seller: No

Me: You selling full price?

Seller: Yes

Me: Will you do Owner Financing?

Seller: Not in a hurry to sell, I have plenty of other decent offers

Me: Ok, thank you for you're time

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Did i do anything wrong?, thanks for you're help guys

Gideon Sylvan · Answer

If the majority of your offers are not rejected, you're offering too much.  Either you have to make low ball offers or you have to compete with other investors on already well priced listings.  So the fact that your offer was rejected suggests you are doing things right.

Before making an offer though (even a text message one), I would recommend running through the numbers in more detail over using a __% rule.  After all, this is what your competition is doing.  If it was to be a flip, the numbers would look something like...

$265,000 - $15,900 (commissions)* - $5,300ish (closing costs) - $4,700ish (excise tax) - $3,000ish (holding costs) - $20,000ish (repairs, I'm believe your first deal will only cost $10K since most cost around $30K) - $6,000ish (acquisition costs including legal for off market) = $216,100 without surprises.  Add in the hard money and you're looking at approximately $9,000 more; plus a safer rehab budget of $30,000 and you're number goes down to $196,000.

So if you're confident in your ARV and ability to stay under $30,000 for the rehab, you're likely safe to offer $170,000-$180,000 (i.e. what @Bill Jacobsen said #nailedit).

*without using an agent, you'll likely have to pay full listing commissions on the resale.

Ryan Dossey · Answer

@Octavia D.

WELL DONE! You are getting the hang of this. You have came leaps and bounds from the last one I saw that you posted that you were going back and forth on.

They are correct that the profit is included in the 70%.

If you want to get good at this you are going to have to talk to these people at the very least over the phone. I know that it is nerve racking/stressful. However I would never take a text offer seriously. You need to build value in your offer. Normally a seller is going to downplay the amount of rehab work needed. I normally walk through the home, figure out the rehab cost, and use that as the justification for why I'm offering what I am.

If the house needs nothing and they are asking 198k something doesn't add up. Why would they leave 60K + on the table?

Bill Jacobsen · Answer

I don't use the 70% formula but my understanding is that the 70% already includes the profit.  I would probably be at about $178,000.

Good Luck.

Bill

Octavia D. · Answer

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Thanks so much Ryan, you've helped me much on making sure I correct my wrongs, it's really been great help for me to get these numbers right and to recognize a good deal.

As for the profit being included in the 70%, is that the rehabbers profit?

As for me talking to a seller on the phone, I haven't build up enough momentum yet for that hehe!, I've always been the quiet type when in public or just around people in general. I prefer text conversation because it gives me time to think of what to ask or do next rather than having the seller on the phone think I've hung up due to me not saying anything LOL!. I also like to keep record of the conversation to remind me of what's being negotiated and how it's coming along. Eventually i'll start talking by phone, but for now i'm taking baby steps hehe!.

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I also have other posts I did that i haven't gotten any responses from yet, not sure if i put them in the wrong posts forum, check them out if you like.

Henry Howard · Answer

this is a forsake by owner I contacted this client by yellow letter campaign this is the deal

Arv $36001

Arv@65%=$23401

Client will hold mortgage for $18000-10%down=$16200@12%@5years

$16200@12%@5years=$9720

$16200+$9720=.  $25920 if hold for 5years.

Monthly payment is $432

Don't any of the other number. But if someone can look at numbers and give me more suggestion

Henry howard

hhoward470@yahoo.com

205-335-5395

Need help

Jessica S. · Answer

@Octavia D. , stop texting and start making those calls!  It might make you uncomfortable at first (you might even be terrified!) but you don't have to let those feelings stop you from taking action.

You can do this : )

Ryan Dossey · Answer

Hey that's what I'm here for! I would maybe suggestions using email then. While still not ideal it is more professional than texting.

Your 70% is their profit. You subtract your cut and then repairs from that. Some rehabbers will pay up to 75%

Jesse T. · Answer

If you have a gap that big, you might start by asking how much they can come down.

I agree with others it might work in the 170s, if the other assumptions are correct.

Gideon Sylvan · Answer

I personally like to work backwards, with the ARV as my revenue source and everything else, including the purchase price, as a cost.  Some of the costs (such as selling costs) rely on the investor's resale price (i.e. ARV); other costs rely on the purchase price (holding costs, hard money costs); and some costs are unrelated to either (holding costs, unpaid liens).

Octavia D. · Answer

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Thanks Gideon, I will surely include the extra numbers to play it safe and so that the rehabber / end buyer will have all their costs covered, but I noticed you based these deductions from the ARV and not the asking price, do I make these deductions using the ARV from sold comps.?

FSBO Deal, Seller Not motivated, did I do this offer right?

FSBO Deal, Seller Not motivated, did I do this offer right?

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