Whats a good offer price?

[Dena Zeid]

Looking into my first potential flip in ny.   I'm new and want to make sure I don't offer too high a price.  Here's the financials:

Selling price: 280,000

ARV= 380,000

Rehab costs= 40,000

Offer would be all cash.  

What's the maximum allowable purchase price for this deal?  I know according to the 70% rule it should be less than 230,000, but I don't think I would be able to get any deal if I focus on the 70% rule.  What percent profit is factored in the 70% rule?

[Ross Denman]

Personally, I wouldn't pay more than $210k for this home.

Here's how I would go about it.

• Find out what their motivation is. If there is a specific goal in selling, then you may find a creative way to purchase the home.
• Pick the home apart and exaggerate the repair cost. You can probably easily justify a $55k rehab if pushed. Prices vary by contractor and region. Your true numbers may be $40k, but if they were willing to do it themselves... it may very well cost them $55k.
• Comp the property as low as possible - you could probably pull comps to support $300k, maybe even less in today's market. Whoever offers the first number typically loses. Ask them what the lowest price they would consider is. Then start the negotiations at about $150k (maybe even less if their initial price was lower than anticipated.) You have to do this with confidence and without even flinching. Expect them to be appalled rebut with the attitude that you're surprised that they want so much. If they don't gasp and choke at your first offer... then you offered too much.
• Explain that the home is only worth around $300k in great shape and it will cost you $55k to get it there. That put's a break even price of $245k. You are offering them a quick cash close with no realtor fees. In my area, that's 6-7%. With numbers like that, $210 seems justified and if negotiated well, you may be able to get it for even less.

Remember, we make money when we buy value. If you can't get a property for numbers that make sense... it was never a valid deal in the first place. Don't get over eager or emotional. Patience and rationality are very important... especially early on.