Is what I'm offering for this property right?

Question

A guy called me earlier yesterday looking to refinance his third loan ($30,000 at 18%) and get $50,000 on his home valued at approx 240,000 with $130,000 owed. He approximate the repairs to be 20k

He tells me if he can't get a loan then he'll sell it in 30 days. The comps around the area tell me I might be able to sell the home for 240k at least.

I ran this forumla quickly

arv - 60%- 20k- 4k(holdingcosts)= appx. offer amount 120k

The bank also needs to have the mortgage repaid right? Is there enough equity in the home to have a deal?

Account Closed · Answer

@Michael Nicholson Thanks for your reply!

I'll be touching base with the seller at the end of the month and if he decides to sell i'll make sure to bring a contractor with me to get better numbers for my repair costs!

Like I told the gentleman above I ran comps in the area and found  three homes that sold in the past three to five months 270k 4bd 2bth 1,855ft / 275k 3bd 1bt 1,287ft / 265k 2bd 1bt  1,120ft.

this home is 2bds 1bth at 778ft. I estimate 240k to be a low sales price.

what do you think? maybe that's a bit high?

I'm working with a lender and he's looking to help me fund a flip, 60% ARV is the number he suggested I use.

I appreciate the tip on the closing cost calculator! I'll be looking into that right now!

Account Closed · Answer

@David Faulkner I ran comps in the area and found  three homes that sold in the past three to five months 270k 4bd 2bth 1,855ft / 275k 3bd 1bt 1,287ft / 265k 2bd 1bt  1,120ft.

this home is 2bds 1bth at 778ft. I estimate 240k to be a low sales price.

what do you think? How would you go about comping the home?

60% of the arv is number the lender i'm working with gave me as something to go off of.

Michael Nicholson · Answer

the last one mentioned seems to be a like for like comp...depends on how far away from the property it is and what style it is. Also, is it stick built or brick?

Also, how big are the lots compared to the property you are looking at?

Lastly, those three properties have a big difference in the price per square foot. I would say 240000 is way too high an estimate of ARV. Your first property comp sold for 308$ per sq ft, the second  213.68 per sq ft, and the third one  236.61 per sqft. I almost bet that the first one had a bigger lot and that's why the price was higher. The other two must have similar size lots to each other.

If you were to average the last two comp's $per sqft, you would get 222.65 per sq ft @ 778sqft=ARV 173,217.81

That's the way I generally do it. I am new too so I don't know if it's right, but that's what I do. Redfin is a great resource because you can download everything to an excel spread sheet.

Michael Nicholson · Answer

Have you checked any comps in the area to get a better idea of what the ARV is? I have seen a few others advise this, but try to look for sales within the last 3 to 6 months within the same subdivision or street, that has a similar style/set up, similar sq footage plus or minus 20 %.

Next, I would ask the gentleman if you can see the property to estimate repair costs. I would try to bring a contractor along with me so i could get his quote on what the repair costs might be.

Lastly, what made you chose 60% of ARV? Is that your criteria? Will you be wholesaling this or fixing it up and flipping it? The % of ARV should really depend on the criteria of your buyer and what they are looking to do; fix n flip or buy and hold. A buy and hold investor can go in a little higher on the % to ARV because they are looking for cash flow, appreciation, debt pay down, etc.

And don't forget closing costs! I have found that the bank of america closing calculator is helpful. just remove the bank financing part of it if you are going to be using a cash buyer or substitute the hard money lenders fees in for the banks closing costs part of that calculator.

Lastly, if you are wholesaling, do not forget your piece of the pie. As long as your investor's criteria are met, your numbers are good and accurate, and you have left yourself some room, you need to plan for that piece of it as well.

David Faulkner · Answer

20k sounds low for repair costs ... all wholesalers and sellers say that's what repair costs are, but I wouldn't bank on it. "Might be able to sell at approx 240k" doesn't sound too confident, you need to know for sure you could sell for 240k or whatever price. Sounds like you are just trying to throw numbers against the wall to see if anything will stick, which is NOT the way to do business IMO.

If those numbers are correct, 60% sounds greedy and unrealistic, regardless of if you are flipping or wholesaling ... you really think you should be able to turn $96k flipping this $240k home, or $60k-$70k wholesaling it?!? Your about $50k off on realistic profit expectations IMO ... feel free to try to prove me wrong, though.