Making an Offer

[Marcel Pean]

This question may be more specific to my market of Washington DC but maybe you can still help.

I recently attended a REIA where a rehabber presented his latest flip and the entire process. At the end he shared his financials.

3 bed / 3.5 bath, ~1,500 sf rowhome in an up and coming neighborhood in NW DC. 

ARV - $660,000

Rehab - $135,000 (He really spent $175,000 but that's because it sat longer than expected plus a few hiccups)

Purchase - $365,000

Based on what I've learned from REIA meet ups and about wholesalers, typically you determine purchase price and wholesale fee using the following formula:

(ARV*70%) - Repairs - wholesale fee = Purchase price

($660,000*0.7) - $135,000 = $327,000. That's not even with me taking out the wholesale fee! As a wholesaler I would have offered the seller anything under $327,000 because I would assume that a rehabber wouldn't purchase it for much more than that. Am I getting my numbers confused? Am I missing something? This is a situation that comes up for me fairly often. Should I really be offering more and how can I justify offering more?

Any feedback on this is greatly appreciated. Thanks in advance!

[Russell Brazil]

Ignore the formulas and convert it to actual dollar amounts. This was a $60k profit at these numbers even though he blew through an unexpected $40k extra. If you are making offers based on a formula instead of what the market is, you will never close a deal.

$365k acquisition on a $660k ARV is a huge home run. At that ARV I'm typically seeing a $450k acquisition cost in Petworth and Trinidad.