All Forum Posts by: Jim Pellerin

Hey @JL Potts

I wouldn't say it's NOT necessarily a bad deal. It depends on your buyers.

1. First start with the ARV. Confirm that it's accurate by looking at a good set of comparables. 3 to 4 that are of similar type and size, close to the subject property, and have sold recently. You should also look at $/sq ft.

2. Next take 70% of the ARV as a starting point. You start with 70% because you want to leave 30% in the deal for costs and profits.

2.1 Allow 15% for costs associated with acquisition costs (legal fees, transfer fees, etc), holding costs (taxes, insurance, utilities, and mortgage), and disposition costs (realtors, staging, and legal). If you have buyers that are looking to hold you can eliminate the disposition costs which will affect your offer price.

2.2 Allow 15% for profit. Most flippers are looking to make around 15% profit on each deal. This will vary depending on the ARV of the property. The higher the ARV the percentage could be less. 15% of $800K is a lot more than 15% of $300K.

3. Next reduce the offer amount by the rehab costs. Make sure you get a good estimate for the rehab costs. Keep in mind that your flipper will be doing their own estimates so this is just an opinion. Also, most sellers/wholesalers tend to underestimate rehab costs.

4. Finally deduct your fee. Your fee will be what you think is fair for the deal. I use 5% as a guide and adjust it based on the ARV of the deal.

In your example, it could look like this, assuming the ARV makes sense:

$310 x .70 = $217K - $30K(rehab) = $187K - $10K (fee) = $177K. This is what you would offer the seller.

For the right buyer, this could still be a good deal depending on what their intentions for the property are and what their profit goal is. 

For example, if they are holding and not flipping, it could look like this:

$310 x .80 = $248K - $30K (rehab) = $218K - $10K (fee) = $208K. This is the new adjusted offer to the seller. I took 10% off for disposition costs and some holding costs which didn't need to be accounted for if they are holding.

Hope this helps.
 

It really depends how motivated the seller is. You just need to put in some money to make the contract legal. You could do $100 or even $10. Explain to the seller that your deposit is strictly to make the contract legal and in no way represents your lack of interest. 

Like everyone says, widen your area or property type. Also, base your comps on $/sq ft 

Don't assume there will be no renovations if your investor is buying to rent it out. And just ask him what he/she plans to do with the properties you find.

I wouldn't build. Since you have experience with Airbnb, I would look for another property to do Airbnb on. I  Rent it from the owner and rent it out. You will have to get permission from the owner. You can many STRs using this method. 

Quote from @Jerryll Noorden:

Quote from @Jim Pellerin:

An ARV of $200K and it needs quite a bit or work. There's probably not a deal here. You have to take into account all costs which means acquisition costs, carrying costs, rehab costs, and disposition costs. Because your rehab costs will be so high it doesnt leave much for profit.

Assume 15% for costs other than rehab. That's $30K. 

Assume $50K for rehab costs.

Right there you would need to get the property for $120K just to cover your costs. 

And I'm assuming you want to make money on the deal. Most flippers want a minimum of 15% so that's another $30K. 

So now your offer is only $90K. Would the owner take $90K.

Hey man, I know you meant well.. but allow me to correct you an a crucial point.

Honestly A bit shocked to hear a coach say that. How can you conclude a deal to be not good ONLY having knowledge of the ARV and it "needing quite a bit of work"?

$200K in CT is the PERFECT range for a flip and thus a whoelsale deal. Do you know how much money we are making with SERIOUSLY bad shape hosues in the ARV ranke of $200K?

The ARV has nothing (or not much) to do with it being a deal or not.

What has to do with it is if the numbers work. Remember I have bought a hosue for 10 dollars once. And bought a $183K house for $11K. And a $250K hosue for $40K, and... 

You sound misleading with the advise you give him. Why are you worried if he acepts $90K? It is compeltely irrelevant. Don't get emotional here. Stick to the numbers.

If $90K is the number that works, $90K it is. Period. 

See what you did? You told him it is not likely a good deal because you were afraid, the seller may not accept $90K... see how this is compeltely wrong? It being a good deal or not is irrelevant what the seller will accept for it or not... it only matters what you get it under contract for , period. Do you know how often the seller wanted $300K for a $12K ARV house? NO deal would be a good deal if seller opinon was the criteria for a deal to be a good deal.

So if he bought this house foe $20K, it IS a great deal right? So why tell him it is not likely a good deal when he is still in the making an offer stage.

My advise to the OP is this:

Don't be desperate, don't be emotional, and don't make an offer if you don't have a way to get through with it, either buying it or wholesaling it.

Then, you make an offer wiothout emotions based on the numbers, not on what the seller would accept or not.

Your information is also misleading. The current owner is a landlord. He wasnt even interested in selling until he was approached. He didnt sound motivated. And deals with that much spread are few and far between. He can make an offer at whatever price he wants. I told him that it's probably in the $90k range for it to be a good deal. And yes it's based on the numbers. I stand by my previous recommendations. I'll be anxious to see what comes of it. As wholesalers, we all have our different ways. Please direct your comments to the original post and let other members here participate with other opinions. 

The first step is to find out if this is a good deal. Ask the seller for detailed financials for the last 12 months. What you want to do is determine the Net Operting Income. This will tell you how much money you have left to pay for financing.

It also will be used in determining the cap rate so you can see how it compares to other properties in the area.

An ARV of $200K and it needs quite a bit or work. There's probably not a deal here. You have to take into account all costs which means acquisition costs, carrying costs, rehab costs, and disposition costs. Because your rehab costs will be so high it doesnt leave much for profit.

Assume 15% for costs other than rehab. That's $30K. 

Assume $50K for rehab costs.

Right there you would need to get the property for $120K just to cover your costs. 

And I'm assuming you want to make money on the deal. Most flippers want a minimum of 15% so that's another $30K. 

So now your offer is only $90K. Would the owner take $90K.

I always recommend starting with wholesaling. There is absolutely no risk to you and you learn as you go. You are also building relationships with investor buyers and potentially trades people. 

Quote from @Quentin Jivery:

Does anyone who is an experienced wholesaler have any advice on what to do here.

Situation is this: homeowner has 123k unpaid balance 

10k past due

Loan issued is 139k

Home value : 352-435k California

My thought is to offer 260k and then wholesale it for 300k

Any advice?

I would get tighter on the ARV. The offer price is too high. There's no rehab costs. Your offer should be closer to $250K if the ARV is $400K. At $300k there's not enough room to cover costs, profit and rehab.