Listen, I’m all for helping you get the very best deal possible when you are making an offer on an investment property. But let’s say a property is worth $150,000 ARV (after repair value) and work through a hypothetical, can we?
Repairs and updates are going to cost $25,000 and then there will be two months holding at about $1,100/mo and you’d like a little something something for the effort, say 18%. So
3,000 – (the “just-in-case” money) –
27,000 – (your something for the effort/risk)
92,800 should be the sales price, more or less.
Now that is if you are an investor/flipper. You know how many properties sell for approximately 62% of retail value in the Kansas City MLS? Right. Not many.
So there is another strategy and that’s the buy and hold investor. Whether you are looking to live in for yourself or to rent. You can then decide what a number is that you can live with as your something something. If it’s 10% of equity then we can get you the place around $105,000 or so.
The house that’s retail at $150,000 offered by a bank is probably for sale somewhere in the $125,000 range. Broker’s Price Opinions nearly always account for repairs but seldom contingency funds and profit margins and holding costs. Those you’ll have to negotiate away.
I guess where I get annoyed is when people try to subtract from the BPO price of $125,000 (or so) and come up with asking prices of $70,000 (or lower) for an ARV house at $150,000. C’mon. You know, I know and the bank knows that’s not going to happen. So why are you wanting me to write an offer?
EDITOR’S NOTE: This is for a house in a neighborhood that’s in Johnson County, Kansas. A desirable school district. Less than 60 days on the market. It’s gonna sell and it’s gonna sell in the $120,000’s or maybe the high teens. Not $70,000 something. 🙂