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How Much Should I Pay For This House?
We probably answer this question for someone a couple times every week. The problem is that they don't have a good formula for determining the most they can pay and still make a profit - so they're scared to make any offer. Here's what we use for single family homes: The (MAO) Maximum Allowable Offer is calculated by first determining what the house will be worth after renovation - the ARV (After Repaired Value); less the rehab dollars required; less the Buy/Sell/Hold (B/S/H) costs; less profit margins. MAO = ARV - Rehab - B/S/H - Profit So let's break that down a little further. To determine the ARV, study comparable sales data. Comparable sales are those properties which sold in the last 6 months to 1 year, and within ˝ to 1 mile from the subject house. But other factors must be considered as well. The more characteristics between the properties that are similar, the more valid the data. Make sure that the house itself is similar in square footage, bedrooms and baths, age, style, and architecture. Don't worry about condition except as it will affect the amount of rehab dollars required. Next, look at the neighborhood and the individual street. Do they look the same? Or is the comparable property on a beautiful street while the subject property is on a street riddled with empty littered lots and boarded up houses? The point is to view the potential investment as your end homeowner occupant will. If they could buy your completed investment on the bad street, or a house on the beautiful street - either for $150,000 - which would they choose? The other house of course. Which means your house is not worth the same - it must sell for less to attract a buyer. Rehab dollars differ from renovator to renovator depending whether they do the work themselves, or use cheap subs, or use an expensive general contractor. The scope of the work should be the same - it is whatever is required to make the investment look like the comparable houses (unless the plan is to sell well under market value). We do not attempt to obtain all of the various contractor bids when we are making offers. All the real deals would be sold before we'd ever have an offer together! Instead we've developed ranges of rehab dollars based on the overall condition of the home. Is it an exact science? No, but neither are the bids - there will always be something missed. So why not work with a guide that is probably 90% accurate and allows for quick offers? Buy/Sell/Hold costs include expenses such as appraisals, attorney fees, title search & title insurance, loan origination fees, debt service, utilities, insurance, taxes, real estate commissions, and closing fees paid on behalf of the end buyer. Again, these costs vary depending on each investor's individual situation. In the Atlanta area, 15% of the ARV seems to be a good average allocation for B/S/H costs. If you are the renovator, calculate your specific B/S/H costs, then utilize that percentage for future offers. Profit margins are the fun part of the equation. How much do you want to make? If you're wholesaling the property, you also want to consider how much you should leave in the deal for the investor buyer to make the deal attractive. That's it. That's how you calculate the most you'll pay for a property. But that's not what you SHOULD pay. It is the maximum you'll pay. It is the deal-breaker. You will not pay one penny over the MAO. Your negotiations should lead you as far below the MAO as possible. The difference in amounts is additional profit in your pocket. What you SHOULD pay is the minimum price below the MAO that the seller will accept. We call this the MIN-O. Have a rich week, Lou FREE! Real Estate Investing Secrets To Earning $100,000 Your 1st Year! -- 11 Overlooked Real Estate Statregies That Will Turn Your Investing Business upside Down And On The Fast Track TO Success...Guranteed! Plus A Bonus Track With A Secret So Successful It Can Double Your Investing Income Overnight! http://www.InvestorSuccessTactics.com
MORE RESOURCES: Refined Real Estate: Unique Leschi home with lake views lists for $1,395,000 seattlerefined.com Real estate mogul cautions about avoidable mistake when buying a home, explains how to avoid 'drowning' Fox Business Coloradans negotiating lower fees for real estate agents with new law on horizon Colorado Public Radio Massachusetts real estate transactions for Hampden, Hampshire and Franklin counties May 19, 2024 edition MassLive.com Real estate transfers: May 17, 2024 RiverheadLOCAL Real Estate Newsletter Articles this Week: Housing Starts Increased to 1.360 million Annual Rate in April Calculated Risk London Real Estate Is About to Get the âSelling Sunsetâ Treatment Hollywood Reporter Mid-May Greenwich Real Estate Market Report Greenwich Sentinel Should I Buy a House Now or Wait Until 2025: Expert Forecast Norada Real Estate Investments Dodge County Real Estate Transfers Fremont Tribune The Michael Houck Real Estate Guide for May 19 Oil City News Washington state ahead of the game as lawsuit rewrites real estate commission rules The Business Journals MCB Real Estate Revives Long-Awaited Viva White Oak Mixed-Use Project Source of the Spring STAR resource center Department of Taxation and Finance Yes, there are other coastal Delaware towns besides Rehoboth Washington Blade Dutchess County, NY real estate 2024: What's on the market for $579K Poughkeepsie Journal Baltimore real estate: 4 waterfront condos for sale The Baltimore Banner Revolution in real estate: How the NAR settlement is changing the game Eden Prairie Local News Real Estate Briefs: Lakeside homes, news condos, and more news Rough Draft Atlanta Home Prices Hit Record Highs in April 2024: Trends & Forecast Norada Real Estate Investments REAL ESTATE | UPDATE | Johnson Bus selling lot for new West Bend Fire Department No. 1 washingtoncountyinsider.com VIDEO | REAL ESTATE | Construction finally underway for Taco John's in West Bend, WI washingtoncountyinsider.com Innovative Leaders Vanderstraaten and Rohrman Inducted into North Texas Commercial Real Estate Hall of Fame ... dallasinnovates.com Here are recent property transfers up to $1.28 million St. Albans Messenger James Quinn's Data Center Advisory Expertise at JLL Drives Innovative Real Estate Solutions for Global Corporations Markets Insider Oceanport's Denholtz recognized by commercial real estate organization themonmouthjournaleastern.com Westmoreland County Real Estate Transfers | Real Estate | latrobebulletinnews.com latrobebulletinnews.com Real Estate Mogul Grant Cardone Closes Largest All-Cash Multifamily Deal In South Florida This Year Yahoo Finance Routt County real estate sales at $17.6M for May 9-15 Steamboat Pilot & Today Billy Joel spends over $10M for sprawling East Hampton pad with horse farm, neighbors other A-listers New York Post OT Real Estate Spotlight of the Week: 2115 Sheridan Place The Owensboro Times Robert Willett may be targeting female Realtors in Northeast Ohio Akron Beacon Journal China Says It Will Start Buying Apartments as Housing Slump Worsens The New York Times Number of homes for sale in Metro Atlanta increased significantly, real estate brokerage says â WABE WABE 90.1 FM What's real estate wellness? 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The New York Times ACRES 2024 showcases innovative real estate projects focused on enhancing environmental sustainability Malaysia Sun Ellison sues real estate broker Chad Banken over alleged schemes involving contracts for deed Star Tribune Connecticut real estate law changed after MV Realty investigation Eyewitness News 3 Navigating Northern Virginia Real Estate: An Insight Into Rhonda Campbell's Bespoke Approach Grit Daily Local couple buys Pat Burrell's former Center City penthouse for 38% under original asking price The Business Journals Letter: Clarifying changes to real estate industry Morgan Hill Times Sean Bloom Investments Announces $2B Real Estate Project in Las Vegas InvestorsObserver Home listings are on the rise in southern Colorado, while other indicators show a slowing real estate market Colorado Public Radio Real Estate Transactions for May 18-19 | News, Sports, Jobs Nashua Telegraph KKR Real Estate Finance Trust Inc. (NYSE:KREF) Given Average Recommendation of âModerate Buyâ by Analysts Defense World Southern fast-food chain Cook Out buys Tampa real estate The Business Journals Did Fort Worthâs real estate market really âbottom outâ? | Fort Fort Worth Star-Telegram Edgefront Real Estate Investment Trust (TSE:NXR) Forecasted to Earn FY2024 Earnings of $0.73 Per Share Defense World New Rules for North Texas Real Estate Agents Creates Uncertainty Dallas Observer EG Real Estate: 18 Opens This Weekend â East Greenwich News East Greenwich News Do starter homes still exist? Here's what NJ realtors said NorthJersey.com Busch relative settles squabble with Clayton investors over real estate trust St. Louis Post-Dispatch First Capital Real Estate Investment Trust (TSE:FCR.UN) Share Price Crosses Above Two Hundred Day Moving ... 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