70% Of Fmv??
when you investors say you want to buy a
at 70% below fmv do you mean:
example, $500,000 x 70%= $350,000
you are willing to pay for the house.
a short cut because this figure include closing cost, repairs, re commission, holding cost ect.
or do you still have to do the long math, meaning writing everything out named above, then adding subtracting and finaly arrive at the offer. i know offer lower to leave room for a counter offer.
one more question should i the birddog hint that my buyers like to buy at 70% below fmv or leave it to investor to make the offers???
amynewbie
Leave the negotiating to a seasoned investor, but make sure your there sitting in silence watching them work.
Your simple calculation is usually what is meant. In your example you will buy at
$350,000. This is what will be offered to the seller. Buying at 70% of market (plus closing costs) will allow 80% financing (of FMV) to recover all of your purchasing costs and use them for the next transaction. You create equity with no net out of pocket.
amynewbie,
If you are birddogging and your buyers are looking to pay 70% FMV, you need to find sellers that are willing to do the that transaction. If you allow investors to make offers where the seller is expecting at or near FMV, no one will be happy with you.
Regards,
Ed
ok so when speaking with seller or agents tell them i have investors who are willing to pay 70% of the fmv so there wont be any surprises. but if the property looks like it hasnt been lived in for years how can they expect to sell at fmv. espeacialy if they are also behind in payments and about to lose the house anyway??
amynewbie
First off, the 70% of FMV is after rehab expenses, holding costs etc. A very common formula that you can use is as follows.
Calculate what the ARV (After Repaired Value)
to determine what the house would be worth in sale ready shape. Multiply this number by the 65 to 75%
Subtract the cost of the repairs needed to bring that house to that condition.
Subtract transaction costs, and calculate 6 months of holding costs to cover payments, utilities etc.
Subtract your cut of the deal.
The result should be the Maximum Allowable offer. This is the most you should pay for the property.
This will allow your investor to bring hard money to the table for both purchase, and repair, Pay you, and rehab the property.
The key here is that the hard money lender will loan 65% to 75% of the ARV, (not the FMV) on the property.
This allows the investor to get in light, pay you, and have enough left in the deal tho turn a profit
Good Luck,
Jeff
Jeff, the formula that I have seen is this.
ARV * .70 - Repairs = MAO
If you are wholesaling then
ARV * .70 - Repairs - Your Profit = MAO
The .70 (or .65 whatever you use) is suppose to have holding costs built in as well. This is the common formula that I have seen. I have not seen one where they subtract holding costs as well.
Whatever works for you.
Tom
Tom,
it seems that more lenders are having seasoning issues, and it could, (I stress could only as a possibility) become the norm rather that the exception that a lender follow the FHA guidelines for title seasoning. If this happens, you may consider adding holding costs to your calculations, as you won't be turning them over as easily within 6 months. I've always included holding costs in my numbers. If you don't, that's OK too. There should be enough in the deal for you either way.
Thanks,
Jeff
I hear you on that Jeff. That should only come into play if your flipping retail. It shouldn't matter if you are wholesaling to rehabbers. There are non-seasoning loan out there. I guess if you intend to flip retail you should do some homework and find the lenders without seasoning.
Good Luck,
Tom