Estimating Repairs
I have a lead on a property that goes like this: Current appraisal $ 105K belonging to an elderly woman. Her family thought it was worth $90K so they are delighted at the appraisal. The home has much deferred maintenance issues - roof, floors, bathroom.and an overall cleaning and paintjob. On a 2000sf home, how do I figure out my offer and what is the amount that I need to walk away at? Oh yea...family will do financing ( house has no mtg) with minimal down. This is my first stab at a rehab...can you advise me? Thanks! 
I second this post. I too need to know how to do this. I have a rehab that I may buy that needs LOTS of work. My first idea was to get a contractor in there to see how much it may take to do the rehab. Is this a good idea or are there other ways to do this?
[addsig]
Call a bunch of contractors. Get them to all show up at the SAME time, so you only have to bother the homeowners once and the contractors see that you are getting other bids and will compete against each other.
Hope This Helps,
Mrs. Meltzer
Have a contractor give you a bid on repairs and then double it. Repairs are like an ice burg.....you only see the tip of the damage. Deduct about 20% for holding costs, selling costs, payments and so on......don't forget your profit. Then make your offer......to say the least, this is a quick assessment with out any details.....cover your bases and make the offer.
Of course this is just my thoughts.
Thank you Mrs. Metzler...I was hoping for a response since the forums don't seem to active tonight! Would you recommend a percentage profit that you require to do a deal?
Dlynn,
So the 20% is for repairs and holding and my profit should be on top of it?! Wow...how do I offer without looking like I'm taking advantage of an old lady?
I understand....however if you don't make a profit....whats the point of the transaction....
100,000 dollar house.
to sell 6% 6000
discount on your asking price 3% 3000
closing costs 3% 3000
holding costs for 6 months
Payments 4200
Utilities 600
Insurance 300
maintenance 150
Marketing
Appraisal 300
Survey 275
Theft deductible 500 just in case
Taxes 750
Transfer tax ??100
Misc unforeseen 1000
Repairs??????
Profit ??????
I could be wrong.....you never know.
OH MY Mrs. Meltzer
Shame on you for even suggesting such a game with the contractors. You will end up with a bid that is to low....one very unhappy contractor and one very crummy rehab job. Do it right the first time and save the grief.
PS...I am a General Contractor if you hadn't guessed.
There is an easier way to arrive at your offer price. Take the after repaired value, ARV, of the house and multiply it by 70% and from that number, subtract your fix-up costs and that is the offer price. Some rehabbers use 65%. You could subtract a fudge factor from the offer just to be cautious. You areive at the ARV by looking at comps for the area.
What about factoring holding costs into the numbers? There seem to be two schools of thought about this...
1. The holding cost is the rehabbers problem and liability and they "just have to deal with that" as cost of doing business
2. You MUST factor 6 months holding cost assuming hard money loan interest only payments of 15%, otherwise the rehabber cannot estimate profit accurately, and will turn your deal down (if you can't guess, I am wanting to assign deals, not rehab them).
Anyone have any opinions? Thanks, Dave
I'm hearing a great deal about the property, but what about the motivation? I'm not saying don't make the offer, do. And like everyone said make sure you estimate conservatively.
Remember the deal needs to be profitable, otherwise walk away, or come back at a later time.
65% of ARV. I keep seeing this everywhere. In every seminar, in all the guru's package, every hard money lender, and on every creative investor site. Makes one believe that this is common place.
Please, I want to know, how many people actually are successful this way and in what part of the country are you making this happen ?
I live in Chicago suburbs. The competition here is so tough that people are paying asking price or more to get deals.
From the way I see it, the only way to get the deals is to figure all costs and then add fudge factor.
Get the ARV of home from comps. Subtract the following.
Buy cost
- lawyer
- title fee
- survey
- Credit report - If borrowing
- Lender fee - If borrowing
- Appraisal fee - If borrowing
Holding costs
- Utility 6 months
- Insurance 6 months
- Loan intrest 6 months - If borrowing
Repair cost
- Double what you estimate
Selling cost
- Lawyer
- Taxes 6 months
- Commission - If using relator
Now you have purchase price without the profit you want to make.
This is where you have to be reasonable. Put in too much profit, your price will be too low and you will be rejected or out bid by a higher bidder.
On the other hand, you want to make the most profit you can.
It all comes down to numbers, If the dollars you want to make are not there, walk away.
I'm in Georgia and I start at 65% of Retail Value.
I subtract repairs from the price.
That is how I come to my offer price.
And I consistantly get deals.
Mrs. Meltzer
Must have less competition then. I concur with the poster who said the competition is tough: it is here too, in the Detroit market. May have to start looking at uglier houses.
Go to the freebies page and click on software and download the excel document called Rehab Estimator. That will help you calculate your costs.
Josh
As I see it, the bottom line to REI is to find Motivated Sellers. If you are chasing deals with an Unmotivated sellers you will soon be very burnt out. If the competition is paying full price....then the fact is they are not to bright or they are planing to hold the property. I am in this business to make a profit, not just to buy houses. As a "newbie" I will look at more homes and buy less that a more experienced person. So be it. The one's I do buy I know going in what I will make coming out.
I would rather buy one home and make a profit, than to buy ten and wonder what happened.
Hey,
If the market is red hot or not, does not make ANY difference to how you compute your offers. Thinking that it does is what gets you in to trouble.
Personally, I use FMV x 70% - costs. That is my formula and I stick to it.
BUT I don't try to inflate my costs. I calculate the repair value and add a 10% Contingency. Closing costs are all most 0. If you try to pad your offers, you are not going to get any excepted. A Seller does NOT care how you figured out your offer, just what the offer is.
Someone said they are CONSISTENTLY getting offers accepted at 65% and that is a bunch of nonsense. You will make dozens and dozens of offers before anyone even TALKS to you, let alone accepts the offer. That is just the way the game is played.
No matter if you offer 65% or 70%, you are lowballing the seller and there in nothing wrong with that, but you might get 1 out of 30 offers accepted.
Even in the RED HOT markets, you bring to the table SPEED and that is what makes these deals happen.
I hope that helps.