Offer Formula

Nate this is a good one. I used it a second ago on a property I am looking at and WOW I see why you use it. It gives you a whole new perspective in less time

good. How about error of margin 3%.

D

Im not clear on how this works if you are keeping this as a rental.

The longer you are planning to hold it, the less you offer?

You deduct 14.4% off the offer price for every year that you plan to hold it as a rental??

It's a very good formula, nstreet. Finally, I see something I feel is fair.

Awesome formula. This will definately help me to justify my offer and help me to figure out my profit in a lot less time. Thanks a million.

nstreet, do you have an anwser to marks question? because i would like to know also? SULLY.

you and only you can reach your goals

Would you be able to show a real life situation with dollars and sence? Thanks
Jbird61

This is a fantastic fomula! By the end of the year, I'll have more deals than Monty Hall! Thanks nstreet

I do the holding cost until I feel I can sell the property or rent the property. Usually I do the equation as - until I can sell - because I can usually rent faster than sell and want create the offer from the idea of what if I had to sell.

Start with the FMV (Future Market Value)
Subtract profit amount

Should be at least 10% of FMV or $10,000, whichever is less (Your profit is the reason for doing the deal)

Subtract your costs of rehab
Subtract 3% of FMV for your acquisition and carrying costs, including:

Closing costs
Six months of property tax
Six months of property insurance
Six months of utilities

Subtract cost of money

We don't know how much we will be borrowing, so we have to guess. As a rule of thumb, you can take 80% of the future market value. Multiply this figure by 18% to come up with a one year interest amount, then divide by 12 for monthly interest. To know how many months you might need the money, look at the DOM (days on market) figure on the comparables and take an average. Next, convert the average number of days into a month figure (round upwards, i.e., 42 days = 2 months). Finally, add an additional month to the total. Multiply the number of months you need by the monthly interest figure, and you now have the total interest amount to subtract from your formula.

Here is a sample formula computation:

FMV $85,000
Profit ($8,500)
Rehab costs ($8,000)
Carrying costs ($2,550)
Interest amount ($6,120)
Offer $59,830

A short sale I worked on:

$115,000 - value of the property
- $17,000 - profit (I wanted a little more than 10% for my time)
- $28,000 - Fix up costs (this included lifting the corner of the foundation)
- $6,900 - Holding costs (115,000 x .012(1.2%) x 5 months - this included time to fix the property)
- $3,450 - Closing costs ($115,000 x .03(3%))
- $6,900 - Realtor fee ($115,000 x .06(6%))
---------------------------------------
= $52,750 - The most I would offer (actually, I offered about $50,000 because I wanted room to negotiate if I needed.)

HOLDING costs, o.k. do you times the 1.2% on the price of the property that you bought it for or it's FMV= future market value, the price i should get after i'm done the REHABBING? YOUR HERO,SULLY.

"(this included lifting the corner of the foundation)"

for 2K ?!?! who is your contractor I need to use him...cheap!

it's still unclear as to what price your going by? FMV or the agreed price, you keep saying the VALUE of the property so o.k. that means to me what the property should be worth @ premium condition ( no rehabbing )

example: appraiser: says property worth $175,000
ran comps in area: $160,000-$185,000
bought for: $115,000

so what number should i go by?, SULLY.

The offer is always done from the FMV. Asking price means very little when creating a real estate transaction because anyone can ask anything they want, high or low.

The $2,000 fix up was a typo it is to be $28,000.

yeah when you said $2,000, i knew thier was no way that was possible, SULLY.

How do you come up with a property value without having an appraisal done?

What about a fix up cost if you haven't had a proper estimate?

Would you have to have all this accomplished before you make an offer?

I am new at this so I have lots of questions. I think your Offer Formula will work wonders for me, after I understand the questions I have above. Thanks!!!

When you say the most you would offer is $52,750 Is that a loan? or Is the price of the property? I am very confused. Or do you subtract $52,750 from $115,000 to get the price you want to buy the house?

Shonda

amy if you don't have a property value (appraisal) use COMPS from today to 6 months ago, within a 1-2 mile radius also check some web sites out like zillow and homegain, cyberhomes etc. also check the TAX ASSESSED VALUE with is pretty much what zillow goes by.#2- now in terms of an ESTIMATE your going to need one theres pretty much no gettin' around that one, and YES I WOULD DO ALL THIS BEFORE YOU MAKE AN OFFER, CLASS DISMISSED,SULLY.

I know of a house that the assessed tax value is $60,000 but the owners are wanting $90,000. There is a LOT of cosmetic work to be done inside the house and some work outside. Before I looked up the tax value I talked with my sister (who is across the alley from this house) what her house cost her $50,000.

I did an observational fix up cost and thought the house may only be worth $65,000 (not bad estimating comparable to tax value).

How can they ask for so much? I know they took out a home equity loan and did some remodeling (this was BEFORE I did my estimate), but I shouldn't have to pay for that should I?

all the TAX ASSESSED VALUE is, and has to do with is the TAXES, the owners are absolutely INSANE:o if they think it's worth $90,000 and your COMPS are saying in and around, wait? what are the COMPS saying? and is the $90,000 based on the remodeling of thier home. what do you mean by "observational fix up cost" what are you bassing the value of the property on? YOUR HERO,SULLY.

I just started reading Dean' book today and I look forward to using as many of the good ideas on this forum as possible. Thanks for the information and continued good luck and success to you!
Best wishes,
Dean Hutchinson

Amy the assessed tax value is what the fed "thinks" the house is worth. It doesn't 100% reflect the current MV. The fed could think your house is worth $30,000 but MV (based on comps, location, etc.[which is all included in the comp])dictates that it could actually pull in $110,000. That's just an example, usually it's not THAT far off.

However, before you offer anything on a house or contemplate number crunching, you've got to get comps based on similar properties all sold (as Sully stated) between now-6mths, based on your local market trend you may have to extend past the 6mths but normally you wouldn't do that in a seller's market (right now just about everywhere is buyer's market).

The HELOC are what have gotten a lot of people in trouble with the subprime lending and all. There are options you can look into if someone owes more than the house is worth, or what you're willing to offer, but those require some REALLY creative strategies.

Most important is READ BaREM!!!

Best of luck!!

This is a great formula that needs to be seen by new investors, so I am bringing it to the top again.

I think this formula is ALL good and fine, but I seem to be missing something here? Where is the end-buyer/assignee's profit from the deal? Just thot I'd ask.... Shalom!

I believe you would only build in your end buyer's profit if you plan on assigning the deal. If you are keeping the property, then this formula is fine because it shows you that based on the present FMV, that you know at least what your profit (equity) is when you buy the property

Anyone please correct me if I am saying this wrong.

Neil

Neilkim24 has it correct. The formula is a base formula. You are welcome to add any additional information or costs to your formula. If you are going to assign the property you can subtract your fee. If you have travel expenses, such as if you were traveling out of state to see the property you could subtract this as well. Additional costs can be subtracted.

This is a great formula for most investors.