Buyer confusion, whats a fair offer?

You want to go for what your buyers are asking so if your buyer wants it at 55% of the ARV Then you calculate your offer in that fashion. Just make sure you put in everything else.

I am assuming 55% including repair costs. so if the property is worth 100k and needs 15k to repair I would do 55k minus 15k minus your fee.

That means the offer would be like 35K or lower. There are properties out there like that but also consider this.

My partner and I have the same problem with that type of buyer.

I would work on ( as advised from the academy) better buyers. Ones that will pay more all the way up to 70% of the ARV. They are out there you just have to find them. Typically they are Landlord buyers. But the possibilities are all dependent on who you have that will pay cash for your deals.

Yes 55% is low but if they are paying cash, closing quickly, less hassle then there should be no problem.

It is all how you negotiate your deal. Who your buyers are and how qualified they are. How much you want to make from each deal. They all are not going to be big spreads. But make sure your making some money out of the deal.

Hey, Mark. So, go look for deals that this buyer would buy. But keep looking for other cash buyers, too. When you find a deal that fits his/her criteria, take it to him/her... unless you have already found a buyer who appreciates having you bring sound deal after sound deal. You want to present it clearly and take as much of the work off a cash buyer as possible. Check out Dean and Matt's conference call from a couple weeks ago.

By the way, Matt average of 55% ARV on his deals probably includes the deals he sell to his buyers for his marketing fee (or whatever he call it). So, if you can find properties at 55% ARV, following Matt's example, you should expect to sell them at a profit of $5000 to $7500 to a cash buyer. Right?

peace,

A lot of investors figure their purchase price only when buying, they do not figure their repair costs as part of the ARV number.
Here is an example of how some (even though they are wrong) figure ARV percentages.
$100,000 property bought at $55,000 = 55% right?
What if the property needs $15,000 rehab remodel.
He ACTUALLY bought at 70% of ARV!! Right where he should buy, his numbers are the same in reality, right? He thinks he got the house at 55% but he really got it at 70%.
If this guy is thinking the 55% includes his repairs, he will buy very few houses in reality. He would be buying at $40,000! Ain't gonna happen too often on a $100,000 property that needs $15,000 in repairs! You can't build a business based on getting lucky once in a while!
Move on to some one that is realistic!
Buy the way, have you checked this guys proof of funds and history of some deals he has done and purchased at 55% of ARV?

Michael Mangham
MD Home Acquisitions LLC

concerning your flip formula (buy at 65% of ARV minus repairs and sell at 70% of ARV minus repairs). If we are double closing with trans funds and have RE commissions, the margin seems to get a little skinny. Also, in the same post you mentioned your customers needed 15% net profit. Could you show us how you calculate the net, if they are getting a 30% discount + repairs off the ARV?

I sell to cash buyers, we don't use realtors! The A in the a to b covers commissions and a minimum of 50% of the closing costs. Me being the b in the b to c has the c pay closing costs. So I sometimes pay 50% of closing on the a to b and my transactional funding costs.

Lets go through a purchase for a to b and b to c Saying the ARV is only $100,000 with a $15,000 repair for an example. Using the 65% buy 70% sell formula. Remember the percentages are not cut in stone, every deal is it's own animal.
I buy it for $50,000 65% of ARV minus repairs.
I sell it for $55,000 70 % of ARV minus repairs
T.F. costs 2% = $1,000
Maybe 50% of closing costs = $750
My net $3250 These numbers get better on $300,000 properties!

So, my buyer buys at $55,000
Closing costs on purchase $1500
Repairs $15,000
He sells for $100,000
Commissions(Rehabbers list with realtors when bringing the property to RETAIL) 6% = $6,000
Closing costs 3% = $3,000
Insurance, utilities, cost overruns etc 3% = $3,000
His net profit at closing is $16,500.

The cash buyer has an investment of 71,500 out of pocket.
This deal is 23% ROI.

Now if he was hard money and not cash at 4 points and 15% he would have had $6435 in money costs based on a 3 month hold so then his net profit would be
$10,065 a 14% ROI, A marginal deal with hard money unless the buyer negotiates less commission or closing costs or keeps his expenditures less than 3%.

If you want to make more in this transaction you would have to buy at less than 65%. This can and does happen but not that often when buying REOs.

Does this make sense?

Michael Mangham
MD Home Acquisitions LLC

and over the formula before posting ??'s trying tro see if I was missing something. And you know, I was...the commish and the closing cost. At least I knew there was something wrong in my approach. Thats the LAST time Ill have to ask that question! Thanks Michael

Can someone remind me what that acronym stands for?

"Rick in Amarillo"

Thanks to all for the great comments. After reading them, and consulting with my coach, it seems that the ((.7% x ARV) – repairs), is a good starting point when making your offer to the buyer. This leaves the cash buyer a profit of about 20% (23% in micheals example). I would prefer not to sell to a buyer that needs financing, realising that this buyers profit has decreased by the cost of money making my offer less atractive.

There seems to be a lot of confusion on the precise meaning of ARV?
Let me take a shot at it….

If my buyer meant 55% + the cost of repairs, when he said, “up to 55% ARV, he needs to be informed that: ARV = After Repair Value, (the Fair Market Value of the property after all repairs have been completed.) Unfortunately, this buyer meant what he said, and expects me, myself, and I, to pay $15k in repairs before I sell to him at 55k.

Michael’s example above is a good one, but a newb, as demonstrated by Rick’s question, (Rick above asked, what ARV stood for?) might not be following the acronyms and numbers. I want to make sure that everyone is onboard here. Using Michael’s numbers:

$100k = Fair Market Value (FMV) – repairs = ARV
$15k = cost of repairs.
My offer to buyer = ((.7% x ARV) – repairs)
My absolute maximum offer to seller = ((.65 x ARV) – repairs)
This is not my offer, but a worse case scenario.

Solve the equation by working from the inner parenthesis first.
1) .7 x 100k = 70k
2) 70k – 15k = 55k
3) Then 55k is your offer price to buyer.
(Just plug in .65% instead of .7 to get your maximum offer to seller.) = 50k

All other costs to you, as Michael has laid out above, must be accounted for and included in the buy and sell formulas. This may seem advanced and confusing, and that’s ok for now. Read it over until it makes sense to you.

I try to negotiate with my buyer and seller such that I work all costs, as pointed out be Michael, into my offer and sell price.

This way, if buyer, and or seller doesn’t want to cover them, you have lost nothing, since you have already built them in your terms. Now buyer/seller thinks they have prevailed in their negotiations with you. Perfect!

Timony123

When both parties walk away from the closing getting what they got even if it exactly everything they asked for

If you go to the top left on the page you will see a column titled MAIN SECTIONS. Scroll down to the "Glossary of Terms" and it will give you a list of all the acronyms.

Karen