Posted by Max-Va on October 03, 2007 at 04:57:09:
I bought a 3/2SFH for 50K. I spent 20K in repairs and upgrades. The house appraised after the rehab for 100K
This explains the premis.
With markets as they are I buy at 60% of ARV (After Repair Value) minus repairs. I also figure it out using estimated numbers for fees, holding costs, buying costs,selling costs, repairs plus 10% opps factor, required profit, to determine a Maximum Offer and usually start haggling about 15% below this. number
Can you explain this profitability to a newb - Posted by Aj
Posted by Aj on October 02, 2007 at 23:03:37:
Profitability: minimum 30% Gross profit from ARV less rehab cost for SF…
Can someone explain this with an example.
Formulas are Nice, but… - Posted by Jimmy
Posted by Jimmy on October 05, 2007 at 07:00:11:
I don’t enter into rehab analysis with a set profit in mind. several reasons: the more work I need to do, the more profit I will want to see. and some properties need so much work, that the seller is totally at my mercy. that 30% gross profit will undercompensate me on some deals. and is unobtainable on other deals. and the local real estate market has a lot to say about pricing of rehabs.
example #1. the minor rehab. SFR needs interior paint, flooring, lawn care and a couple windows. budget $4500. ARV $60,000. the formula would have me bid no more than $37,500. I am unlikely to win this bid with that offer. I can easily go 42-43K and be very happy with deal.
example #2. the major, major. 3300sf 4-plex in need of $75,000 in work. ARV of 125K. throw out the formula. you need to get this one for free. I got a pair of these for $2,000 each. the $2000 was basically a gift to the seller. I didn’t mind, because these were attached to a 20-property deal.
Example #3. The Crazy Resale Market. San Francisco, 2004. I represented estate of seller. house in Inner Richmond District, just off 15th Ave and Geary. 2700sf craftsman built 1925 or so. no upgrades in over 74 years. yuck. house 2 doors down was almost identical, and had been gutted and beautifully restored. it sold for 1.3M. my house needed 300K in work to put in the same condition. the 30% formula would suggest a price of $610,000. and the formula would be totally wrong. we sold the house for $955,000 without lifting a finger. the formula simply does not apply in all markets at all times.