Posted by md_chicago on January 07, 2005 at 12:15:23:
I am in a mentoring program that uses a formula to determine possible deals. I am having trouble finding properties that meet this formula. I am looking for a condo that meets these criteria, and I am having a hard time finding one. Here is the formula:
To determine if you have a possible deal, you must find 3 properties that are similar to the subject property from the standpoint of sq. footage &/or # of bedrooms, style, and type of construction within 1 mi. of the subject property.
List the 3 comparable properties:
Average sales price (add the 3 sales prices & divide by 3)_________
Average sales price times 65% (this is what a HML will loan regardless of your credit)__________
Average sale price X 65% minus rehab costs________
(If you have less than $1000 do fund this deal you must be able to purchase and rehab this property for less than 65% of the average sales price of similar properties in that area) MAXIMUM OFFER AMOUNT
Amount the lender is demanding times 80%___________
MINIMUM OFFER AMOUNT
Note: #6 has to be equal or less than #4 to have a workable deal if you have less than $1000 to finance the deal
This formula was taken directly from a worksheet I was given to help evaluate possible deals. Is this a good formula? If not, can you provide me with a better one? I greatly appreciate the response from the seasoned investors on this site.
The worksheet applies to property that will be acquired with 100% financing provided by a hard money lender.
When the HML will only fund 65% of the appraised value (based upon comparable sales), your purchase price can not exceed 65% of appraised value. If the property needs rehab and you want to fund the rehab with your hard money loan, then the purchase price has to be reduced by the rehab costs.
If the amount of the HML loan is greater than the seller’s mortgage loan amount, then you can just negotiate with the seller on the amount you are willing to pay for his equity. If the HML loan is less than 80% of the seller’s mortgage amount, then a successful short sale negotiation with the lender is highly unlikely and this property is not a deal.