Posted by Killer Joe on April 05, 2005 at 10:08:05:
Bob,
Velocity is another word for speed. If you are buying and selling at a very rapid rate your deals would fall under my term ‘velocity’.
A sniper is a term I use for a lurker that posts a negative comment under an alias, just in case you were wondering about that one as well.
KJ
Does anyone use ARV x .75% minus fixes? - Posted by Trapper
Posted by Trapper on April 04, 2005 at 08:29:15:
Seems most of the deals I end up with I am around APR x .75% minus fixes. 65% seems to be an unrealistic number to me.
Any opinions or anyone using around what I am, which is 75.
Re: Does anyone use ARV x .75% minus fixes? - Posted by Natalie-VA
Posted by Natalie-VA on April 05, 2005 at 18:18:09:
I don’t use the formula either. I look at spreads and what my expenses will be.
How much will it cost me to close on the front side?
How much will it cost me to close on the back side?
How much will it cost me to rehab?
How much will it cost me to carry it each month for how many months?
How much profit do I want on this particular deal?
Every deal is different. I might accept a 10k profit on a cream puff, but if I have to spend 20k rehabbing something, my profit better be at least 20k also.
Crunch the numbers and find out what works for you.
Re: Does anyone use ARV x .75% minus fixes? - Posted by Kristine-CA
Posted by Kristine-CA on April 04, 2005 at 12:35:17:
I think the formula method of figuring price is over-rated. It makes no
sense in a vacuum. Your asking price is part of a bigger plan. I don’t
need to buy something for 75% or 65% of ARV if I am making 80K
profits by buying at 85% of ARV. See what I mean. The formula takes
it out of context.
My offers are based on the equity spread I see (or think I can create).
Profit, repairs and costs are included, but there is no formula.
Depending on how many deals one does a year, there is also the
averaging among the deals to consider.
This reminds me of discussions on % returns on investments in, let’s
say, mobile home deals. People talking about doubling their money on
an investment of $1K. Great percentage on the return, sure, but I want
to make more than 1K.
Just my thoughts on this one. I’m not really a formula kind of
person…Kristine
Too thin - Posted by DaveD (WI)
Posted by DaveD (WI) on April 04, 2005 at 09:22:36:
That extra 10% helps you sleep at night. Nothing sucks like spending a lot of effort and money for a piddling return. That is the inevitable result when you pay too much. You have left yourself very little wiggle room at 75%. We like being closer to 60%. It makes it worth the entreprenurial risk, and it allows a lot of fudge factor for when we screw up, which is often.
In your scenerio, it only takes being high a few percentage points on fixup, holding a few months longer, and selling for a few percents lower… to eat up most of your “profit.” Those three things all seem to happen together. Doesn’t bother me as much when we buy at 41%, the going in price of our last fixer. That means we are at 55% of ARV INCLUDING ALL THE FIX-UP COSTS. See what I mean? Your profit is your protection in your deal.
Granted, we got a little lucky this time, usually don’t do that well. I respectfully sugggest you get better at buying, or stay away from re-habs. I wouldn’t do it at your numbers, but there are others here who don’t seem to have a problem with it.
Re: Does anyone use ARV x .75% minus fixes? - Posted by Killer Joe
Posted by Killer Joe on April 04, 2005 at 09:14:06:
Trapper,
Just as a point of reference, in my town (SoCal) 3/1s go for $600K, so .75= $450. Good luck finding that much money left on the table. I think it depends as much on the dollar amounts as it does the percentile.
Just my $0.02
KJ
Re: Does anyone use ARV x .75% minus fixes? - Posted by DaveD (WI)
Posted by DaveD (WI) on April 06, 2005 at 07:01:16:
I look at the spreads as well. Ya know what? After crunching the numbers frontwards and backwards, it always works out that great deals end up being under 65%, and speculative ones end up at 75% or above. Numbers may vary in your location, but the percentages still seem to hold up. If I were to jump at a 75% deal, there would have to be a whole lot of other positive stuff going in my direction, because the fudge factor has been ground down to nil. I get jittery when I’ve left myself with no margin to screw up with.
Re: Does anyone use ARV x .75% minus fixes? - Posted by John B. Corey Jr.
Posted by John B. Corey Jr. on April 06, 2005 at 22:30:07:
Let me try to agree and disagree at the same time.
When you work at the extremes of a curve, the numbers become distorted. In RE that means that some things really do not go up much in cost just because the house is 10x what the same house would be in a different area. Think toilet. For the same model the price does not vary that much across the country.
At the same time using a % figure does make sense when other costs also vary as a %. If you start doing deals that are at a high ARV on a percentage basis and you are selling with an agent then the costs also vary.
The most important thing when deciding if the deal is worth doing is the variance that might happen. If you have some cost overruns will there be anything left to compensate you for your time? If the deal is the best one you could find at the time, will a better one likely come along if you just site on the sidelines (which means spend a lot of the spare time on marketing)?
John B. Corey Jr.
Chelsea Private Equity LLC
Hard Money for the savvy investor
Re: Too thin - Posted by ryan
Posted by ryan on April 04, 2005 at 14:39:08:
Here in Seattle, if I could find a house at 80% ARV minus fixes, I’d take it in an instance. Provided that the comps are accurate and reasonable. Please let me know if you have something like this available in Seattle.
Ryan
Agree with ya dave - Posted by Sean
Posted by Sean on April 04, 2005 at 10:44:56:
In my market I wouldn’t touch a 75% ARV deal, unless the property were 300+ or something, then I’d consider it.
When you can gross 20-25k - 60k+ in the 60k-150k houses, you don’t settle for 25% equity position when you are done fixing it up unless the value of the home is significant. Why work harder and tie up more money for the same payday? Just doesn’t make sense.
Of course all markets are different, but in the 60-100k range, no way I’d settle for 25%… I want in for purchase plus fix up of 50% or less (don’t always manage it, but that’s what I want) 60% is about as high as I ever go. No way I’d settle for 75%.
Now I know folks who work in my market that do… just I personally won’t. I’m sorry but 25k is about the least I want to see for a rehab.
Re: Too thin - Posted by trapper
Posted by trapper on April 04, 2005 at 09:44:39:
How do you “get better at buying” ?
I have lost out on numerous houses because I bid too low, and my too low was 75% rule of thumb. In my area there are alot of people trying to be rehabbers. Alot overpay in my opinion.
Re: Too thin - Posted by Killer Joe
Posted by Killer Joe on April 04, 2005 at 09:36:12:
Hey Dave,
What’s a typical B&B house go for in your area of the Tundra?
KJ
Re: Does anyone use ARV x .75% minus fixes? - Posted by Jack
Posted by Jack on April 04, 2005 at 10:58:06:
yea, that point’s been made a hundred times on this board over the years. Some people are so myopic that they can not understand that different markets are well, different.
Re: Does anyone use ARV x .75% minus fixes? - Posted by Natalie-VA
Posted by Natalie-VA on April 06, 2005 at 10:05:47:
Real numbers on 2 recent deals:
bought 81
sold 125
repairs 8
profit 30
other 6
==Looks like I bought at 71% ARV minus repairs
bought 182
sold 225
repairs 9
profit 19
other 15
===Looks like I bought at 85% ARV minus repairs
The formula worked on the first deal, but not on the second. I was pretty happy with making 19k off a 9k rehab, but if you use the formula, this deal would not fly. Doesn’t make sense, does it? Did I do the math right?
Re: Too thin - Posted by Mike (Seattle WA)
Posted by Mike (Seattle WA) on April 05, 2005 at 14:00:25:
Yeah, Seattle is hot - I work the Snohomish. That said, I’ve got 2 investor buddies who can find deals below 75% often. How? Direct Mail, a spiffy website, signs, and all the rest. It can be done, you just have to pay a bit to make a bit more.
If you want a house 75-85%, go to the auction and enjoy the fun 
Re: Too thin - Posted by DaveD (WI)
Posted by DaveD (WI) on April 04, 2005 at 10:43:48:
It ain’t about the house. A house is a house is a house. If it shows some promise, that’s a bonus.
It ain’t about what you “bid.” If you are bidding, that implies competition, and your objective is different than someone who is likely buying to move into it. They will always pay more, as well as a wanna-be rehabber who will be content with a 10K (maybe) payday. Really easy to pay too much.
It’s about people, trapper, way motivated people. It’s about finding people in a bad situation, with a bad problem that has real estate attached to it. We don’t make bids, offers, counters or proposals. We “work things out,” then write it up. Focuse on people, not houses, and you will get better at buying.
Re: Too thin - Posted by Killer Joe
Posted by Killer Joe on April 04, 2005 at 10:10:13:
Trapper,
One way is to get better at ‘finding’. Don’t know how you spot 'em currently, FSBO/MLS, but a good technique, IMO, is driving around and looking for the nuggets. Pick some neighborhoods you like and drive the streets looking for the beaters. Make notes about the properties, find out who the owner(s) are, and take their tempurature about your lowball offer.
My guess is you could possibly end up with 1 out of 10 offers working out for you, or what ever ratio it turns out to be. But what could work out in your favor is that YOU are in control of the situation, and have basically shut a good deal of the compitition out.
Happy hunting,
KJ
Re: Too thin - Posted by DaveD (WI)
Posted by DaveD (WI) on April 04, 2005 at 10:28:41:
Yeah, I know where you are going with this. Your milage may vary. No 'splaining your goofy CA markets and prices. You probably cannot come close to my percentages, based on the total dollars involved. Here, B&B houses range 110 - 150K.
Re: Does anyone use ARV x .75% minus fixes? - Posted by DaveD (WI)
Posted by DaveD (WI) on April 06, 2005 at 10:51:54:
The 30K on your first one represents a nice day at the office for 8K in repairs.
At first glance, 19K on 9 doesn’t look bad either. But here is another way to look at it: 182+9+15 equals 206K which is 92% of ARV! That means you just made 8% of the selling price. When you stop and consider a broker will make 6% on the sale with no enreprenurial risk whatsoever, to me it seems a wild risk for the couple extra percent you are picking up. But, I don’t have your 19K either. Fair enough. I admire your stones.
Re: Too thin - Posted by Sean
Posted by Sean on April 04, 2005 at 10:51:02:
Dave’s right again. If you are in a bidding war, walk away. In my market there are no shortage of fixers on the multi list… but you will have competition on most of em if they are in decent areas.
The absolute best deals you are going to get, are the ones where the seller contacts you directly because they need a house sold for one reason or another. You bring them a solution that works for them, and you will make more money on those deals almost always over listed properties.
You have to find those properties, or better yet have the owners of those properties FIND YOU!
I buy houses off the MLS routinely, but experience has shown me my best deals almost always come from properties that are not listed, and no one else even knows are for sale.