Knowing when to pull the trigger doesn't have to be complicated. If you know you are getting a good deal then just buy the property, fix it and re-sell it. They key is "buying right." If you follow this formula, can ballpark repairs with some accuracy, and know your exit strategy then chances are you're off to a good start. So what's the "buy price formula"? The formula that I have used and my students have used to buy and resell thousands of properties is this:
Take the after repaired value, multiply times 65% and subtract the repairs. That's your buy price.
- Mortgage Amount: $330,000
- House Value: $300,000 after it's been fully repaired (ARV).
- House Needs: $20,000 in repairs
- As-Is Value: $280,000 as is value = $280,000
- "Buy Price Formula" After Repaired Value (ARV) X's 65% minus Repairs
- Example: $300,000 X 65% minus $20,000
- Offer Price: 195,000 - $20,000 = $175,000
- Notice that the amount owed is not relevant.
This formula works on all properties, too. Probates, Wholesaling, Short Sales, Free and Clear, Rehabs and REOs. I always like to say that if you're not embarrassed by your offer, you're offering too much. Most everyone at some point offers too much, only to find that costs go up, or the property doesn't sell. Do that enough times and you're either out of business, or hooked on antacids for heartburn or both! Buy right!