330k ARV/FMV Possible Deal... Purchase 215k ...deal breakdown..need thoughts

Property is a SFR 3bd/2ba Ranch, finished basement, att garage..located in great area.

ok, I think that's all:/

Thanks!

This is an interesting sceanrio since Kbarnes17 and I have been PMing each other about the merit of this formula bu including the "buyer's profit" of the $4,000 noted above.

Say the bank accepts the your $215K offer.....FANTASTIC....you are buying the property at 65% of ARV. Now you have a property you have to find an EB as you say to sell it to. Per above you HAVE to cover costs of $22,700 (I realize that some of these #s are estimates but let's assume they are hard right now). So in the least, to cover your costs, you would have to sell this prop to your EB for $237,700 ($215,000 + $22,700).BUT.....this doesn't make sense because you are not making any money.....so let's add in your $1K profit (which I feel s/b higher for all this hard work you did). But let's use it for now.

In order to make your $1K profit you would now have to sell the property to the EB for another $1,000 = $238,700. Now you have your profit and have covered all of your costs.

After the EB buys your home from you for the $238,700 which is 72% of ARV (a very good buy for them), it's now THEIR prop and isn't IT up to them to sell it at a higher price say at 85% to 90% of ARV to cover their costs and of course make a profit.

Based on this scenario it seems to be that there is NO need to build in the EB's profit. And obvioulsy the higher you can sell the prop for, say you sell it to your EB for 75% of ARV = $247,500, which is higher than the original sales price by $8,800 ($247,500 - $238,00), wouldn't this just be more money in YOUR pocket.

Just don't understand why you build in the $4,000 in your formula.....and also curious why you show the whole $33K as your "cushion" to negotiate....maybe you should make your profit a minimum of $10K, which will make make your top offer $239,800 instead of the $247,800.

I am sorry for the length of this thread, just want to get other people's comments/advice to see if I am seeing this correctly to help me and others when figuring out how much your max price/top offer s/b so you make sure you cover your costs and make a reasoable profit ($10K would be 3% of ARV) when you eventually sell the property at the back to back closings.

Thx all,

Neil

Thanks for your response.

My expenses will be the closing costs and use of private money 13,700. I did calculate 10k as my profit and 40k for my end buyer, I just didn't use commas:) I want to establish a fantastic reputation with other investors so I want to offer them really sweet deals. I will not be selling at retail at all, hence i will sacrifice on my profits, 'till I am established and people know they can trust me. Trust is not easy to establish as sooo many are taken advantage of....very sad.

If I get property for 215k, I will sell to my end buyer for 225k. I like to high ball everything except the ARV so I know i def have room for error. We shall see....will keep site updated....been making offers like crazy...so I hope to have a success to share soon! Scary, scary...

Thanks again Neil:)

If you buy at $215 and sell at $225, that is only a $10K diff. How do you make a profit or evne cover your costs. You are building in your costs and profit based on the ASSUNPTION that you will sell the property at a much higher price to your EB.........help em out here, what am I missing???

N

lol, Neil your confusing yourself buddy, everything is based of the FMV of the property. Just because you subtract in your formula doesn't mean that you won't have to pay for it later. Also I understand that the end buyer probably won't be able to sell the property for full FMV. So if the prop is full FMV of 366k then lets say that your end buyer will probably be able to sell it for 85% of FMV or $311,100. From here you can start your formula, and this is why you would need to add your EB's profit.

$311,100
-8600 closing
-5100 private money
-8000 hold
-10000 repairs (high balled)
-40000 end buyer profit
-10000 my profit
----------------
= $229,400 as MAX OFFER => but luckily he got the prop at 215k (just the prop though, he hasn't spent ANYTHING yet on ANY repairs etc.)

SO WHEN he assigns the contract to his end buyer, he will assign it for 225k (or 10k more then what he got the property under contract for making his 10k profit) ALL OTHER EXPENSES ARE THEN PAYED FOR BY THE EB. Meaning the closing costs, private money, holding costs, are all taken care of by the EB so:

+ 8600 closing
+ 5100 private money
+ 8000 hold
+10000 repairs (high balled)
-------------
= $31,700 (all paid for by the end buyer AFTER he acquires the property at 225k. So, if he were to sell the property at 85% below FMV or $311,100, THEN:

225K + 31,700 in expenses equals $256,700. $311,100 - $256,700= a net profit for the investor of $54,400. Now our point is IF we didn't take into account the end buyers profit in the formula, we would not know how much to lock in the property ourselves and still make a profit. And in fact if WE DON'T take into account that we could cut into OUR profits. There is wiggle room when you base your FMV off selling at 85% below FMV. And DETERMINEs stance is simple. He doesn't want to make to much because he wants his investors coming back for more. He overestimated some numbes to give a cushion and anything extra will go to the end buyer as a bonus. Point is, YOU are not paying those costs, your EB is.

Does that make sense? I think when you use the MOP, the end buyer ends up making about 4k less than what you had accounted for in your formula. So let me give you another example to solidify: If we didn't take into account your end buyes profit)

a home is 100k (and pretend that your investor sells at 100% FMV)

$100,000
- 10,000 repairs
- 6,000 closing costs
- 8,000 holding costs
- 40,000 your profit
--------
= $ 36,000 Max Offer Price (MOP)

Lets say you were able to purchase at this price. Well, GREAT! Good job, you got a great deal! But for whom? Just you? Remember you are wholesaling, well what if your end buyer says he ALWAYS makes 40k on every deal and won't budge? Well...looking at the above formula, will that work? Nope, cus then the person who is selling the property would actually have to pay YOU 4k to take the property of their hands and at the same time allow for your investor to make a 40k profit. So what are you going to have to do? Shorten how much YOU make on the deal. If you tried selling this deal to someone else, you wouldn't make the commission you wanted therefore eating into YOUR profits. So you need to account for your end buyers profit. So now the formula would actually look like this:

$100,000
- 10,000 repairs
- 6,000 closing costs
- 8,000 holding costs
- 10,000 YOUR PROFIT NOW
- 40,000 your EBs profit
--------
= $ 26,000 Max Offer Price (MOP)...inorder for this scenario to work, you would need to purchase this property at maximum this price now (lol this is your max, any higher than this you start cutting into your profits!). Lets say you do. Then great!!!! Inorder for you to realize your profit, all you would need to do now is assign the property to your end buyer at 36k, or 10k (your profit) more than what you bought locked it up for, so:

$26,000 + $10,000 (your profit) = $36,000 your selling price. Everything else is presented to your buyer to show how much he can make potentially off the deal through YOUR calcuated numbers!

hows that for an explanation??? lol

Kris

THE KEY to The formula is seeing it through the eyes of the EB.......which gives us the MOP, INCLUSIVE of the EB's estimated profit. Makes sense. And the other KEY point was to use the value that the EB ANTICIPATES to sell the property for, in this case, 85% of FMV, $311,100.

So the bank accepts our offer of the $215 and we sell to the EB for $225K, hence our profit that we built into the formula of the $10K. BUT........this also takes into account (which I didn't think was the case) that the EB would cover ALL the costs. (Kris, we would be responsible for the private money of $5,100 I believe). If so, then we would need to sell the prop to the EB for $230K to cover these costs so we can still make our $10K profit (don't want to dip into our profit if we can avoid it).

So if the EB does cover ALL of the costs, this scenario works out perfectly since the EB would sell the prop at the $311,100 minus their costs of $26,600 less the purchase price of $230,000 netting them a profit of $54,500.

THIS IS GOLD! Got caught up in seeing the formula from the wholesaler's POV, but must see it from the EB's POV (end of the day) so the EB sees the #s in advance showing what they will make as a profit (their original $40K profit grew because we were able to buy the property lower than the MOP so we would be able to pass these savings to the EB as well. We could have taken another $5K in profit and they would have still made $49,500, even greater than the original est of $40K.

Kris, Determined.........we are quite the team! Now let's go out there and find props like these. D, keep us apprised as to what happens.......this is a GREAT deal! Good luck!

Neil

Only if we are doing a double closing and dealing with an REO, would we worry about any financing on our end, so other than that, then no, we would not be responsible for the private money. Any other property that we assign, we do not have to worry. The reason this strategy is popular is that you don't have to use YOUR money, other maybe 10-100 earnest money. Thats it my friend. All we are doing is assigning our right to purchase the property to someone who actually HAS money. Of course in the end you should base calculations on FMV, because though you do keep in mind your end buyer profits, you aren't that particular about how much he makes. I only did the 85% of FMV calc because I wanted to make sure the investor gets a good deal and he comes back for more. Otherwise you should do the calc on 100%.

haha glad you got it now bud! Go Get em!

Now just gotta find deals for 50 to 60 cents on the $ because the end buyers I am working with are looking for me to either assign/sell them deals at 75% FMV/ARV.

I am getting some good advise from a couple of realtors but they are telling me that almost all the REOS in my area have already have been priced down to what present props are selling for so there is no wiggle room there.

So I have to stick with SFHs, but 95% are being sold by realtors (I suppose because h/os are having trouble selling on their own). Maybe just need to contact the sellers on my own (sending a letter, etc), but don't want to step on realtors' toes.......I want to work with them.

I'm on the hunt.....we'll keep you guys informed. Love the back and forth on how to arrive at max offer prices.

Later,

Neil

How did this property end up working out for you?

Holy Crow, What a mess. Possibly short sales is not the way for you to go. Not trying to tell you what to do, but in the end I just don't see the margin here. If you are willing to do all this for a short sale that will take a bunch of time to complete, try assigning. You seem to have the energy. Man I need a glass wine...Jan

Man, that was a while ago and I ended up not going thru with it. There were too many variables and at that time i was working with a coach who really didn't offer any solid insight as they were not familiar with Deans strategies...so as a newbie, I let it go...There really are a very small group of people who are familiar with these strategies and if your a bit unsure of yourself and then start over analyzing and doubting yourself and that's exactly what happened to me with this one.

if its worth it, i'll get it purchased

All the boroughs except for Staten I have interest in.