Make that Offer!

Make that Offer!

I’m outlining the “Simplest” formula for making offers. As Simple as what my father told me, many years ago, about making money: “To make a million dollars, put 1 million dollars in the bank at 5% interest and wait 14 years, then you’ll have a million dollars!” (famous other rule of 70)

Also the two drawbacks to using that formula:

How do you come up with the Perfect Condition Value?

How do you come up with Repair costs?

The Simplest Offer “formula” uses the 70% rule.

OK if you’ve got confidence in it…

More importantly do you feel confident with the most important components of it:

The Finished in Perfect Condition Value?

The repairs needed for that Perfect Condition?

First the 70% rule.

Take the Perfect Condition Value – $600,000. (for example)

Multiply by 70% = $420,000.

Subtract the needed repairs $75,000. (that’s huge, so watch the time it’ll take) = $345,000. Highest Offer you can make…. good luck, seems low…

Sooo let’s look at what it takes to ACCURATELY generate a Value:

Example – #49 Washington Street

Property Information from a City/Town Tax Assessors website.

Use: 1-Family Residence Style: Antique

Levels: 2 Lot Size: 0.03 Acres (1280 sqft.)

Year Built: 1810 Total Area: 964 sqft.

Total Rooms:  6 Living Area: 964 sqft.

Bedrooms: 3 First Floor Area: 0 sqft.

Full Baths: 1 Addl Floor Area: 0 sqft.

Half Baths: 0 Attic Area: 0 sqft.

Roof Type: Gable Finished Basement: 0 sqft.

Heat Type: Forced Hot Water Basement: 0 sqft.

Fuel Type: Oil Basement Type:

Exterior: Wood Side/Shingles Attached Garage: 0

Foundation: Other Garage: 0

Air Conditioned: No Fireplaces: 1

Condition: Average/Good

Assessment Information

Last Sale Date: 10/26/1992 Last Sale Price: $135,000

Last Sale Book: 11554 Last Sale Page: 369

Map Ref.: M:0165 B:0006 L:0 Tax Rate (Res): 11.02

Land Value: $256,000  Tax Rate (Comm): 11.02

Building Value: $111,400  Tax Rate (Ind): 11.02

Misc Improvements: $0  Fiscal Year: 2018

Total Value: $367,400  Estimated Tax: $4,048.75

Perfect Condition Value based on Comps (SOLD Comparable Values based on the past 3-6 months and .5-1 mile radius)

MLS #  –  Status – Address   –       Description            –         DOM – SF – List Price  – Sale Price/Tax Assessment = index

* 72335224 – SLD  – 6 Susan Rd – 6 room, 3 bed, 1f 1h bath Cape – 20 – 1080 – $459,000 $465,000/411,000 = 1.131

* 72357650 SLD 46 Prospect St U:3 –  5 room, 2 bed, 1f 0h bath Colonial – 34 – 1128 – $429,900  $415,000/357,000 = 1.162

* 72346506 SLD 17 Commercial St. –  5 room, 2 bed, 2f 0h bath Colonial – 22 – 1152 – $299,000 $315,000/379,400 = 0.830

* 72302250 SLD 8 Pond St – 8 room, 3 bed, 1f 1h bath Victorian – 87 – 1520 – $599,900 – $595,000/547,700 = 1.086

* 72312795 SLD 18 Stony Brook Rd – 6 room, 3 bed, 1f 0h bath Cape – 63 – 1521 – $459,000  $439,000/396,900 = 1.106

* 72330797 SLD 6 Cloutmans Ln – 7 room, 4 bed, 2f 0h bath Raised Ranch – 30 – 1575 – $599,900 – $597,500/583,900 = 1.023

* 72354839 SLD 31 Lincoln Park-   7 room, 3 bed, 1f 1h bath Colonial – 17 – 1680 – $449,900 – $454,900/391,100 = 1.163

* 72340108 SLD 6 Edgewood – 5 room, 2 bed, 2f 0h bath Contemporary – 91 – 1804 – $559,000 – $510,000/480,200 = 1.062

* 72309052 SLD 85 Jersey St – 6 room, 3 bed, 2f 0h bath Colonial – 34 – 1856 – $624,995 – $589,600/495,500 = 1.189

Single Family Listings: 9    Avg. Liv.Area SqFt: 1,479.56    Avg. List$: $497,844    Avg. List$/SqFt: $340    Avg. DOM: 44.22    Avg. DTO: 30.56   Avg. Sale$: $486,778   Avg. Sale$/SqFt: $334

1.083 Average Sale/List price

$367,400. x 1.083 = $397,894.20 My value based on #18 Stony Brook Rd (which I determined from the MLS photos)

Now let’s see if we can finance it as an Investor (non-owner occupied) Property with a Bank.

Let’s say $400,000. 20% down ($80,000.) then $320,000. @ 5% ($1717.83/month) + RE Tax $11/k ($4400/12 = $366.67/month) + Insurance $1000. ($83.33/month) Water & Sewer $250/quarter ($83.33) = $2,251.16 PITI/.75 = $3,001.55 Rent! Yes, Banks should do this deal because it’s a wash (cash flows positive) but that’s a lot of money down ($80k).

Next time Repair costs…

PS What do you use for Perfect Condition Value (or ARV)? I’m glad to post it on this Blog. Mike