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
