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): 11.02blue.gif

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

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

Misc Improvements: $0  Fiscal Year: 2018blue.gif

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

Mike Hurney
 

Mike Hurney is the Founder and Director of MassRealEstate.net, an Association of Contractors, Investors and Landlords. He is the Author and Coach of the popular Course "How to Become a Real Estate Investor in 12 Easy Lessons" which Trains and Guides Beginners or Sharpens and Challenges the Skill of Advanced Investors. Mike is a Successful Real Estate Investor, Rehabber and Landlord. He's also a Construction Supervisor. MassRealEstate.net PO Box 307, Marblehead, MA 01945 Office 781-631-8018

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