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There is no substitute for understanding your market when it comes to property valuation. Searching at a deal via rose-colored glasses will nearly usually get you in trouble. The only factor that spared novice investors over the last couple of years from obtaining burned was the dramatic appreciation of property values across the country. No offense, but two years ago a monkey could've purchased a home and figured out how to turn a profit on it. Now that issues have cooled, your greatest bet would be to research, study, research.
Developing a relationship with a good agent is absolutely essential if you lack understanding with the marketplace. You need to also study private sales that wouldn't show up on the MLS. Many searches are now accessible at no cost on-line. Attempt Googling 'Real Property Data (plus your city/area)' to research private sales in your area.
To remain out of trouble, I recommend the following formula:
ARV (after repair value) X 70% - repair costs = Maximum Offer Price Example: $125,000 (ARV) X 70% = $87,500 $87,500 - $15,000 (repairs) = $72,500 (maximum offer price)
Therefore, my offer price on this deal should be no more than $72,500. Depending on your particular market/street/neighborhood and the overall condition with the property you might wish to lower or raise your offer accordingly. Typically, I'd provide something lower, say 65% or $66,250 just to give myself a bit cushion.
Component of the cause I like to use 65% in my purchasing formula is to help cover the additional costs I'll incur when selling. Maryland has some of the highest closing costs within the nation. I generally element an expense of 8.5% of the selling price of my fixed up property- 6% for the agent commission and two.5% for closing costs in Baltimore. On our $125,000 example this equates to $10,625 just in closing costs! However an additional cause for creating sure you buy at a low cost or do not buy it at all.
Important Point
When buying property using the intention of reselling it soon, I always write my offers with no contingencies; no financing contingencies, no inspections, no 'weasel' clauses so that I can get out of the deal.
If you are assigning contracts or performing some other type of flip & not actually taking title and buying the property, then this strategy probably won't work. You'll want some kind of weasel clause in case you can't find someone to assign your contract to.
Some people negotiate a price & then use the inspections, appraisal, etc. to beat up on the seller and get a lower cost or get a discount for the repairs.
My strategy is to hit them having a very low cost right up front, but then promise an easy and stress-free settlement for them. I'll buy their house 'as-is' with completely no hassles and settle within 30 days. This generally gets me better offers having a lot less headache. Following they agree to your price, do not nickel & dime the seller. It's worked well for me every time!
Developing a relationship with a good agent is absolutely essential if you lack understanding with the marketplace. You need to also study private sales that wouldn't show up on the MLS. Many searches are now accessible at no cost on-line. Attempt Googling 'Real Property Data (plus your city/area)' to research private sales in your area.
To remain out of trouble, I recommend the following formula:
ARV (after repair value) X 70% - repair costs = Maximum Offer Price Example: $125,000 (ARV) X 70% = $87,500 $87,500 - $15,000 (repairs) = $72,500 (maximum offer price)
Therefore, my offer price on this deal should be no more than $72,500. Depending on your particular market/street/neighborhood and the overall condition with the property you might wish to lower or raise your offer accordingly. Typically, I'd provide something lower, say 65% or $66,250 just to give myself a bit cushion.
Component of the cause I like to use 65% in my purchasing formula is to help cover the additional costs I'll incur when selling. Maryland has some of the highest closing costs within the nation. I generally element an expense of 8.5% of the selling price of my fixed up property- 6% for the agent commission and two.5% for closing costs in Baltimore. On our $125,000 example this equates to $10,625 just in closing costs! However an additional cause for creating sure you buy at a low cost or do not buy it at all.
Important Point
When buying property using the intention of reselling it soon, I always write my offers with no contingencies; no financing contingencies, no inspections, no 'weasel' clauses so that I can get out of the deal.
If you are assigning contracts or performing some other type of flip & not actually taking title and buying the property, then this strategy probably won't work. You'll want some kind of weasel clause in case you can't find someone to assign your contract to.
Some people negotiate a price & then use the inspections, appraisal, etc. to beat up on the seller and get a lower cost or get a discount for the repairs.
My strategy is to hit them having a very low cost right up front, but then promise an easy and stress-free settlement for them. I'll buy their house 'as-is' with completely no hassles and settle within 30 days. This generally gets me better offers having a lot less headache. Following they agree to your price, do not nickel & dime the seller. It's worked well for me every time!
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