Probate Monday #8 – Figuring Out Your Offer

Scott Costello All, Blog, Probate Investing 4 Comments

7GeorgeBefore I get started with I just wanted to post about my appointment with the home owner who called from my mailer.  It went as well as I could have expected.  Since it was really only the second “sellers” house I’ve visited I don’t have much to compare it too.   I was an ass and forgot my camera so I only snapped one picture of the house with my phone.  I got there a few minutes early so I could drive around the block and see what the neighborhood was like.  It is a pretty quiet neighborhood in a decent area.  All the surrounding homes are the same style house, cape code I think, but modified over the years.  Worst looking one on the street in my opinion.

It was a 2 Bed, 1bath house with 5 rooms.  Basement was not finished and the attic was unfinished as well.  Many of the homes in the area have the attic converted to bedrooms by building out the roof with dormers or just having small BRs with ceilings that follow the pitch line.  I think this is a Cape Code style house (still trying to figure out all the types), which looks to be easily expanded.

I’m about a week away from actually getting my MLS access, but I have used a friends account and found a few decent comps in the area although I’m still not exactly sure how BEST to gather the comps.  My guesstimate ARV for the house, if kept as a 2/1 would be 200k to 210k.   If expanded to a 4/2 then I would say the comps support a 285k to 300k price range.

The house looked solid, roof looked good.  No leaks.  Basement was very dry, no mold to be found.  There was just a lot of junk all over the place as the son is trying to clean out the house.  Kitchens and baths definitely need a major over hall.  Bathroom still had the tin tiles back from the 50’s.

The guy does not want to waste away his weekends cleaning out or updating it and would rather just sell it if the price is right.  Couldn’t get out of him what he was looking for.  I wouldn’t say 100% motivated, as he talked about having no problems waiting to the spring as their is no mortgage on the property just taxes and utilities.  He also mentioned listing it in a little bit, but is not sure what he could get.

This is an example of a house that could go in many directions depending on who buys it, which proves that Steph’s method of having the buyers ahead of time and knowing what they will pay in an area is a good strategy to have.  Lots of potential I say.

My biggest problem is estimating repair costs, no clue.  Any help would greatly be appreciated.

This leads perfectly into what Probate Monday #8 is about…

Figuring Out Your Offer

Getting Comps: The first place that I know you should start out at is getting the comps from the MLS.  Either you get access yourself through an Agent (Great article Kelly Miller About this) or you connect with a Real Estate Agent and have them run the comps for you.  Getting an agent to run the comps for you shouldn’t be very difficult and you can find one on Craigslist very easily.  To entice them, just say you’ll list a house with them when you purchase it.

I have done this step with the access to the MLS I got from my friend, but to be honest I don’t quite know how to properly pull the comps.  I just did a search for a similar 2/1 houses that have sold in the past 3 to 6 months and manually went through them.  That’s how I came up with my “rough” figures above.

Figuring Repair Costs: This is one of those “uneasy feeling” tasks that a newbie, like myself always gets hung up on.  My guess is that as a wholesaler it’s not a huge deal to get the costs exactly right, because a rehabber is going to use his own numbers.  Also your view of what needs fixing or upgrading, will probably not match what the rehabber has in mind.  That is unless you have worked with them before and know what they like.

For me, I’m going to ask a local investor to help me out with making this offer.  Heck I’ll even partner with him for the learning experience.

The Formula!: If you have read up on wholesaling/Investing for more then a few days you have inevitably run into the standard formula that is used.

MAO = ARV * 70% – Repair Costs – Your Profot

This is just a guideline however and that 70% can vary greatly depending on the area you are in.  The key here is to know what your buyers will pay and offer less then that.  Oh and MAO = Max Allowable Offer.

Conclusion

All the above is from what I have read as this is the part of the process that is my next big hurdle to jump over.  Like everything else I’m just going to have to do it, until I know it.

Before I go, here is a picture of the house…

7George

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Scott Costello

Scott is a part time wholesaler, but full time real estate investing addict! As his family grows and his free time shrinks,He has been slowing building his wholesaling business over the past 7 years in between life events.Drive, dedication and never giving up are his strengths.
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Comments 4

  1. Well done Scott. Thats exactly where you want to be. Try jscott blog 123flip.com I think he has tips on estimating repair costs.

    Do you have a walk through checklist when you go to these homes?

  2. Hey Scott,

    Great job getting out and looking at the house. I know how intimidating it can be your first few times, but it does get much easier as you go.

    As far as the repairs go, I wouldn't get too wrapped up in coming up with an exact figure. Heck, I've been doing this for 3 years now, and I still have no clue how to estimate them accurately. As long as you are able to give a good description of the condition of the house to your end buyer, that is really all you need.

    Like you said in the post- your buyers are going to want to come up with their own estimates, and that is going to depend on what their exit strategy is (rehab and retail, wholetail, rental, etc).

    Do you know of any investors who are buying in this area? If so, I would give them a call and try and get a ball park estimate of what they would pay for a comparable sized home in this area. Also check and see if there are any low/investor comps in the MLS. This will also give you a better idea of what investors are paying for similar properties…

    Hope that helps.
    Keep up the good work. 🙂

    Steph

  3. Scott,

    Awesome job. You got out there and saw a seller's property. Throw a fist pump in the air and say yes!!!!!! Then when you feel scared in the future, throw the fist pump in the air again. Sounds stupid. Who cares. Do it when nobody is around. Feels good. Keeps the momentum going and trains your brain to celebrate victories (Got that tip from 'Little Voice Mastery' by Blair Singer, awesome book)

    -Chris

  4. Scott,

    Awesome job. You got out there and saw a seller's property. Throw a fist pump in the air and say yes!!!!!! Then when you feel scared in the future, throw the fist pump in the air again. Sounds stupid. Who cares. Do it when nobody is around. Feels good. Keeps the momentum going and trains your brain to celebrate victories (Got that tip from 'Little Voice Mastery' by Blair Singer, awesome book)

    -Chris

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