Buying, fixing, and reselling homes for profit is not an exact science. However, there are some general rules of thumb that most investors can use.
Using Conventional Funds, or Cash (points for borrowing 1 point or less, and interest rates less than 8%)
ARV stands for After Repair Value, or what the home will be worth upon completion of repairs.
Maximum Offer = (0.70 X ARV) - Repairs
Maximum Offer = (70% X ARV) - Repairs
A house has an ARV of $100,000, but needs $35,000 in order to achieve that value.
Your highest offer should be:
($100,000 X 0.70) - $35,000 = $35,000
I understand most people cannot comprehend that a home can be acquired for $35,000 that could later sell for $100,000. I thought that 10 years ago also. Today, I realize that homes are bought and sold daily throughout the United States for much less than the formula offers.
Truth be told, for a $35,000 renovation, I would probably want to offer using 63-65% for my formula. The simple reason, I would want to make a little more profit for a slightly higher than normal renovation. Along the same lines, if the home only needs $3,000 of repairs to be worth $100,000, I may be open to offer at 72% - Repairs.
I would feel comfortable using these formulas up to $500,000 homes.
Those figures are also strictly for someone looking to acquire the property, fix it, and resell it. If you would plan on wholesaling the home, you would need to subtract $5,000-$10,000 from that maximum offer in order to allow you some extra room for your own profit, while providing the rehabber enough margin to make it worthwhile for them.
For the exact resources I used to learn how to buy,fix,resell homes...visist http://www.FlippingMind.com
Goodnight All !