How Much can You make When You Buy a Property?

Do you know how to buy? Do you know how much you should pay for a property?

We use a formula called our “cost to sell” guidelines. Filled out, this chart tells us exactly what our costs to buy will be and what we can offer in order to be able to later make a profit.

We begin with our comps to determine the market value of the property. We then subtract from that number the seller discount because most offers come in 3%-5% below asking price. Next, we subtract out our other costs: realtor commission, closing costs, holding costs, repairs, insurance, loan payoff, etc. We go over these numbers with the seller so they can understand the costs they will incur to sell their property and that these will be our costs, as well.

Most people don’t realize when they list their properties that it will cost them about 20% to sell because of all the associated fees. So, if you list a home for $100,000 you will actually realize about $80,000 at your closing.

I want to share with you the importance of following the “cost to sell” guidelines when making offers.

Last week we made an offer on a home by using our valuations and using our cost to sell analysis.  In this instance, we used the lowest comps we could find on the property because it was selling above the median price point for that area. (You don’t want to get stuck with a home that is too expensive for the area, even if it has all the bells and whistles to justify the price.) This home was in great shape, needs carpet and paint.

Retail market value on this home could be as high as $312K.

Tax value was $272K.

We offered $175K cash.

It was accepted in less than 1 hr.

Here’s the deal: It was owned by a corporation that was trying to re-capitalize and had to get this property off the books to do so. When we got the HUD-1, we saw that they had to bring $47,084.07 in CERTIFIED funds to closing! This reconfirms our standard line: “don’t think for the Seller”.

Once you know your price, make your offer. If it’s not accepted, that’s ok. You don’t want to get burned later. Sometimes, if it’s not accepted right away, the seller has to test the market for a time and may end up coming back to you months later and asking you if your deal is still available. We have actually had sellers call us years later to ask if we would still honor our original offer! And, maybe we can.

Bottom line is – do the math and make offers that fit your criteria. Numbers DON’T lie!

Don’t get caught up in the excitement of a purchase. Make a rational decision based on facts and make offers that work for both you and the seller.

To your success!