Making a Profit on Real Estate Investing Part 4: Get the Formula to Make an Offer
This is the last part in our four-part series on how to make money with real estate investing. We’ve talked about determining ARV, estimating the cost of repairs, and calculating closing and other flip loan costs. To finish up, it’s time to look at how to put all these numbers together to figure out how much you should offer on a house you want to fix up.
Learn How to Calculate Your Offer on Flip Loans
There are lots of ways to calculate your offer. And as you get more experience, you will find that you can take short cuts in your budgeting. However, when you’re starting out, it’s important to go through all the steps. Why? As a beginner, it’s really easy to either overestimate how much money you can make on a house or underestimate how much it will cost to fix. That’s if you’re an optimist. Pessimists will have the opposite problem. Either way, you might very well get in over your head, lose money, and get discouraged.
The most comprehensive way to estimate your offer is to add up repair costs, loan costs, and your desired profit and subtract that sum from the ARV. How do you figure out a reasonable desired profit? The best way is to take 10% of the ARV.
A simpler calculation is to take 70% of the ARV, subtract repair costs and come up your offer price. This means you’re estimating that 30% of ARV will cover loan costs and your profit. This isn’t a hard and fast number. It will change based on the conditions of your market. So be sure to talk to more experienced investors and your mentors to find out what is a good percentage to use. However, 70% is usually safe.
We hope this series has helped you clarify the process of real estate investing and flipping properties. Feel free to get in touch with our office with any questions!