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How do you analyze a good price for a HBS that needs work. I know for properties that are move in ready you recommend 70% of FMV. I have a property that needs about $40k in repairs and is worth around $175k for ARV. The lowest i negotiated is $97k. If i do 70% of ARV minus repairs i get around $83k. Is that how you recommend analyzing doing a HBS for a repair property?
That is one way to analyze it but it usually results in too high of a number.
Since a rehabber will usually not pay more than 65% of theARV minus repairs, that is how I calculate it
$175,000 – 35% = $113,750
minus $40,000 repairs = $73,750
minus you making $5,000 = $68,750 is the maximum price you can pay.Doing the calculations with 30% less than ARV would still result in a Max office of $77,500
Sounds like you need to do some more negotiating.
You may be able to make $1-2k with a $97k option but it would be hard
It depends on how much work is needed. $40k on a $175k house is substantial so the chances of getting an owner occupant buyer are greatly reduced.
If the house needed cosmetic repairs and could be lived in while it was being rehabbed, it would be a different story.
My general rule is if the house repairs costs less than 10%of the ARV, then I can expect to get an owner occuapant buyer. But if it needs more than 10% my target market are investors/rehabbers.
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