Formula for making offers on bank repo houses
Formula for making offers on bank repo houses
When we make an offer on bank repo houses, we generally pay 70 percent after repaired value. This means that for an all cash deal ARV of $100,000 at 70 percent is $70,000. And lets assume 10,000 in repairs, which takes me down to 60,000. This is the Maximum Allowable Offer or MAO.
I took a look at what Id been offering in the past on repossessed homes for sale and I found out that if I take this 60,000 at 84 percent which would come out to 54,400. That was what I was doing with my MAO.
Im not saying thats the way you want to do it. Im just saying thats my system. What that allowed me to do was teach Kevin what to offer below MAO.
I had to lock down a number with Kevin that was consistent and a cookie cutter. So thats my number. I also always advise to adjust your number according to the market. This means the market in your area. Obviously housing prices in Honolulu are going to be different than housing prices in most other parts of the country.
What Im looking for them to do is have the seller leave that mortgage out there and deed me the house so Ive got ownership. Let me make payments on the mortgage but that mortgage stays in the sellers name.
If you go out to a place and it already has an 80 percent loan to value first mortgage on it, I cant be in there doing the formula on that house at around 85 percent. Its some place between 84 and 87 percent.
Whats a higher prices house? You can be up at 87. If its a lower priced house you want to be down around 84. My point is that we feel that were safe in those ranges if you get a house free.
Always make sure youre after repaired value is on target. If that number is messed up everything else is messed up.
When making an offer, we make an extremely low offer. This is an offer that would allow us to make a lot of money when flipping houses for profit. Many times its going to be rejected but not always. Sometimes people fear to make too low of an offer because they are afraid they are going to get turned down. It doesnt really matter if you dont really want the property. Go ahead and make an offer. What happens if you lowball and they take it? Then youre very happy.
If the offer is rejected, they may counter with something that is Okay. Say, Okay Ill take the offer if you have something else to entice me. If not then you walk away and you have nothing to lose.
They are going to be shocked when you ask them to deed it to you. This means you need to have a script worked out about what you say to them. Ask them what they are going to do if you walk out and dont buy the house? Its going to end up one of the hundreds of other bank repo homes on the market. When that happens, they get nothing.
Theyre probably going to go into foreclosure. When you sit down with somebody to discuss the deal you discover there are limits and you structure the deal from there.
They often need cash now or they need just enough to have moving money. Many times theyll just deed me the house and I dont have to pay them anything.
I like to make three offers a lot of times. The interesting thing about that is you never know which one theyre going to pick. I am thinking that they should pick number one and they pick number three. So I just offer them the three.
The first offer is all cash. The seconds one a split equity. And the third is the highest because they deed you the house immediately and then we pay them after we sell the house. With this, you can make more money but you have to wait maybe a year before you get that chunk of money.
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