How to Determine Your Maximum Allowable Offer

Mike: Hey, it’s Mike Hambright from FlipNerd.com. And we have a quick VIP tip to share with you from Bob Diamond, who is going to share a tip and talk a little about how to determine your maximum allowable offer.

Bob: Okay, this is really simple folks. For years I did fix and flip properties and at first I used to, like doodle on a pad and then I got a spreadsheet and made that. And I figured out at the end of the day that when you’re buying a fix and flip property, that the maximum you can pay for it, I want to stress maximum, you should try to pay less than this, but the maximum you can pay for is 70% of retail minus your fix up costs. So it’s a $100,000 house that needs $10,000 in repairs. The most I can pay for that is $70,000 minus my $10,000 in repairs. I can pay $60,000.

If you do that math and pencil it out, you’ll find it leaves you a nice profit margin. It leaves you a margin in case your renovation goes over budget or takes a little more time to sell, or doesn’t sell for as much as you’d hoped. And it means you’ll be profitable every single time.

So use that rule of thumb. I use it, so if someone calls me about a fix and flip property, I’m doing that math really quickly in my head. What’s 70% of the retail value after it’s fixed up? What’s it going to cost me to fix it up? And then I know if I’m in a price range where I even want to start bargaining or I may know, hey this is a fantastic deal, let me jump on it. They’re offering me $100,000 house that needs $10,000 worth of work for 50 grand, I’m getting in the car right now. I’d leave right now to go get that house.

So you need those rules of thumb to make your life simple and efficient. So hopefully that will help you out in your investing.

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Mike: Please note the views and opinions expressed by the individuals in this program do not necessarily reflect those of FlipNerd.com or any of its partners, advertisers or affiliates. Please consult professionals before making any investment or tax decisions, as real estate investing can be risky.