How does Speedy Home Buyers Determine What to Offer for Houses?
Many sellers are surprised to learn that investors have a structured methodology for how much they pay (or can pay) for a property as an investment.
“Begin with the end in mind”
What is the target result for the property? To fix it a little? To fix it a lot? To sell it to a home owner? To keep it and rent it? For Speedy’s purposes, there is a formula that is pretty straight-forward and is comprised of these three elements:
- What will be the value of the resulting product?
- How much will it cost to make renovations and updates to achieve value?
- What are the costs to buy, hold, and re-sell a residential property in Maryland?
The maximum amount Speedy can pay for a property is generated from these three inputs. When the Speedy calculated offer amount matches or intersects with a seller’s asking price, WE HAVE A DEAL! What is most important though is that Speedy Home Buyers is able to assist another property owner with his/her goal to sell the property.
Purchase and Project Scenario
Renovate a house that needs mechanical, structural, and cosmetic updates to re-sell to another family. Extensive and quality renovations cost a lot of money. The average full
renovation cost for a 1500 square foot single family residence in Maryland in 2016 is from $65,000 to $90,000. The scope of this work is
Using some example figures, here’s how an offer is calculated.
Value of resulting product: $300,000
Cost of Renovations and updates: $80,000
Costs to buy the house (financing, transfer taxes, closing costs, title fees): $15,000
Costs to hold the house for 6 months (loan interest, taxes, insurance, utilities): $20,000
Costs to manage the project and assume risk (also known as profit): $10,000
Costs to sell the house (commissions, transfer taxes, title documents, closing costs): $20,000
$300,000 – $80,000 – $15,000 – $ 20,000 – $10,000 – $20,000 = $155,000
So, because costs of buying, holding, and selling, in this example, are $65,000 (not including renovation costs), this is a reason why offers can seem to be so low. There’s just no way around these basic costs, and for those cynics who think renovation specialists are making a mint from buying houses at deep discounts, there is a high risk of losing money and working 6 months for a negative financial result. In
the example above, the value of the resulting product could be $285,000 and the cost of renovation could be $90,000, which can wipe out any possibility for profit. No profits equal no way to continue the business service to other sellers of providing them an option to sell their property quickly, with no hassles, and no agent.