Ask Cornerstone: What’s the lowest offer I can make on a short sale house that is listed at $850K in the Los Angeles area?
I don’t recommend focusing on the lowest offer as much as a thoroughly analyzed price you are willing to pay based on your desired profit. If the offer price is too low, the seller will not consider it as a serious offer. You can determine the right price for you, as an investor, by deducting your costs and required profit from your projected selling price of the home after it has been refurbished. That selling price is called the “after repair value (ARV)”.
Step 1: Ask yourself “How much could one sell the property after fixing it up and pricing the property to sell within 30 days.” Use this value as your ARV
Step 2: Subtract all your costs from the ARV including:
- Sale Cost (Commission and escrow)
- Carrying cost (Loan cost)
- Fix up cost
- Desired Profit
- Purchase escrow cost
After one deducts all the above costs from the projected sale price one ends up with recommended purchase price.
Watch this useful video on determining a purchase price for a flip: YouTube https://youtu.be/St8QfDFS-8c
We’ve made this process easy in our flip calculator worksheet. Just plug in the numbers and you can play with variables to help you determine the right purchase price. You’ll find the Free Flip Calculator link in the “Borrowers” section of our website as a part of subscribing to our weekly REI newsletter.