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The last step is determining your offer. We want to make offers anywhere from 40-60% of the ARV. If the house seems like it needs a lot of work, you want it to be lower than that.

Use this formula:

  •  ARV = $100,000 x 70% = $70,000
    • Minus repairs $15,000 = $55,000 (estimate)
    • Minus closing costs $4,000 = $51,000
    • Minus holding costs $2,000 = $49,000
    • Minus selling cost $5,000 = $44,000

So $44,000 would be my offer on a property that is valued around $100,000. My holding and closing costs should be around what you normally pay. Even if they are a little high, it’s better to be safe than sorry.

All of these expenses are just estimates; they could be lower or higher. The selling cost could be nothing but the cost of a few signs in the front yard or they could be $5,000 for a realtor.

If you are going to wholesale the property, I would take off another $5,000 or whatever your wholesale fee will be.

Note: The reason you multiply the property by 70% is because 30% is your profit and you always want to make sure you end up with a decent profit.

When you are planning on wholesaling or flipping the property to another investor, it’s important to keep the property under 65% of the ARV. This is because lots of rehabbers use hard money lenders. Hard money lenders will not loan more than 65% of the ARV.

There are other ways to determine value and offer price on a property, but most real estate investors use this simple formula. It has worked well for my father for over 30 years now, so I believe in it.