How To Calculate Cost Of Goods Available For Sale Formula How I Decide The Right Price For House Purchases

You are searching about How To Calculate Cost Of Goods Available For Sale Formula, today we will share with you article about How To Calculate Cost Of Goods Available For Sale Formula was compiled and edited by our team from many sources on the internet. Hope this article on the topic How To Calculate Cost Of Goods Available For Sale Formula is useful to you.

How I Decide The Right Price For House Purchases

You’ve heard the old saying: buying real estate makes a profit.

Simple yet powerful. Unfortunately, investors often forget this lesson and end up paying too much for real estate.

If I’m going to renovate a property and put money into that project, it’s critical that I know the right price to pay (and then buy below that number).

The formula I use and have used since day 1 is:

ARV – Rehab – BSH – Profit = MPO

ARV = Value after repair

BSH = Cost of buying, selling and holding

MPO = (Maximum Profitable Bid)

Determining ARV is more of an art than a science. Of course, I start by looking up sets that are sold and focus on the features that are closest to my subject and most similar in bed/bath configuration; area in square feet; age; location and overall design. While appraisers can go up to a mile and sell for up to a year, I prefer homes that are less than a quarter mile away and have sold within the last 6 months.

The next step for me is to look for online listings of sold computers. You can often find many pictures of these houses to determine what they looked like in the interior. I’m specifically looking to see if other houses have used granite or some other solid surface worktop in the kitchen versus laminate; whether there are updated devices; whether they used carpet, laminate flooring or hardwood; did they use a manufactured shower/tub enclosure or tiles; whether the bathroom floors are tiled or laminate. I also look outside to see if the comps have garages, carports or just driveways; whether they are brick, siding or vinyl siding.

At this point, I now have a pretty good idea of ​​the level of rehab required to achieve the same price points with comparable features. Then I look over my property to find anything that might make my house less favorable to buyers than the comp. Some examples might be that the house is located near railways or a noisy road; it sits on the side of a busy road; adjacent to something less favorable than a neighboring house (cemetery; parking lot; retail store). If any of these, I may need to significantly reduce the ARV.

How much you adjust the ARV is largely a matter of judgment. I try to think like a potential buyer looking at two very similar homes. One sits on a quiet lot with neighbors on either side. The second house is located on a busy road. How much of a discount would be needed to encourage shoppers to buy on a busy road? Definitely more than a $5-10,000 discount. I might also consider if there are any extra amenities I can offer in my house that I don’t have in the comp. It also helps with weight loss, but also costs additional rehab dollars.

The last test I do before locking the ARV is to review the currently listed properties. By the way, I’m not a realtor and I don’t have access to the MLS – I do all this research online using the same tools you have access to. The listed properties tell me two things: (1) that prices are going down and sellers aren’t going down; (2) what do the houses look like that I will be directly competing with.

Determining the amount of rehabilitation is based on what is needed to renovate the object so that it looks like a comp. Be careful here. Remodeling much above grade may not add much value, but will significantly increase rehab costs. On the other hand, insufficient upgrades can make a house less attractive to buyers than competing houses.

The BSH can easily be calculated as a percentage of the ARV. I’ve seen it work for as little as 12% to 20% of the ARV. Most of them are around 15-18%. The big factors are whether or not an agent is used and the cost of money. It’s a good idea to do a more detailed analysis of your actual BSH costs until you see where your percentage typically falls. Here is a list of the most common expenses that fall into this category.

  • Closing Cost – Buy

  • Loan issuance fees (points)

  • Loan interest

  • Hazard insurance

  • Property taxes

  • Utilities

  • Marketing expenses

  • Home warranty

  • Closing Costs – Sale (paid on behalf of buyer)

  • RE agent commission

My profit is the minimum amount I would like to earn from this project to make it worthwhile. Why am I not taking advantage of the higher profits? Because it could cut me out of potential deals. I calculate the highest amount I would be willing to pay before I walk away from the deal. Adding too much profit to the calculation will make the number low enough for bids to be accepted. That being said, I negotiate below the MPO as much as possible, knowing that every dollar I shave off is extra profit. I just need to know the number where I need to go.

A quick acid test for profit is to include the purchase price plus rehab costs. Your profit should be at least 15% of this amount.

Example:

MPO $90,000

Rehab $30,000

A total of $120,000

X 15%

Profit $18,000

So in this example, I would like to make at least $18,000 in profit (I would round up to $20,000). If not, this property may not be worth buying.

Once I’ve determined all of these numbers, the final step is to do the math to determine the MPO, or MAXIMUM PROFITABLE OFFER. In other words, the absolute most I would pay for real estate. That’s not the price I want – it’s the highest price to pay. My goal in negotiations is to buy the property below the MPO as much as possible. Remember that every dollar purchase below the MPO is additional profit in the trade.

The thing I hope you’ll walk away with is that there’s more to determining the right price to pay than crunching a few numbers. You have to be smart and research the market and the competition. If you do the initial work, buy properly, sell your rehab quickly and make a big profit.

I require all of my private mentors to do this research and analysis before I sign off on the offer. I don’t do it to give them extra work or to make a point. I do this so that every transaction is profitable. I wish you the same, so follow my advice.

Video about How To Calculate Cost Of Goods Available For Sale Formula

You can see more content about How To Calculate Cost Of Goods Available For Sale Formula on our youtube channel: Click Here

Question about How To Calculate Cost Of Goods Available For Sale Formula

If you have any questions about How To Calculate Cost Of Goods Available For Sale Formula, please let us know, all your questions or suggestions will help us improve in the following articles!

The article How To Calculate Cost Of Goods Available For Sale Formula was compiled by me and my team from many sources. If you find the article How To Calculate Cost Of Goods Available For Sale Formula helpful to you, please support the team Like or Share!

Rate Articles How To Calculate Cost Of Goods Available For Sale Formula

Rate: 4-5 stars
Ratings: 6947
Views: 10622589

Search keywords How To Calculate Cost Of Goods Available For Sale Formula

How To Calculate Cost Of Goods Available For Sale Formula
way How To Calculate Cost Of Goods Available For Sale Formula
tutorial How To Calculate Cost Of Goods Available For Sale Formula
How To Calculate Cost Of Goods Available For Sale Formula free
#Decide #Price #House #Purchases

Source: https://ezinearticles.com/?How-I-Decide-The-Right-Price-For-House-Purchases&id=9883018

Bài viết đã được tạo 2027

Bài liên quan

Bắt đầu nhập từ khoá bên trên và nhấp enter để tìm kiếm. Nhấn ESC để huỷ.

Trở lên trên