My latest marketing campaign has reeled in a 20 acre homestead. The property has a 2500 sq ft octagonal home, with 2 detached buildings (workshop and garage). The owners are friendly and are ready to downsize, move to either Mexico or Indiana. How they narrowed it down to those two is a different story. They purchased the property decades ago.
They have talked to realtors, but are not committed to using them. The realtors said they could sell the property for $730k if improvements where made. The owners also recently refinanced, and the appraisal came back at $673k. They have a $217,000 mortgage against the property when they refinanced. Improvements done are new appliances only, about $5k.
I need help checking my numbers. From my research, offering 65%-70% of AS IS value is the most I should offer for the property. I’ve also read that flippers will target 30% equity of the ARV and subtract repair costs from the offer. The owners mentioned that they were looking at doing $50k worth of repairs/upgrades.
If I offered 65% appraisal value, my offer would be $440k = ($673k+$5k)*.65
If I offered 70% ARV minus repairs, my offer would be $460k =$730k*.7-$50k
Comps support the ARV. There is still due diligence to complete. I have contractor that is interested in partnering with me on this. Both calculations show a $200k profit.
The risk is obviously not getting my $440k offer accepted. Should I offer $500k, as saying half a million dollars has psychological effect, and take slightly less profit? I was able to establish some report with them, and mentioned my offer would be less than market value. I told them not to be offended if the offer seemed too low. They mentioned that they want to weigh their options. I feel like they definitely do not want to remodel, or even have a realtor with strangers walking their property. This would be my first flip if it goes through. Any advice is appreciated.