Ready to receive a fair cash offer for your house in Baltimore?
Here at We Buy Houses Cash Baltimore, we strive to be as transparent and honest as possible with all of our clients. If you find yourself needing to sell your house fast in Baltimore or elsewhere in MARYLAND but don’t want to just give it away, it’s important to work with someone with integrity who will take the time to explain to you not only what they can offer, but why. To start the process, fill out the form below. To understand the process, please keep reading to learn how we determine what we can offer!
How do we determine what we can offer?
This is going to be lot of information, but this is the exact process we go through when determining what we can pay for your property. As a business our goal is of course to earn money but if our offers were too low we couldn’t make deals. It’s in our best interest to offer you as much as possible for your house with the least amount of hassle so that you’ll sell it to us. Because of this our interests are aligned with yours. The more cash we are able to offer, the more money we are able to make!
In order to maximize our offer we consider several possibilities for your home. Which ever one results in the greatest price is what we offer. Simple, right? We can…
There is a simple formula we apply for each of these options to determine the price that we can offer, but first there are a few terms we must define:
- After Repair Value (ARV): This is the price we believe your property would sell or appraise for after making certain repairs, updates and cleaning.
- Cost of selling: These are the costs we have to pay when we sell a property. They include things like agent fees, staging costs, and other closing costs that sellers typically have to pay when selling a property, but that you never will when selling to us!
Your Home Selling Scenario
Let’s examine a hypothetical scenario, the basis of which we will use as we explain our process. Say you consult a real estate agent to sell your house which hasn’t been updated in a few decades and they tell you that in its present condition, they believe it would sell for about $120,000. They go on to say that if you were to paint, replace your carpet with hardwood floors, and update both bathrooms and a kitchen, that would increase the value to $200,000. Think about the last time you had any work done on your house. How many estimates did you get and how big of a range were the prices in? Now apply that to all of those updates and what would it cost? 70k? 80k? It of course largely depends on the materials you use, the contractors you use and what unexpected issues came up along the way.
Let’s say everything went smoothly and you were able to get it done for $75,000 over the course of 4 months. Your house sells for exactly $200,000 as the agent predicted. After paying agent fees (6%), seller closing costs (1 – 2%) and maybe some buyer help (1 – 2%) you’re left with about $115,000. Had you sold it for $120,000 with that agent four months ago, paying the same fees and closing costs, you’d be left with $108,000. 4 months and $75,000 made the difference of about $7,000 in your pocket. During that time you continued to make mortgage payments, insurance payments, tax payments, and otherwise maintaining and paying for your home all while managing a team of contractors around your life and schedule.
That’s not a very big margin, what if something unexpected had come up during demolition? What if it cost 80k instead of the original 75k estimate? What if your agent was wrong and the house only sold for 195k because buyers don’t like your counter-tops or the market changed during the time it took you to complete the remodel? Or if you opened up a wall and discovered your plumbing isn’t done to code because of a bad remodel job fifty years ago? All anyone can do, even us, is make educated guesses as to what a house will sell for and how much it will cost to remodel. Those variables are part of what makes up the risk of remodeling your home to increase the sale price.
We’ve all seen the shows on tv. Flipping is the process of repairing, updating and cleaning a house in order to sell your house afterwards for top dollar. This is where our skills, contacts and knowledge allow us to create value, much of which is what makes up our profit and enables us to increase your offer. Let me explain:
Your offer = Estimated ARV – Our Cost of Selling – Our Estimated Cost of Remodeling – Our Desired Profit
This is our best opportunity to use our skills to lower our own costs which allows us to increase what we are able to offer. We know how to keep a rehab budget lean because we’ve done it so many times. We know what contractors to use for each task. When we can use a handyman vs a general contractor. Where to get materials cheaper and when we can buy in bulk at a discount for future jobs. And because we give these contractors repeat business and pay immediately when the work is done they give us discounts on their labor, discounts that they would not give a home owner who will use them just once and never call again.
Taking the same scenario, let’s say we can get the same project done for 45k. Working backwards from the ARV:
ARV – Our Cost of Selling – Cost of Remodeling – Desired profit = Your offer
$200,000 – $20,0000 – $45,000 – $20,000 = $115,000.
In this case you actually pocketed the same amount at closing you would have had you done the work by letting us take on all the risks of an extensive remodel than if you had just sold it as-is on the MLS. Not to mention you sold to us in just 14 days instead of the 4 to 5 months it would taken you to perform the remodel and then sell to a homeowner.. You’re happy, we’re happy, the local contractors we hire are happy, the new home owners that get to enjoy your gorgeously remodeled home are happy. Everybody truly wins!
We are constantly trying to improve out costs. Even though we have a trusted collection of contractors we never stop looking for more. What if we find a general contractor looking to grow their business who is willing to give us an even bigger discount to get their foot in the door on future work or who knows of other ways to save us money without cutting corners and we’re able to get it done for 40k?
ARV – Our Cost of Selling – Cost of Remodeling – Desired profit = Your offer
$200,000 – $20,0000 – $40,000 – $20,000 = $120,000.
Notice our desired profit didn’t change but our offer did. The better we are at controlling our costs, the more we can offer, the more deals we get, and the more money we make in the long run. We’d rather make a smaller amount of profit on more deals than a large amount on just one or two deals. In other words, we make money from our skills and not by low-balling home owners. Is it a coincidence that this offer is the same amount your agent originally told you that the house would sell for as-is? Absolutely not, it was a reasonable guess based on reasonable assumptions about what an investor might pay. The difference is that you didn’t have to pay any agent fees or closing costs out of it doing things this way.
Remodel It And Rent It
Believe it or not, this process is pretty similar to flipping for us. Other investors may have different business models when it comes to rental properties but this is ours. We repair, remodel and clean your house as needed to improve its value but we focus on durable materials vs shiny high-end finishes because we know our tenants will be hard on them over time. Instead of selling your home afterwards, we refinance the property with a commercial bank which will typically lend us up to 75% of the ARV to recoup our capital. Once again, we start with the ARV and work our way backwards.
Your offer = 75% of the ARV – Our repair costs + Some Expected Rents
Notice this time there is no desired profit. That’s because our “profit” will be tied up in the property in the form of equity. Now, 25% of the ARV is a pretty big margin to start with but because the property will continue to generate value for us we will add a nice chunk or profit from rent (generally about 6 months’ worth) of that expected money back into the offer.
In this case, the ARV will often be lower because we are not using high end finishes but so will our repair costs for the same reason. Let’s plug in some numbers from our hypothetical scenario. Assume we are able to improve the value of your home to 185k with a 35k rehab budget and expect to earn a monthly profit of $400 in rent once the property is stabilized.
Your offer = 75% of 185,000 – $35,000 + $2,400 = 106k
Looks like our flip scenario is winning right now. If we really wanted to keep this as a rental we’d bring our offer up to match whatever is highest.