How to Find Your Max Offer Price in Seconds
TLDRYour max allowable offer is just a formula. After repair value minus rehab, minus all your costs, minus the profit you want, equals your offer price. Two levers move it the most: your rehab number and your target rate of return. Everything else is default settings.
Table of Contents
- The Offer Formula
- The Two Levers That Matter
- Default Settings That Almost Never Move
- Paying Yourself Like a Lender
- Same Math for Flips and Rentals
The Offer Formula
As a flipper, you need to quote a price fast. The math is the same every time, so the job is just turning the crank.
Here is the full equation:
Total costs (acquisition + rehab + interest + points + other costs) + target profit = ARV - cost to sell
You are backing out the acquisition price. You know ARV, you know rehab, you know the cost to sell, and you know the profit you want. The calculator solves for acquisition.
Example. ARV is $350,000. Rehab is $60,000. The calculator spits out an offer price around $190,000 and also tells you:
| Output | What It Means |
|---|---|
| Total cash needed | How much you need to close and finish the deal |
| Profit | The lump sum you put in your pocket |
| Annualized return | Your profit as a percent of cash in, annualized |
Annualized return is the number I target. On a flip I want 15 to 20 percent on the money that is in the deal, whether it is my cash or borrowed cash. At 20 percent the offer comes out around $179,000. At 15 percent it comes out around $190,000. Same ARV, same rehab, different acquisition price based on how hungry I am.
Your offer price is not a feeling. It is the output of a formula. Build the formula once and stop guessing.
The Two Levers That Matter
Most of the inputs in the calculator are defaults I never touch. Two levers move my offer price on almost every deal: rehab cost, and target rate of return.
Rehab cost. This is where most new buyers lose money. They eyeball the rehab at $40,000 and the real number comes in at $65,000. That $25,000 swing comes straight out of your profit. I use a separate rehab calculator that breaks the house into line items so the rehab number is not a guess. Bad scope, bad number, bad offer.
Target rate of return. This is the dial. At 20 percent I am more aggressive on the offer. At 15 percent I am pricing for a safer deal. On a house that is a cosmetic renovation with low risk, I might run the number at 15 percent and still win. On a gut job or a second-story addition, I bump the return to 20 percent or higher because the risk is higher.
Pro TipRun every deal at two return levels, say 15 percent and 20 percent. That gives you your opening offer and your walk-away offer. You are not negotiating against yourself. You already know the range.
Default Settings That Almost Never Move
The rest of the calculator lives on defaults. Change them if your situation is different. Most of the time, do not.
| Input | My Default | Why |
|---|---|---|
| Interest rate | 12% | Standard for a [[hard money |
| Points up front | 3-4 points | Standard hard money fee |
| Hold time | 6 months | Average for a flip |
| Other costs during hold | 2% | [[closing costs |
| Cost to sell | 7% | Commissions plus closing on the back end |
The interest rate times your hold time is a real number. At 12 percent annualized on $250,000 borrowed, you are paying about $2,500 a month in interest. Six months of that is $15,000. If you are holding for a year, double it.
If you are paying cash, you might think these drop to zero. The calculator lets you set them to zero, and you will see your offer price go up. I do not recommend that. See the next section.
Paying Yourself Like a Lender
If you have cash and you do not borrow, you can either lower the interest input to zero and offer more, or you can treat your own cash like a hard money lender and pay yourself the 12 percent on paper.
I always pay myself. Not in reality, but on paper.
The reason is simple. If you own the money, you still deserve the return on the money. If you bring the cash and only count your investor profit, you are undercounting your actual gain. You had two jobs on that deal: the investor who found and managed it, and the lender who funded it. You should get paid for both.
Key ConceptEvery role you play in a deal is a separate business with its own profit line. If you wholesaled the lead, you earned a wholesale fee. If you managed the rehab, you earned a contractor markup. If you funded it, you earned lender interest. Add them up. That is what you actually made.
This matters more when deals get marginal. On paper, a bad deal might look fine if you are baking in your own lender interest and your own wholesale fee. In reality, that is two businesses subsidizing one bad investor.
The math lies when you blur the roles. Keep them separate and you will see the real picture.
Same Math for Flips and Rentals
This formula works for rentals too. The exit is just different.
When you flip a house, you sell it to the market. You get paid in cash from the buyer.
When you keep a house as a rental, you sell it to the bank. You put a tenant in place, the bank sends an appraiser, and they give you a 30-year loan on the stabilized value of the house. On a stabilized property a bank will typically loan 80 percent of the value.
If the ARV is $350,000, the bank loans $280,000 on a standard refinance. If the deal is structured well, the refinance pulls out everything you put in, and you keep the house with a mortgage and a cash-flowing tenant.
| Exit | Who Buys | Rate | LTV Terms |
|---|---|---|---|
| Flip | End buyer | Cash at closing | No loan |
| Rate/term refi | Bank | Better interest, 80% LTV | Higher |
| Cash-out refi | Bank | Worse interest, often 70-75% LTV | Lower |
This is why flippers who already have cash still use borrowed money. If you buy with a hard money loan and refinance into a standard loan, the new bank calls it a rate-and-term refi, gives you better interest, and goes up to 80 percent LTV. If you buy with your own cash and refinance, they call it a cash-out refi, give you worse interest, and cap you at 70 to 75 percent LTV.
Common MistakeBuying rentals in cash without planning the refinance. Cash-out refi terms are worse than rate-and-term, and you will leave equity trapped in the deal. If you plan to keep it as a rental, using a short-term loan for the purchase often puts more cash back in your pocket at refi.
Same formula. Same levers. Just a different exit on the back end.
FAQ
What rate of return should I target on my first flip?
Shoot for 20 percent minimum on your first deal. You will underestimate rehab, overestimate ARV, and hit surprises you did not price. The extra margin is your safety buffer while you learn. Veterans can run tighter numbers because their rehab estimates and comps are more accurate.
Do I need a fancy calculator or can I do this on a napkin?
Napkin works if you know the formula. The calculator just handles the backwards math for you so you can quote a price in seconds. I run most walkthrough offers off a pulled-up phone, not a spreadsheet.
What if my ARV is wrong?
Then your whole offer is wrong. ARV is the single most important number in the formula because every other number hangs off it. If you are unsure on ARV, widen your range of comps and use the low end. The ARV Framework walks you through how to pull comps that actually match.
How do I know my rehab number is realistic?
Break the scope into line items. Floor by floor, room by room, system by system. If you cannot put a number on each line, your rehab total is a guess. A guess is how you lose a deal.
Can this work if I am using private money or a commercial loan instead of hard money?
Yes. Change the interest rate and points inputs to match your lender. Everything else is the same. The formula does not care who is funding.