There is a REALTOR® in my office that came to me for some advice. It seems that she has a client that she is working with that is new to real estate investing and she was wondering why all the offers they have written were turned down.

 She asked me to go over her offer before she submitted it to help her make sure that it would present her clients offer in the best light.

  She was getting ready to submit a bid on a HUD home at 62% of list price. I pulled up the bid results and saw that in our area they have not accepted any offer under 90% this year. That is because the properties have been appraised and HUD prices them at a "10 day price". That is the price that they expect the home to move at in 10 days.

 I asked her what is the FAIR MARKET VALUE of the home and she had no idea. I pulled up the prices of sourounding homes that have sold and saw the property was priced under recent sales. I asked her the condition of the home and she said that the carpet needed cleaning but otherwise the home was in move in condition.

 I asked how the offer price was determined and she told me that the client had an outside advisor that was helping her come up with offer prices.

 Our discusion on investment properties took a little over an hour but I tried to educate her on some of the details of investment properties.

 Before you make an offer you have to know the fair market value after repairs of the property that you are looking at.

 You have to be able to estimate the repairs needed to the property before you make an offer. If your client does not have a clue on repair costs have them get someone to view the property that knows what the repairs will cost.

 You need to figure in holding costs, disposal costs and profit into the offer. Most investors use a 30% discount as a rule.

 Your client also needs to have multiple exit stratagies on the property. If they can not sell it in a reasonable amount of time are they willing to rent the property and become a landlord?

 Most investors will look at a purchase in the following way---

• Fair Market value
• Less Repairs
• Less 30%  

  That would be the maximum offer price.

 This formula has worked for a long time. The key components are an accurate estimate of both the fair market value and the repair costs. An error in either of these two key points will lead to a decrease in income to the investor.

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