Analysis Question: Full Rehab Required on Duplex

3 Replies


I am looking for my first rent-and-hold property.

I am analyzing a duplex in the midwest, and it needs a full rehab, down to the studs, plumbing, and electrical. 

Obviously the price is commensurate with the work it needs, but I'm wondering if I should look at this intitial expense (which, over time, would be considered CapEx, and averaged across years of durability) as part of the purchase price, or if I should indeed average it out over the life of the work being done.

Option A:

Property: $25000 estd.

Full Rehab: $80000 estd.

Total Purchase Price: $105000

*In this case, if I look at the purchase price as 105k, it will affect the cap rate, if I can clear the 1% (or even 1.5%!) rule, but this may not reflect the possible resale value of the property (awaiting comp numbers from agent currently).

Option B:

Property: $25000 estd.

Full Rehab as CapEx: $80000 estd.

Total Purchase Price: $25000

CapEx (as part of operating costs): 80000 / x

X = number of years of durability of each given CapEx item

I don't want to fool myself in this analysis that I can sell the property for more than I paid for it/put into it, I will await comps for that judgement.

As extra food for though the probable rent will be in the range of $1200-1500 per month.

Thanks in advance for your help!

Hi @David Hald ,

I combine (acquisition) Price with the Rehab amount into the Total Purchase Price when running calcs. Unless the calcualtors take into account (Rehab Cost/ARV), simply combined AP+R for your purchase price, especially since HML's often limit their loans based on the percent of ARV (which already combines AP+R)

Looking forward to your first deal!

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here