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.
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).
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!
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