5% Return on investment????

Question

Is a 5% return on investment a good deal?

Property

Purchase 91,500

Rehab   20,000

ARV 140,000

The arv is in the median range for this area so I priced the offer at an ARV of aprox 130,00

The home sold in 2006 for 150,00 could possibly sale for that again with the right upgrades.

Yinan Q. · Answer

If the ARV is 140,000, 70% of it is 98,000. This should be your purchase price plus repair. If you think the repairs will be 20,000, your purchase price should be no more than 78,000.

Arla Wilson · Answer

I think I need to do a lot more reading and research before I go any further. A mentor in my area would be nice. I don't want to get stuck in the “Analysis Paralysis” and lose out on a deal. Also, I don't want to make a bad investment.

I do want to just make sure I understand this one though

First for a flip.

If the ARV is 140,000 and repair is 20,000 on the high side with closing and holding for a month at approximately 10,000 I should pay what to be within the 70% rule, 77,000???

This property would be a quick turn-around most of the rehab is cosmetic.  Is it naive to think I could sell in a month? What is an average turn around for a minimal flip?  I know market and area have a lot to do with time on the market just wanting to get an idea.

Yinan Q. · Answer

@Arla Wilson You will need to provide more information to get a better answer. What are you going to do with the property? Are you going to flip it or rent it out? How did you calculate your 5% return?

5% of your out of pocket money (9,1500 + 20,000) is $5,600, which is not much for a flip but not that bad for a rental.

If you want to flip, 5% is too thin. You many end up losing money. Check out the 70% rule if you want to flip. The 70% rule basically says your purchase price plus repairs should be less than 70% of the ARV in order to make a reasonable profit from the flip (typically 10% to 15%).

If you want to rent it out, 5% profit on your $115,000 investment is not bad. You can do a cash out refinance and get most of your money out. You cash on cash return will be higher.

Joseph Ball · Answer

Wouldn't touch it with a vaccinated iron crowbar

Jeff S. · Answer

No. Way too tight IMO.

Ned Carey · Answer

Firstly I would never do a real estate deal for a 5% return. I can do MUCH better. I would not take the risk of real estate for 5% EVER.

I think you are missing LOT of information in your analysis. What are you going to do with this property when you are done? Are you going to sell it. rent it, live in it??

How are you figuring 5% return? have you considered the cost of financing, closing costs, resale costs, holding costs?