Can someone help me determine if this deal is a good deal or not? It's a duplex in the Atlanta, GA area.
The asking price is: $118K
The house will need some improvement to raise the value. Estimate work: $25k
The ARV: $125K
C0C ROI: 10.71%
Currently rent at $600 which could bump up to $700 per unit after repair.
I wanted some room on the investment so the house does not go over market value after repair. I put an offer for $100K but the seller counter my offer with $118K. Please help me calculate this deal.
Thank you team.
They won't go below $118K, it needs $25K of work and that would make it worth $125K. So you would have to spend $143K to get a property worth $125K. What's your question again :-)?
That says it all. l just estimated the amount of work it take based on touring the property.
First, NOI: At $600/mo/unit, you're looking at Gross Income of $14,400 annually. Your calculations assume Annual Expenses of $4700. Did you arrive at this number by factoring in property taxes, insurance, vacancy, maintenance, and management, or did you just assume it would be 33% of income?
Those back-of-the-envelope ratios can really get you in trouble: I strongly recommend always using actual data and conservative (if not "worst-case") estimates for expenses. Here in Metro Atlanta, property tax data are just a Google search away. Any decent insurance agent can quote you an annual policy premium. Management expense is pretty standard at 10% of rent. A vacancy rate of 1/12 (8.3%) is pretty safe. You get the idea.
Second, Cash-on-Cash Return is cash coming out divided by cash going in. If your cash out is truly $9700, and you paid $100K to acquire plus $25K to renovate, your CoCR is 9700/125000, which is 7.76%, not 10.71%. And that's not including transaction costs or holding costs.
As the first timer, I think I was miscalculate this deal. Somebody has countered my offer on that deal, well not too bad then. Will it be possible to connect?
Thank you for the explanation.
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