What calculations goes through for a property?

Question

Hello, I am wondering what type of calculations goes through your head about a property? Because in my experience I just see a cheap house and wonder what can I add and further down the line it doesn't work out well.

So please tell me how can you tell just from looking at the house that it would be a cash flow postive house. ~ thank you

Dan Weber · Answer

In addition to looking at the "cheap" price of the specific house, you need to look at the comps/similar properties in that neighborhood and area to determine what exactly the upside is of the house you have identified. After looking at the comps, you may come to realize that the house you have identified is not as cheap as you originally thought. Once you looks at the comps and determine what the repaired upside is (ARV=After Repair Value), you can work your way backwards and determine what the house needs to get it to that ARV and assign costs to each of those upgrades. When you work your way all the way back, that is your final purchase price. ARV-construction costs-holding costs-profit/equity=Offer Price (Offer price is usually different than list price!). This is the over simplified explanation of the process you are looking for.

Fahadbin Alam · Answer

@Dan Weber so when you work backwards do you count for the 75% that the bank will only refiance with?

Fahadbin Alam · Answer

@Dan Weber so when you work backwards do you count for the 75% that the bank will only refiance with?