How to figure Percentages and Cents on the Dollar
This may seem elementary to a lot here but I continue to see my students writing frantically to get it down so, I thought I'd post it.
[size=18][/size]When you first look at a potential deal, how do you determine the equity percentage and/or figure out how many cents on the dollar it will cost?
[size=12][/size]This is a very simple thing to do and knowing it will greatly assist in walking away from a potentially bad deal.
Example:
A house will cost you $65,000 to buy and has an After Repair Value (ARV) of $100,000 (The ARV is what the SOLD comps in the area say your house "should" sell for).
Drop the zero's or the last three numbers (000) off and take YOUR purchase price and DIVIDE it by the ARV/Retail price. This is the breakdown:
[b]65 DIVIDED by
100 =
.65 (cents on the dollar)[/b]
So you now know it is 65 cents on the dollar but what is the percentage of equity?
Take the maximum amount of equity you can have, which is 100% and minus the cents on the dollar figure you just got.
[b]100 percent equity MINUS
65 = 35% equity.[/b]
The number I have to be at or below for me to consider a deal (unless there are other factors brought to my attention) is .70 cents on the dollar or LESS. OR in percentages, 30% equity.
One final note:
DO NOT FALL IN LOVE WITH PEOPLE SELLING "GREAT DEALS" that have (example) $45,000 in equity! Do the math:
Cost: $130,000
ARV: $175,000
$45,000 profit.... right? WRONG!
130 Divided by
175 =
.74 cents on the dollar OR 26% equity. I pass!
Hope this little formula helps save some from a bad deal disguised with big numbers.
-Jim Watkins