First time investor calculating ROI
Forewarning I may be over complicating things.
At this point I'm simply theorizing, I have yet to see the property in question. I had someone reach out to me to see if I was interested in buying a property delinquent on taxes.
I would be leveraging around $100k in a HELOC to buy my first BRRRR.
Theroy:
Buy the house at $50k
Invest $40-45k on the rehab
Rent the house for $1200/month
70% LTV would be $84,000 if the property can appraise for $120,000
Left in the deal $6000
I tried to use a ROI calculator and also tried to do it by hand but I'm missing something.
What would be the ROI for this property?
Feel free to comment or DM me
Quote from @Michael Davis:
Forewarning I may be over complicating things.
At this point I'm simply theorizing, I have yet to see the property in question. I had someone reach out to me to see if I was interested in buying a property delinquent on taxes.
I would be leveraging around $100k in a HELOC to buy my first BRRRR.
Theroy:
Buy the house at $50k
Invest $40-45k on the rehab
Rent the house for $1200/month
70% LTV would be $84,000 if the property can appraise for $120,000
Left in the deal $6000
I tried to use a ROI calculator and also tried to do it by hand but I'm missing something.
What would be the ROI for this property?
Feel free to comment or DM me
ROI is simply your your net money returned to you each year divided your total money invested (at the time of your calculation). These figures will be very different based on when you calculate your numbers (before or after your refi).
We can't answer your question exactly because we don't know all your expenses for the net calculation. Because you would need to subtract things like property insurance, taxes, repair expense and such from your property's income, as well as the principle and interest for your cash out refi loan to accurately determine your net return for the year. You also probably have about $3000-$5,000 worth of closing costs to account for somewhere as well that would offset your first year's ROI calculation
If you simplified all the above and said, what is my ROI if I have a non taxed, non-insured asset that earned $1,200 per month that I paid $6,000 for - your calculation would be $14,400 yearly income divided by $6,000 equaling 240% ROI. (That would be cool… but not possible in real estate with its expenses.)
If you add in expenses of $900 / month between principle, interest, taxes, insurance, and a maintenance reserves, and only have $6,000 invested, your ROI would be $3,600 yearly net income (ie $1,200 monthly income minus $900 in monthly expenses x 12 months) divided by $6,000 total money remaining in the deal equaling 60% yearly ROI. But for the first year you would need to subtract your closing costs as well… so 1st year performance would be much lower.
Randy
That makes a lot of sense. The first year I own the property it's going to be more costly.
I begin to make more money year over year.
I figured $900-1000 would be mortgage payment including PITI.
So I assumed $200/month net income
Which would be $2400 a year.
