Need input
Hi everyone. I'm very new to real estate investing. Actually working on finding my first deal. I generally stay on the side of caution when it comes to evaluating anything, but I'm wondering if I'm over evaluating at this point. I've kind of come up with a formula to try and go by, but a deal I thought was good, after I ran all the numbers, doesn't seem so great, but I'm not sure how a .60 on the $1 isn't a great deal after the math is done. So here's what I have.
The deal I'm looking at is a 2B/2B, 1088 sqft. Its current assessed value is 59k as a 2B/1B... the second bath is not currently permitted. Contractor said it shouldn't be a problem. The owner was asking 43k but we got him to settle on $38,700. He pays closing and back taxes due. ARV is estimated from $79k(worst case)-$89k...
This is the formula I came up with. Please let me know if I'm missing anything..
ARV (79,900)
- -Purchase price ($38,700)
- -Acquisition cost (Earnest ($500), Inspection($500?), lender points(4=$2148. Includes rehab $)/fees($500)
- -Rehab cost (15k)
- -Carrying cost (6 months)(Utilities(450/month), monthly payments($626/month. 14% interest rate), insurance($75/month?), gap lender payments($500/month?)
- -Selling cost (6% for Agent, 4% for Title/escrow/home warranty/closing cost/termite)(10% total) ($7,990 total)
- = Profit ($4,656)
This is based off of having the loans and property for 6 months from bought to sold. I do my math with ARV as worse case ARV in case I get my first house doesn't sell as fast as I hope. Some things like Inspection and insurance and gap lender payments are pure guesses as I've never done any of those things so not sure of the cost yet. $4,656 profit just doesn't seem like a good ROI when you think of all the risks or a problem that requires more $$$ or I may have forgot about something in the initial equation. It seemed like a good deal at first. Ive heard the general rule is ARV - 70% - cost of repairs = offer. If this was the case the offer would be $40,930, but our agreement is even better than that and still the profit margin just doesn't seem good enough? I don't know. Any input from experienced investors is welcomed. Thank you