We are thinking about buying this what do you think?

Question

Purchase Price:

$60,000.00

Purchase Closing Costs:

$6,000.00

Estimated Repairs:

$15,000.00

Total Project Cost:

$81,000.00

After Repair Value:

$75,000.00

Down Payment:

$60,000.00

Loan Amount:

$0.00

Loan Points:

$0.00

Loan Fees:

$0.00

Amortized Over:

0 years

Loan Interest Rate:

0.00%

Monthly P&I:

$0.00

Total Cash Needed   By Borrower:

$81,000.00

Monthly Income:   $800.00

Monthly Expenses:   $415.00

Monthly Cashflow:   $385.00

Pro Forma Cap Rate:   5.70%

NOI:   $4,620.00

Total Cash Needed:   $81,000.00

Cash on Cash ROI:   5.70%

Purchase Cap Rate:   7.70%

Andrea S. · Answer

I went with a 10% in closing cost because it’s an auction and I could not get good numbers. I wanted to guess high. Their fees section said 4700., and although it said buyers agent is paid 3% from seller. I was not sure about the other agent. Also when you compare price per square foot it comes out at ARV 80000. I went with 75 bc that was the Zestiment.

We also like the idea of not refinancing and just having the property paid off.

800.00 X12 =9600.

Tax and insurance= 2050.0

Management 80.00X12= 960.00  First 2 years only till we live there.

Linda Weygant · Answer

Generally, having total project costs being higher than the ARV would indicate that this deal is not worth pursuing.  Why would you pay more than what it is worth?  It's a bit like paying a $2000 repair bill on a car that's only worth $1000.

That said, there may be a bit of room in your numbers.  For example, I'm not sure what all goes into the closing costs where you are, but that would be very high for a mortgage in Colorado.  I've had a couple mortgages for $125,000 that had $3,000 worth of closing costs, but there were no points and no MIP included.  If you haven't talked to a mortgage broker yet to get an estimate of closing costs, I would do so.

That said, for your area, those could be perfectly reasonably closing costs.

Assuming your monthly expenses include the mortgage, at $385 per month, it would take you over a year to make back the extra amount ($6,000) you spent over the ARV.

This is not a deal I would do.

Andrea S. · Answer

We want to buy and hold (possibly using the BRRR method). This is an auction starting at $40000.  We are trying to increase our income after my husband retires form the military. So I’m not sure if it’s worth it to refinance.

We want to pay no more than 60000.00 for the property.

I used the calculator and tried to copy for the forum.Sorry it came out all scrunched up.

Purchase Price:$60,000.00  Purchase Closing Costs:$6,000.00  Estimated Repairs:$15,000.00   Total Project Cost:$81,000.00   After Repair Value:$75000.0

Monthly Income: $800.00 Monthly Expenses: $415.00 Monthly Cash flow: $385.00