Would you buy this deal?

Question

ARV: 75k

Purchase Price: 35k

Repair Cost: 15k

Rents in the area: $900

All in for: 50k + closing costs

Is this a deal or are the numbers too thin?

Brian Johnson · Answer

Thanks for chiming in. I just sent out a contract to purchase this for 25k. The new owner inherited the property and just want to get rid of it. My intentions is to wholesale the property but thinking 10k may be a little ambitious.

Its a tiny little 3/1 and about 1100sq.

I did a walk through with my contractor and he only estimated 10k in repairs, so I added a 5k buffer.

Andy Chu · Answer

The question is that are you trying to flip or are you trying to buy and hold. The evaluation for the deal is completely different between the two strategies. FLIP Sales Price 75,000

Realtor Fees (4,500  + 500 ) for transaction fee Transfer Fees and Etc (1,500) Assumption I don't know PA customary fees

Acquisition Cost 50,000Acquisition Closing cost (1,000) Once Again not sure about customary PA Fees

ASSUMED PROFIT  - 17,500 (Without Financing / hard money cost )

Rental

Take into consideration at least the following Vacancy

Annual Insurance

Capital Expenditures

Taxes

Any utilities not covered typically by tenant (Trash, sewer, well, etc)

Take total revenue

-subtract all other fees

EQUALS cash on cash return

cash on cash return divide by acquisition cost (51,000) and that's your Capitalization Rate

Michaela G. · Answer

Do you have cash? If not, you'll have to add the cost of borrowing.

If you estimate repair to be 15K, it'll probably be 20k or 25K. I'm not writing this to say that you're not capable of estimating correctly, but I'm writing this as a long-time rehabber, who has experienced, on my and fellow rehabber's projects, that rehabs seldom come in below budget.

I take it you want to buy and hold and rent or are you planning to sell to a landlord.

If it's the first, it might work (would be too thin for me, but everyone's different0 , but not the later.