Analysis Question: Full Rehab Required on Duplex

[David Hald]

Hi,

I am looking for my first rent-and-hold property.

I am analyzing a duplex in the midwest, and it needs a full rehab, down to the studs, plumbing, and electrical. 

Obviously the price is commensurate with the work it needs, but I'm wondering if I should look at this intitial expense (which, over time, would be considered CapEx, and averaged across years of durability) as part of the purchase price, or if I should indeed average it out over the life of the work being done.

Option A:

Property: $25000 estd.

Full Rehab: $80000 estd.

Total Purchase Price: $105000

*In this case, if I look at the purchase price as 105k, it will affect the cap rate, if I can clear the 1% (or even 1.5%!) rule, but this may not reflect the possible resale value of the property (awaiting comp numbers from agent currently).

Option B:

Property: $25000 estd.

Full Rehab as CapEx: $80000 estd.

Total Purchase Price: $25000

CapEx (as part of operating costs): 80000 / x

X = number of years of durability of each given CapEx item

I don't want to fool myself in this analysis that I can sell the property for more than I paid for it/put into it, I will await comps for that judgement.

As extra food for though the probable rent will be in the range of $1200-1500 per month.

Thanks in advance for your help!