Factoring in rehab costs into "Running the numbers"

[Nick Payton]

Hi BP members!

I need some direction while running my numbers for a deal analysis. When it comes to running the numbers, I know all of the basics such as using the sales price and finding all expenses associated with the property along with getting the rental income to calculate the NOI, Cap rate, and COC return, GRM etc.

What I'm really struggling with is knowing how to factor in the REHAB cost and how to go about that.

-Do I adjust the asking price downward for the costs of the REHAB in order to reflect the realistic offer price?

OR...

-Should I keep the sales price the same and adjust the closing costs/down payment section of my calculator since that's how much I will have to come out of pocket to close and do the rehab.

Or is there another method that I should consider?

Thank you very much in advance and happy investing!