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!

[Chris Seveney]

@Nick Payton

Rehab costs should have their own line item when running numbers

Let’s say a house is $100,000 and needs $25,000 in rehab costs.

1. If the house is not worth that amount then you lower your asking price.

2. Closing costs etc are variable based on financing terms and amount financed.

Since rehab is done after closing you will need

1. Cash for down payment

2. Cash for closing

3. Cash for rehab

Now you can get seller to contribute to 1 and 2 and adjust sales price or negotiate that in deal.

Does this make sense? Whatever you do with your calculations do not “fudge” / “change” numbers to make something work, keep the actual situation accurate