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Updated over 8 years ago,
Analyzing Deal in Two different ways, with two diff results
I’m wondering if some of my offers are TOO low? And perhaps I can increase my chances of finding a good deal. Here are the two ways to analyze this deal..which way is correct?
Strategy: Buy and Hold for long term
Location: Elmore, Ohio
Type: Single Family Home
ARV: $103,000
Repairs: $40,000
-=1st Way to Analyze=-
Max Offer = .75*ARV – Repairs = $37,250
Thoughts: Everyone mentions this equation, but the issue I’m running into is that when I use the second way to analyze..the Max Offer from this outcome is too high to make sense.
-=2nd Way to Analyze=-
*Projecting Annual Property Operating Data Yearly *
Financing: 5.125%, 30 year, 20% down.
Closing Costs: $2,500
Gross Scheduled Income - $12,000
Vacancy Allowance – 5%
Advertising - $100 (w/ 2% growth rate)
Insurance - $700 (w/ 2% growth rate)
Lawn/Snow - $400 (w/ 2% growth rate)
Taxes - $2,323.42 (w/ 2% growth rate)
Property Management – 10% of Gross Operating Income
Repairs – 10% of Gross Operating Income
CapEx Reserves – 10% of Gross Operating Income
In this scenario…if I purchase it at $8,183, then my total cash investment is $44,137…then my COC Return starts at 9%, then 9.25%, then 9.5% yearly ect….so I couldn't pay much more then that (trying to get 9-10% COC). That's a long way off from the $37k from the other offer.
Thoughts anyone? Seems like when I’m running the numbers in detail like this I keep getting extremely low offers.