Analyzing Deal in Two different ways, with two diff results

[Matt Maluchnik]

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.