[Calc Review] Help me analyze this deal

[Joel Lwanga]

Hello Everyone. This property in Pittsburgh, PA is on market for $77K, but having analyzed it several times, it doesn't seem to work at those numbers. It has an ARV of 235k based on several solid comps in the neighborhood. With an offer of 40k, I'll be putting down 25% ($10K) and using hard money for the other 75% ($30k), as well as 100% rehab (85k) with an 8% APR. Paying only interest for the 8 months the rehab will take, I'm only make $60/month after the refinance. Does my offer need to be lower than $40K, or are my numbers off in some other way?

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*This link comes directly from our calculators, based on information input by the member who posted.

[Jim K.]

It is always a frustrating experience reading a thread like this because you simply aren't asking the important questions and making several key assumptions.

1. You mention: "several solid comps in the neighborhood." You're talking about Pittsburgh. Pittsburgh hoods are among the hardest in America to comp well. Sometimes values can change street by street, pocket hood by pocket hood. And is this Pittsburgh proper, or the near 'burbs, or are you talking about some place out in deer-crossing country in Washington County or up in Beaver? We don't know. Do you live here to have the kind of in-depth knowledge you would need to be SURE this was a good comp? We don't know. Is some slick-talking Persian-bazaar rug-merchant of a real estate agent telling you this? We don't know.

2. You state that the property is going to take 8 months of rehab. How do you know this? Because a contractor told you? How long have you worked with this guy? What kind of work does the property need? Do you have direct proof that the contractor is capable of doing this kind of work? We don't know. How old is the property, always an important question in a place where much of the housing stock is approaching 100 years of age? Hell, I've got an offer out right now on a place that was built in 1897. It's important to know, and we don't.

3. You're very probably not going to get a property on sale for $77K in Pittsburgh or the near 'burbs with an offer of $40K. The fact that you unquestionably believe this to be likely shows your lack of experience in this market, and makes Q1 and Q2 even more important.

All in all, in skimming over these important points to plug numbers into a calculator, it really, really sounds like you're building a house of cards on a very questionable foundation.