Determining target ROI on home rehab.

[Troy Benvenuto]

Hello all... maybe this is a better place for this post. I am in the midst of purchasing a historic home in a historic district of Jacksonville. I'm going to live in the home for about 3 years and renovate it. I am trying to analyze ROI based on OOP methods. Can anyone give me a way you figure a target ROI? Meaning, I want to take money from market investments for renovations and down payment. These investments, because they've taken a beating this year, have produced only about 3.2% annual return, or a bit higher if I add in stocks. Estimating my all in figure on the house as the contract was accepted and looking at the current value of renovated comps, the annual return if it takes 3 years to complete would be 6.14%. But they didn't disclose that electrical and plumbing need upgrades. So I'm now getting estimates on this work, and will ask the seller to meet me halfway on them. If they agree to this, my 3 year all in comes down, profit goes up to 12.09% annual. So, if they negotiate somewhere in between, how would you determine what an acceptable target return is and what the drop-dead number is to walk? I'm not counting on general market appreciation, just looking for the right purchase price.

Those returns neglected a 3% commission when I sell the house, so as the contract is it would be more like 3.31% annual return, or 9.57% if the seller splits those major costs.