➕➗ REI Rehab Math For Visual Learners ➖✖️
Initial Scenario
- Loan Details:
- Amount: $180,000
- Interest Rate: 12% per annum
- Term: Let's assume a 2-year term for simplicity
- No prepayment penalty
- House Purchase and Rehabilitation:
- Purchase Price of House: $130,000
- Rehabilitation Costs: $50,000 (includes materials, labor, permits, etc.)
- Total Investment: $180,000 (entire loan amount)
- Timeline for Rehabilitation:
- Duration: 6 months
- Selling the House:
- After Rehabilitation Value: $250,000
- Sale Timeline: 2 months after completion of work
- Profit from Sale: $250,000 - $180,000 = $70,000 (excluding interest and other costs)
- Interest Calculation (for 8 months):
- Interest = Principal × Rate × Time
- Interest = $180,000 × 12% × (8/12) = $14,400
- Net Profit:
- Net Profit = Profit from Sale - Interest
- Net Profit = $70,000 - $14,400 = $55,600
Repaying the Loan
- Loan Repayment Amount: $180,000 + $14,400 (Interest) = $194,400
- Early Repayment: Since there's no prepayment penalty, you repay the full amount after 8 months.
Reusing the Loan for Next Project
- Reapplying for the Loan:
- Reapply for the same $180,000 loan, given your successful track record.
- Next Project:
- Purchase a more valuable property or a property that can yield higher profits upon rehabilitation and sale.
- Let's say you find a property for $160,000 with a potential rehabilitation cost of $20,000.
- Expected Outcomes:
- Projected Sale Price after Rehabilitation: $300,000
- Potential Profit: $300,000 - $180,000 = $120,000 (excluding interest and other costs)
Important Considerations:
- Risk Factors: Real estate market fluctuations, unforeseen rehabilitation costs, delays in selling the property.
- Other Costs: Insurance, property taxes, utility costs during rehabilitation, real estate agent fees for selling the property.
- Continued Creditworthiness: Your ability to reuse the loan depends on maintaining good credit and the lender's assessment of your risk.
- Market Research: Ensure thorough market research for each project to maximize profit and reduce risks.
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