Everyone has their own criteria. Here is my thought process:
When I am looking for a flip, first I look at the neighborhood. No sense spending time analyzing something that I am not going to do no matter what. So I consider anything on West Side or Northern Summit County. Since I am realtor and have investor clients... for them I will consider east side suburbs also.
Next as a flip, I have to see a 30% to 35% ROI potential. For me, I calculate the ROI (return on investment) as PRICE, the expected final net sale price (sale price less 6% commissions, less 2% closing costs) minus the COST which is the sum of total acquisition cost, plus holding cost (taxes & insurance), plus rehab cost. This gives me the PROFIT. Then divide PROFIT by PRICE. This gives a percentage with must be 30%. This percentage number is ROI. I do not use or even consier COC (Cash on Cash Return). This is used mostly to sell overpriced properties to newbies.
I am fairly conservative in my estimates, so when I target 30% ROI, the final result usually comes in closer to 40%.
When I am looking for a buy and hold; I open up the neighborhoods a bit, and then require 13% ROI. Similar type of calculation. For Income I look the total monthly rent times 11. Because there will always be vacancies. This gives me an annual Gross Income. I subtract annual taxes, annual insurance, expected annual maintenance cost, and an annual reserve to give me cover all repairs that will be needed over 10 years, expected annual inspection permits, and the 10% property management fee. I can explain how I calculate the reserve off line to anyone who is interested. I include the management fee, even if I, or the buyer is going to do their own management. It is still a cost. All of this results in my Net Income.
Then I divide the Net INCOME by my COST to come up with ROI. I require 13% true ROI. Cost in this case is acquisition cost plus renovation cost. With this process, when I do a thorough professional renovation, the annual contribution to the reserve fund is small because everything is already done. If I do a quick and dirty renovation just to get in and rented, then I save money on the renovation, but my reserve fund contribution will be higher because I am budgeting for that driveway, roof, furnace etc.
So to answer your question... this is probably a bit much for the typical bird dogger to calculate; but for someone who is serious about bringing me a deal, this is the way I will evaluate it.
In summary, if it looks like a deal and is in one of my target neighborhoods, I will always be interested in buying it for cash.
