What To Pay For Discounted Homes
A simple formula to use when calculating profit is shown below:
72% of ARV (After Repaired Value)
Subtract realtor fees to sell home
Subtract rehab cost
Subtract hard money cost
Here is how it works.
We have a house worth $100,000 (ARV) in great shape. We would plug this into our formula above.
$100,000 * 72% - $6000 realtor fees - $9000 rehab cost - 6 months hard money $5412 = you need to offer less then $51,588 to ensure a great profit margin. Rehabbing you should always try to make $15,000 or more, never less if you can. You can use 70% * ARV if you are new or want to make sure you have enough cushion.
My hard money loan cost breakdown. I will borrow $57,000, which I will pay 13% and 3 points with my hard moneylender. Monthly cost and point cost listed below for our hard moneylender.
Monthly payment would be $617.00
The 3 points add up to $1,800
We use this formula every time we buy a house. If the cost is too high and we cannot get the seller to lower the price then we walk. There are so many deals out there you should be saying next if the deal does not work. You must make sure the property you are buying has the profit center you need, remember you make money when you buy. If you buy a property at a huge discount then you will always come out on top because you calculated what is exactly needed to do the deal and make a profit. The other key to calculating cost is to make sure your rehab estimates are accurate or real close.
I have been investing for 11 years and want to help people learn how to create extra income and residual income using real estate. We also show people how to buy homes at huge discounts this is especially good for 1st time homebuyers. To learn more visit us at http://www.CollegeOfREI.com
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