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Author Topic: Running the numbers....................  (Read 6413 times)

Offline JerseyGirl

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Running the numbers....................
« on: January 07, 2005, 06:37:44 pm »
Question time!  For those who don't know, I am new to the boards & to investing as a whole

I've been reading alot & have realized that Bird Dogging was the best way to make an entrance into the world of Real Estate Investing

I've called a few investors so that I could work for them & things are kinda going great, however I have this problem....I think

What does it mean to run the numbers?  I've been hearing that alot lately & I have to be honest & say that I have NOOOOOOO idea how to go about that  :-\

I know that it means that an investor whats to know if a specific property is a good deal before they'll make any other moves but how is a new person supposed to know what a good deal is if this is their first time out?

I've read & read but so far none of the information seems geared towards someone that is uhhh mathmatically challenged?  :P

I don't want any of my leads to be rejected, I want to make money & learn as much as the next person

So how does a first timer go about learning to run the numbers?
~Bird Dog in Training~

Offline Mr.fancypants

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Re:Running the numbers....................
« Reply #1 on: January 08, 2005, 03:24:52 am »
Hi JerseyGirl,

What you need to do is crawl inside the head of your investors and try to figure out what it is they're looking for. It also helps to know if they're looking to rent, or rehab and flip. After all, theres a gazillion houses for sale, but not all are good deals or good investments. Investors only want to see something that's going to make them money. This is what I do to determine if a home is worth my time:

-what is the asking price? is it the same as all the other homes in the neighborhood? (if so, it's probably not going to make money)
-what is the condition of the house (I look for real junkers)
-what is the average price per sq foot? (investors look at a reduced number here)
-what will repairs cost (get a contractors bid in writing) it's okay if repairs will cost more than the purchase price, as long as the house will sell high after it's repaired.
-what is the Fair Market Value (FMV) of the home once it's repaired. Get a Comparative Market Analysis (CMA) also.

Then when I have all the data (which really doesn't take too long to get) I sit down and do the math:

Say I find a house listed for $55,000. My contractor says it will cost $12,000 in repairs. My lender will only loan 80% ARV.  $67,000 divided by .80 = $83,750. This is how much the house must appraise for after repairs. If it appraises lower, your investor might not be able to do the deal. Ask your investors what LTV% they can go to. 65-80% is the average. Don't worry, it's really not complicated!!!
Hope this helped.
Work smarter, not harder!!!

Offline JerseyGirl

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Re:Running the numbers....................
« Reply #2 on: January 08, 2005, 12:27:59 pm »

Ok that makes sense (cents) in a way

I'm sure over time this will become second nature to me

Thanx  ;D
~Bird Dog in Training~

Offline joehagan222

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Re:Running the numbers....................
« Reply #3 on: January 14, 2005, 10:23:31 am »
Hey;

Most investers want in at 65% of the tax appraisal value.
Your (COURT HOUSE) will give you the tax value of the house you are looking at. Find a (REHABER) if you are not one and try to get an idea what it will cost to repair. Add your commission and see where you are!If you think you are good to go, call your invester to look at what you have found.      joehagan222
Just for you (BABY)!

Offline liquid money

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Re:Running the numbers....................
« Reply #4 on: January 16, 2005, 10:27:11 pm »
Can someone give me some examples in  charts or other formulas that can be used to find out if a property is a good investment.
also if i'd like to rent the property to tenants,what are the formulas to work out the gross and cashflow amounts.
thanks

Offline Mr.fancypants

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Re:Running the numbers....................
« Reply #5 on: January 17, 2005, 01:27:26 am »
I am not great at math, so I apologize if I leave anything out. But here is how I run the numbers. I am currently in the process of buying a fire damaged REO for hopefully $10,900. The bank considered the house a total loss, so I am only paying for the land, which was tax appraised at 10,900. I haven't seen the final contract yet, but thats besides the point. OKay, here we go:

-the house was ARV'd at $80,000
-my lender loans up to 80% ARV (so the maximum loan amount I can secure on this deal is $80,000 x .80= MAGIC NUMBER= $64,000
-the house (before the fire) was tax appraised at $72,000
-comps in the area range from $70,000 to $90,000
-My contractor said that repairs will cost between $30,000 to $40,000
-My goal resale price is $85,000 (I would love to get $90,000)


TOTAL EXPENDITURES
1. Purchase Price                                   $10,900
2. Repairs                                              $40,000
3. Closing Costs @ 5%                               $545
                                     loan amount=   $51,445

MONTHLY PAYMENTS=  $51,445 (loan amount) x .0625 (interest rate)= $3215.31
-divide this number by 12 (because it's a 1 year interest-only loan)
-your monthly payments will be roughly $267.94

EXPECTED EARNINGS
FMV (sale price after rehab)              $85,000
 -loan amount                                  -$40,545
 -5% realtor fee                               -    $4250
 -5% closing costs for buyer            -    $4250

                            TOTAL EARNINGS=    $35,955

There are always alot of unforeseen costs along the way and these are only estimates, but usually this little formula works very well for me. Good luck and I hope this helped.
Work smarter, not harder!!!

Offline longshot

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Re:Running the numbers....................
« Reply #6 on: January 17, 2005, 03:45:56 am »
Hey Mr.fancypants,  I just missed sending you a private message this morning, you logged off just as I was completing my registration.  Anyhow, I am a new guy and have been monitoring this site and your comments for a few weeks.  The site is good, your and others comments are good, and I am learning a lot.  Thanks to all for helping me.
Next item, in your last post, I was going through the math a step at a time just make sure that I was following your formula.  It looks good up to the point of determining how much to borrow and how much is needed to subtract from the "sale price after rehab".
Initially, the loan amount is $51,445.  Includes Purchase price, repairs and closing costs when  buying the property.
Then the interest amount is computed as totaling $3215.31 (divided by 12 months = a monthly interest only payment of $267.94).  That looks good.  However, then the "interest" needs to be added to the list of costs subtracted from the "Expected Earnings".

Also, the initial cost of the property is $10,900, which needs to be subtracted from the "sale price after rehab".  Something like this:

     EXPECTED EARNINGS
     FMV (sale price after rehab)            $85,000

      -loan amount                                51,545
          -buy property       $10,900
          -Repairs                 40,000
          -buy Closing costs       545
               Subtotal=         $51,445                          
       
       -INTEREST                                    3,215.xx
       -5% realtor fee                               4,250
       -5% closing costs for buyer               4,250

                               TOTAL EARNINGS=     $21,840

Perhaps, the repairs cost will come in a little low, and you can cover the interest cost within that $40,000.

To me, this still looks good when my J.O.B. rate some times drops to $10.00 an hour.  You might think about keeping a real good log of how your burn out rehab progress goes, tell us about it and thus we can learn from you.  If I learn enough, and make any money, then I'll buy you and yours, a big dinner.
Regards,  Longshot

Offline JerseyGirl

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Re:Running the numbers....................
« Reply #7 on: January 17, 2005, 08:48:51 am »

Wow  :o
~Bird Dog in Training~

Offline Mr.fancypants

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Re:Running the numbers....................
« Reply #8 on: January 17, 2005, 09:12:28 am »
My lender doesn't have a prepayment penalty, so the only money they make off of me is during the holding period. That's why I didn't factor that into the formula. Also, it's not a necessity to pay the buyers closing costs. I only do that to sell it quicker.
Work smarter, not harder!!!

Offline joehagan222

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Re:Running the numbers....................
« Reply #9 on: January 17, 2005, 09:12:52 am »
Gosh Longshot;

How You do have a way with words!! I (THIMK)--DUHHHHH

              (JOE)
« Last Edit: January 18, 2005, 12:18:16 am by TRandle »
Just for you (BABY)!

Offline Mr.fancypants

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Re:Running the numbers....................
« Reply #10 on: January 17, 2005, 09:17:51 am »
Longshot,

You're right. I should have deducted the 51,545 instead of 40,545. See, I told you I wasn't good at math. Hope this helps anyone reading it. I am gettin some sleep.
Work smarter, not harder!!!

Offline JerseyGirl

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Re:Running the numbers....................
« Reply #11 on: January 17, 2005, 09:25:28 am »
Not good at math Mr. Fancypants! You could've fooled me!   :o
Reading this makes me feel like I might need to go take classes for "special kids"  :-X

But this is good, keep it up everybody!  This is starting to click for someone out there I'm sure, even if its not me.......yet  :P
~Bird Dog in Training~

Offline liquid money

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Re:Running the numbers....................
« Reply #12 on: January 18, 2005, 03:12:46 pm »
Hey Mr.fancypants
thanKs for the info

Offline JAN

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Re:Running the numbers....................
« Reply #13 on: January 21, 2005, 02:04:36 pm »
WOW Mr.fancypants and long shot i definately got that part.Thanks
WHENEVER YOU SEE SMOKE THERE MUST BE FIRE. FOR NOW I SEE SMOKE IN REI AND I HAVE TO LOOK FOR THE FIRE.

 




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