Best way to analyze a deal???

Rehabbing, Fix and Flip, Rental Properties
1

I have a question on the best way to analyze a potential deal. The formula I was thinking of using I wrote out below. Feedback as to whether this is a good way to calculate would be greatly appreciated. I ‘m hoping to buy the house for 95K and sell the house for 140K. Here is what I have been doing…

$140,000

  • $ 8,400 (6% realtor commission)

    $131,600

  • $ 95,000 (original purchase price)

    $36,600

  • $15,000 (projected rehab budget)

    $21,600

  • $  7,128 (33% tax)

$14,472 (profit)

I know these numbers are only estimates and other holding costs will play a roll in the overall picture, but I’m looking for a formula in which to start the process.

2

Howdy Eastsideguy1124:

You will need to add the expenses of buying the property including the appraisal and inspections and the closing costs you will have to pay. There are also other closing costs when selling other than just the commission. I would also use a discount broker to get the property listed in MLS for a minimum cost. I pay a flat fee of $400 plus 3% to the selling agent and add a $1000 bonus if no activity.

Your formula is simple, final sales price less costs equals profit.

3

Generally what is the % of closing cost the seller pays, 3 %? And were in my formula should I input that? 3% of the sale price?

4

There’s lots of fees when buying and selling real estate. Some of it depends on the state that you’re in. Where are you located?

When selling a property in Massachusetts, there’s a $4.56 per 1k stamp tax that the seller pays, but the buyer doesn’t pay it. Also most sellers haven’t been contributing to closing costs due to the hot market in the past, but sellers are a bit more flexible now although there still aren’t a lot of listings where the seller is offering to pay closing costs.

As for listing the property, I would skip the $1k bonus and just lower the asking price, every time there’s a price change (higher or lower) the status of the property changes and goes out with the daily emails that people signed up on MLS get. No price change means no mention in the emails. Some people on the local MLS are a little sneaky and will raise the price a little, then lower it again in a few more weeks in an attempt to generate more interest. I guess it sorta works as I do end up looking at it again, but then I just realize that it’s still overpriced.

Also you may want to consider holding it for more than a year. Then you may end up in the 15% long term capital gains rate. And if you want to keep on investing in RE, you do a 1031 exchange and then don’t even pay the tax. Of course you will in the long run, but as someone else once said, in the long run we’re all dead.

Just to give you an idea of all the fees you need to keep in mind. Attorney closing fees, registry of deeds filing fees for mortgage and deed, title insurance (the bank will make you buy it if you’re getting a mortgage), appraisal, home inspection, etc. Your third party fees could easily be 2-3k or more.