I was reading your book again. Good stuff. Let me throw one at you based on your formulas.
Home REO worth 90K Needs 20K in work.
Based on the formulas in the book using the 70% of value – repairs it would look like this:
$90,000.00 x.70= $63,000.00-$20,000.00 in repairs would be a MAX OFFER OF $43,000.00.
Now this property would rent for $750.00 per month. Using your 2% rule as follows:
Gross Rent: $750.00.
Based on $750.00/.02 = $37,500.00
So my question is which one would you pick. The lower one I would think.
I believe he stated in his formula in his book that whichever is lower. Either way it seems like a great deal to me. Good luck.
That is just it. I would not pay 43K for this property. Maybe 35K or a little lower. I just wanted to get some clarification in my head while reading the book.
Well on page 131 of the book is the formula. The 2% rule then - repairs. Gotta read better. :beer
Yes, pick the lower and you still need to do a cash flow analysis to make sure that you’re getting the $100 per unit per month positive cash flow (or whatever you have chosen).
So, here is the way I see this deal:
Gross rents: $750
Operating Expenses: $375
Mortgage Payment ($37,500, 30 yr, 7%): $250
Cash flow: $125
I think this would be a good deal at or below $37,500!