As a newbie I have a million questions. thank god that a hard money lender is taking me under his wing and helping with my first few properties. I think i have all the i’s dotted and all the t’s crossed, however I got to thinking about how i would decide if a property is a good buy or not. I thought of making an excel spreadsheet with a variety of different tools that would help me decide if the deal is good. Below is a quick analysis of how i am thinking of structuring my analysis sheet.
Purchase price
Arv
repairs
neighborhood quality (crime, police presence).
appreciate/depreciation
leins? taxes due?
year built
is the neighborhood a rental area or a buyers area?
my question to you is, What do you look at when deciding if a deal is worth your effort?
Equity is also a very good backup plan if something goes wrong.
My criteria says that I must buy all properties at 70% of the market value minus repairs. It also says that I must have a minimum of $100 positive cash flow per month.
For rehab deals, the 4 most important things are; 1. ARV (including appreciation or depreciation), 2. Renovation Cost, 3. Soft Costs and 4. Purchase price. Rental area vs. homeowner area doesn’t matter. The price differences will be reflected in the comps, you’ll just be marketing to a different set of people. Neighborhood quality doesn’t really matter as people live in good and bad neighborhoods. Again, the price difference will be reflected in the comps. Year built doesn’t matter, that will be reflected in your renovation cost. Liens, taxes, mortgages, etc. will be reflected in your rock bottom purchase price.
How accurately you determine the ARV, renovation cost, and soft costs will be what makes or breaks you.
Closing (2)
a. title search
b. title insurance
c. escrow fees
d. various inspections
e. survey
f. attorney fees
g. transaction fees
h. recordation fees
i. title transfer fees
j. whatever other junk fees they throw at you
Marketing
RE agents
Carrying/ Holding
Utilities
Interest payments (actual payments or accrued)
Taxes
Insurance
Financing
Points up front
Appraisal
(inspections already included)
Prepayment penalty if executed
Interest on loan amount
More junk fees
Miscellaneous (Some you might include in the renovation costs)
Certificate of occupancy
Code inspections
Architect
Planning
Permits
Fire marshal inspection (depends on the property and area)
You might not have every single one, but every one does exist. Only in “The Land of Losers” are the only expenses renovation and acquistion.
But if I wholesale the deal by assigning the contract, do I have to pay those costs? So lets say I have a contract on a house for 30k, I assign the contract to a buyer for a fee of 5% (1500), I am essentially selling the house to my buyer for 31500. I guess I am confused about assigning a contract to a buyer for a house I have under contract.
Those are the soft costs for a rehab. You won’t have any costs for assigning a contract besides possibly earnest money that of course would be reimbursed by your buyer.