back to the forum after a couple months…been spinning my wheels but looking to break out. Had a couple questions about doing deals with landlords…
When I’m analyzing the deal, I’m trying to get it 50-65% of ARV but how do i include rent into the formula. Do I just try make sure the house rents for the same amount as the others equivalents in the area? Also, how do I figure in holding costs and closing costs? Having never done a deal, I’m not sure what these costs usually go for. Thanks so much for the help.
Yes, that is right. If you’re trying to find out what a potential roi or cap rate would be do the following:
Find out how much the house would rent for, then multiply it by 1 year (12 months) like this:
~ $600 x 12 = $7,200
Figure out yearly taxes (rough amount) & subtract it from the yearly rent income:
~ $7,200 - $2,800 = $4,400
Divide $4400 amount by the purchase price, and you’ll get the ROI or Cap Rate:
~ $4,400 / $35,000 = 13% ROI / Cap Rate
Is way you know in 8 years your investment is paid for. This is another formula you can use in an investment. It works good with commercial deals, too. You’re basically taking the yearly NOI, dividing it by the asking price or purchase price, to get a cap rate. What you’re looking for is anything 10% & above. 8% or 9% is still ok in some cases, but most buyers these days like deals that have a good cap rate, good area, and good upsides.