Re: Rehab formula question. - Posted by JoeB(Atlanta)
Posted by JoeB(Atlanta) on March 16, 2000 at 17:14:38:
Hi Tim, the formulas you can use to analyze a rehab house are varied–different strokes for different folks.
Here’s my 2 cents (based somewhat on LeGrand’s stuff): AfterRepairValue(ARV) minus BuyingSellingHolding(BSH) minus RehabEstimate minus Profit equals MaximumAllowableOffer (MAO).
ARV is established by getting comps/sales prices.
BSH averages 15% of the ARV for us; these are all buying and selling closing costs, plus cost of money, debt service, marketing, monthly utilities, insurance, etc.
Guestimating the Rehab itself is a whole course in itself (I think Kaiser and LeGrand have good courses on this).
The Profit we like to ‘shoot for’ is about $1 to $1.25 of profit for each $1 of Rehab we’re projecting (ie we’d like $20k in rehab to generate $20-$25k in Profit), don’t forget to add in additional profit for yourself if you’re wholesaling (ie flipping as-is) the house.
MAO is the most I’ll offer, so I start a little lower and work up to it.
There are lots of other formulas–consider them all and use whatever fits your risk/reward/experience.
Best of success,