Greetings,
I am the owner of a couple of rental properties and I am about to make decide whether to make a deal or not. I'm familiar with CAP rates, NOI, GPI, etc. Here's the issue. My current properties were acquired the "traditional" way trying to make a bit of profit by buying under market rate, but since I was buying from an individual, I would get it at around 90% or so. I have an opportunity to purchase a property from a bank. It is way below market value including my estimates at repair. I already own property in the general area so I am confident about the rental values and the ability to get people into the property. I am wondering about how to calculate the normal numbers.
The property is going for about $60k. My estimates are that it will take about $15k-$20k to bring it up to the condition of the rest of the block if I were to hire it out. Maybe $5k-8k if I do it myself.
When trying to evaluate the property for comparison(the bank owns a few), do I use the sale price or the neighborhood comp prices? This house fully fixed up would be worth about $115k-$120k. Rents in the area go for about 1000-1200/month. So is my cap rate (12k-taxes & ins)/(price + repairs) or is it (12k-taxes & ins) / 115k ? Do I use the estimated value of the property or the sales price? I.e. do I get "credit" for my instant equity in all these calculations?
Since I'm purchasing only with cash, my cash flow = NOI.
Also,
Thanks,
Brian