Property – Thinking about it as investment

The property value

  1. Price $100k
  2. Renovation cost $30k
  3. Price post renovation $190 (Around 40%)
  • The financing
    1. Money spent – $60k
    1. Down payment $30k
    2. Renovation $30k
      Loan $70k
      Potential benefit from selling
    1. 1st year:
      1. Selling: $190k
      1. Cost
        1. Other financing cost and closing cost: $10k
        1. Loan: $70k
        1. Installment: $12k (9%/year)
      1. Profit: $190k – ($10k + $65k + $12k) – $60k = $44k
        1. Money Spent: $60k + $12 = $72k
        1. Profitability = 44 / 72 = 61%
    2. 2nd year:
      1. Selling: $200k
      1. Cost
        1. Closing cost: $10k
        1. Loan: $70k
        1. Installment: $24k
      1. Profit : $200 – (10 + 60 + 24) – 60 = $46
        1. Money Spent: $60k + $24 = $84k
        1. Profitability = 46 / 84 = 54%
  • Last conclusion after working more detailed on the spreadsheet in google sheet, the calculation
    1. Financing: own money, bank mortage, private lenders (for financing the down payment and renovation)
    1. Income: sell, rental and rental – dorms
    1. Expense: installments to bank and private lenders
    1. Considerations:
    1. private lenders % for installments and profit sharing, how attractive should it be
    1. Ownership of property between me, bank and private lender
    1. Which one is better: pay full amount, finance with bank, finance with private lenders or finance with private lender and banks.
  • Conclusion
    1. Providing 20% interest for private investors are not feasible, while providing 10% are not attractive especially if without asset.
    1. The ownership of the property might became problem because the financing require personal and bank mortage.
    1. For best case regarding getting a lot of profit in the shortest amount of time is to buy, renovate to increase value and sell underprice asap with private financing of profit sharing or bank mortage with free early repayment. This can generate around 30 to 60% in the first year and keep on declining for additional years (% per annum)
    1. For combining between rental – dorm and selling so that to create layered risk, sell asap and collect rent while waiting, the financing will be preferable with bank mortage, low interest rate and 10+ years of payment plans are hard to find for private lenders.
  • Additional Notes:

    Based on the Bigger Content video about analyzing real estate opportunity, ‘the 4 box’ of income, expense, cashflow and Return of Cash on Cash (Cashflow / Cash invested), let’s reanalyze the condition above

    1. Income: $4k
    2. Expense:
      1. Regulars: $400
      1. Property management: $100
      1. Tax: $10
      1. Insurance: 0
      1. Mortgage: $2k
      1. Vacant: $800
      1. Repair $100
      1. Total: $3410
    3. Cashflow: $590

      Return
    1. $6k / $60k = 10%
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