Hi Folks, in order to understand what I am talking about Fix and Hold we need to review simple rental investment. Buying a rental is in my last blog.

 

When buying a rental investment one must look at the cash return on investment. That is the net profit divided by the initial cash investment. As exampled in our last blog, the yearly profit after paying the payment was $2,400. The investment was $28,000. Divide the profit by the investment and the return (ROI) was 8.39%. In addition to the cash return there was appreciation and tax advantages that could bring your return as high as 40%.

 

When doing a “Fix and Hold”, follow the same formula. The only difference is adding the costs of improvements into the initial investment. Using our previous example let’s look at the same property but assume it needed $8,000 of improvements for yard, paint and carpet. This is how the formula would look:

 

                                                Home Price                        = $130,000

                                                20% Down Payment        =$26,000

                                                2% Closing Cost                                = $2,600

                                                Repairs                                 =$8,000

                                               

                                                Total Investment             = $36,600

 

                                                Loan Amount                     = $104,000          

                                                Rent                                      = $950 per month

                                                Payment 5 ¾%                  =$750 per month

                                                Profit                                    = $200 per month

                                                                                                =$2,400 per year

 

Cash on Cash = Yearly Profit = $2,400. The investment w/repairs is $36,600. Divide profit by investment - $2,400 divided by $36,600 = 6.56% return on investment (ROI). Not bad but there is more.

You also get to add appreciation which I average at 3%. Add 3% to $135,000 (assuming the improvements improved value) = $4,050.

 

                Add profit to appreciation $2,400 profit

                                                                    $4,050 appreciation

                                                                    $6,450

 

Now your return is $6,450 divided by $36,600 = 17.62% on investment. Pretty nice but that’s not all!!

In addition to hard cash as shown above there are tax deductions that are allowed that will really make your profit grow. Once again know your numbers. Call me, I do!!

 

Thanks,

 

Brian