Original message
| wgreau
  |  "Question regarding rehabbing......."
, Fri 3 Nov 14:56 
When a person acquires a property and then puts some $ into it to improve its value, what rate of return do the improvements generate? Example: Purchased at $26,550 "subject to", adds in
$1200 for late pmts and $235 for back taxes making the investment $27,985, then does $5,000 in repairs & upgrades for a total of $32,985. Would those $5,000 in improvements yield an
70 to 80% return in value increase when appraised? I'm not talking about the selling price of the property, rather, the yield on the cost of making the improvements/repairs. I will appreciate any comments. 
"Procrastination is the natural assassin of opportunity."
William Columbus OH
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Replies:
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| Dealmaker
Moderator
| "Clarity" , Sat 4 Nov 07:44
Hi Bill: You've always got good questions.
quote:
When a person acquires a property and then puts some $ into it to improve its value, what rate of return do the improvements generate?
Example: Purchased at $26,550 "subject to", adds in $1200 for late pmts and $235 for back taxes making the investment $27,985, then does $5,000 in repairs & upgrades for a total of $32,985. Would those $5,000 in improvements yield an 70 to 80% return in value increase when appraised?
Your Basis in the property is increased to the amount of improvements. IF there are back payments involved you NEED to include them in your contract price for the property.
The appraisal increasing the same is not likely... it could increase 3 fold of the improvements or only 50% of cost of the improvements.
It depends on what the property is ACTUALLY worth to begin with..
EXAMPLE
If you have a property worth $50,000 (when it's in perfect condition) however, it needs repairs, and you spend $3,0000 on repairs and you purchased the property for $35,000 ..... Then the property would be worth $50,000!!!!!!!
If you have a property worth $90,000 ARV (after repaired value - in perfect condition) and it needs repairs of $15,000, and you paid $80,000 for the house... Your Basis in the property is $95,000 however, it may only be appraised at $90,000!!
IMPORTANT OPINION
This IS NOT TO SAY you cannot PUSH appraisals UP!! Ethically!!
The TRUE WORTH of a property is what someone PAYS of it!!
A rehab I recently sold was estimated to worth $48,000 to $53,000. So I started asking $59,000... I had 2 buyers for the property and neither knew about the other. And neither negotiated ONE DOLLAR!!!
The couple that purchased it wanted more items and small changes before they moved it so I charged them more... The contact price was increased to $62,000!!! That's around $10,000 more than any house has sold on the BLOCK and the houses are pretty much identical. Additionally I'm in a slow market!!
SO... You can increase the value of a property. However, you cannot increase the property of every dollar you spend when you pay too much. The key is your purchase price.
If you buy at 50% of value and spend 5% of it's value to repair, your return is astronomical!!!
Or is spend too much for the property, you can loose your hinny!!
Dealmaker
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| | wgreau
| "Re(1):Clarity" , Sat 4 Nov 10:07
Dealmaker: It was nice of you to honor my question as being a good one, however it appears what you're saying is "It just depends" on numerous factors and I agree, but with some reserve. By that I mean...it is published that a bathroom or kitchen upgrade will yield an 80% return when the property is sold whereas some other type upgrades will yield 65% return when sold. I suspect there is no such guideline where our investments are concerned, yet I felt I would ask. My interest in asking comes from the thought of...the yield might be greater if the property were sold "as is" versus doing the repairs/upgrades. Put more simply, I think I would have a greater yield if I sell my "low-end" property as a fixer upper for current appraised value versus doing the repairs/upgrades and selling for the higher price. I don't really know (?).
It may not be worth the discussion since it could go either way.
"Procrastination is the natural assassin of opportunity."
William Columbus OH
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| | wgreau
| "Re(3):Clarity" , Sun 5 Nov 18:23
TJack: Thanks for your response, I appreciate your thoughts on the question I posted. I have all of LeGrand's courses and numerous others, as well. I will look up that article by Joe Kaiser out of curiosity...thanks for mentioning it. I don't normally pursue houses like this one but there was sufficient profit potential and I am a sucker for a woman in trouble. (Could be a mistake if not careful)
If I flip this one successfully for full profit I will feel good about what I've done. I don't really want to get into rehabbing it but wasn't sure about the yield factor. My prospects from my REIA group haven't responded to my promo' so am placing a newspaper ad for a fixer-upper tomorrow in the local paper.
Like you, I prefer to pursue properties around the $100,000 and up range (with some exceptions). I am a retired person and am not looking to be so busy as most others on this board.
William Columbus OH
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