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## What Do I Need To Get?

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**THE SCENARIO**
I'm looking to buy a house, fix it up, and sell it for a profit. I'll buy the house for $260,000 and put $52,000 of my own money as the down payment. I plan to finance the purchase and the renovation with a short-term loan at a high interest rate (called a 'hard money' loan). The terms of this loan are as follows: $258,000 total borrowed ($208,000 for the house and $50,000 for renovations), $1,827.50 monthly interest-only payment, $6,650 in fees and points due at the end, and a maximum of 12 months to repay.
**The question:** If I pay $260,000 for the house initially, and fix it up with the $50,000, and sell it in 12 months, what does my sale price need to be in order to make 15% on my money? Assume it costs 10% of a house's price to sell the house, and ignore the effect of taxes.

**THE SOLUTION**
This one has a few steps. In them, I need to figure out how much money:
**Step 1: What do I need to get after the sale?**
First things first, make sure the calculator is using 12 Payments per Year.
N: 12 (I'm going to sell the house after 12 months)
I/YR: 15 (My desired return on my investment is 15%)
PV: -52,000 (I have $52,000 in the deal)
PMT: -1,827.50 (I have to pay $1,827.50 every month to service the loan)
FV: (This is what I'm trying to find)
I need to net **$83,861,55** out of the sale to make 15% on my money.
**Step 2: How much will I owe at the end?**
At the end of the loan, I'll owe the initial $258,000 plus the $6,650 in fees. $258,000 + $6,650 = **$264,650**. The loan doesn't amortize (pay down) at all because all of the payments are interest-only.
**Step 3: What do I need to get after sales commissions?**
I have to pay off the loan for $264,650 and I need to net $83,861.55 out of the sale after doing so. Therefore, I need to get $264,650 + $83,861.55 = **$348,511.55** from the sale after paying the realtors and fees and whatnot.
**Step 4: What does my sale price have to be?**
If the sale price minus 10% is $348,511.55, that means that 90% of the sales price is $348,511.55. Therefore, the sales price is $348,511.55 ÷ 90% = **$387,235.05**.
If I'm buying the house for $260,000, that means that I need to sell it for $127,235 ($387,235 - $260,000 = $127,235) more in one year, which amounts to a 48.94% increase in value ($127,235 ÷ $260,000 = 48.94%). It would be unlikely that normal market appreciation would allow this to happen, but if I'm buying the house at a deep discount and/or if I'm adding square footage, adding a mother-in-law suite, or in some other way dramatically increasing the value, it *might* be possible.

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- I'll need to net out of the house to make my desired return.
- I'll owe at the end of the loan.
- I'll need to sell the house for to pay off the loan and make my return, after sales costs.
- I'll need to sell the house for, before sales costs, to get to that amount after sales costs are paid.

What do you think? Should I buy this house? What would it have to be worth today for that answer to be an unqualified 'yes'? How did you come up with that number? Let us know in the comments!