“I’ve seen the term cents on the dollar used quite a bit in real estate. How do you calculate cents on the dollar and what does this term mean?” – Mary of Lynnwood, WA
Great question! Cents on the dollar can be interpreted in a couple of different ways. The simple way is by dividing the purchase price by the value of the property. Let’s say you are buying a house for $50,000 and it will be worth $100,000, you are purchasing the home for fifty cents on the dollar. Other people may look at it and factor the renovation costs into the cents on the dollar. Let’s say you are buying the property for $50,000 and you have a $10,000 renovation cost, then the project would be a 60 cents on the dollar project. Generally cents on the dollar is calculated by purchase price divided by the after repair value (ARV).