BiggerPockets

I found a house in the Youngstown, OH area - one of the better parts of town for $9k. The home needs about $10k in work and the comps in the neighborhood range from $33,300 to $64,900.

If I pay cash for the home and use my credit cards to purchase materials and do the work myself, I figure I can make it rentable for about $6k and spend my two weeks vacation doing the work.

Rents in the area are around $500 per month and the property taxes are about $380 per year.

My plan would be to buy and hold.

Any advice please?

Here are the cons: the house is extremely cheap. Why is this you must ask yourself, are there more unforseen problems? If you yourself are not a professional contractor, probably get a home inspection first.
You forgot you will be paying homeowners insurance and if its for rental purposes the rates are somewhat higher than if owner occupied.

If you do not live in the area you will need a property manager. This will absorb 7-10% of your monthly rent take. I strongly recommend a reputable property manager if you do not live very close, basically within the same town. If you have a manager you will need to provide addtional money (which is usually taken from the rent cut) for misc services and repairs which is going to be common on a older house that is not being totally remodeled, such as fixing leaks, changing filters (tenants are usually lazy in DIY areas), and other minor nuisance repairs that can happen at any given time.

Pros: Even if you spend double what you anticipate for repairs you are still below the lowest price comp range and may have some equity. You will have no mortgage and only a credit card bill to pay down which is not really much. You will have some good positive cash flow when its rented. Even if its not rented the home is basically free and clear, so you will not struggle financially if its vacant. Historically real estate appreciates, your strategy buy and hold should be successful overall IMO.

well, I purchased the house and actually got it for $7k. I had a local handyman visit the property and took photos and estimated all the repairs that are needed and he came in with a total of $6200 for interior and exterior painting, clean-up, refacing kitchen cabinets, and updating the bathroom.

He is going to be starting work within the next 2 weeks. He also knew a local property manager that charges 10% and estimated the home should rent for $550 with no problem at all.

so here's the breakdown of the actual deal:

7k - purchase
1k - closing
6k - repairs

14k - total invested

$6600 - annual gross rental income
$600 - management fees
$1000 - any unforseen repairs
$600 - property taxes

$4400 - estimated net income

As far as the contractor goes - I think I got really lucky and found a truly honest one. When he went to the property he took a video camera and a digital camera - he pointed out everything that needed work and explained it on video - for instance the bathroom floor was showing some signs of wood rot. He pulled back a piece of the vinyl tile and lightly pushing down showed how the wood just broke apart. He also recommended repairs on some of the things I was simply just going to replace completely. He runs every expense by me and gives me the good, better and best options and he documents it all and emails pics and video clips as he's working on things - Plus, his labor rate is extremely good - a flat day rate.

I know some people may be asking why his rate is so good - well, at least I know I was wondering. Without me even asking he explained to me that his main business of building decks is extremely slow in the winder months so he works with a property manger then to keep food on the table. We work around his schedule for the most part and that's fine with me.

The home had a couple of windows that I was going to completely replace and did not really like the way the replacement windows I was looking at looked so modern - my contractor completely rebuilt the old window, put in new glass panes, stained and sealed it and keep the original look - at the price was exactlly the same as a low-end vinyl window.

Very, very happy with him!!!

I'm glad to hear the good news. Post up more update as things progress.

how did the final product turn out?

UPDATE

The work is almost done on the house. We did some things that most would not consider for a rental. For instance - in the kitchen we were just going to repaint the cabinets, put new hardware and new faucet. Which would have been fine, but we actually wound up installing new cabinets, the prebuilt ones that Lowe's stocks, and put on a new lamintate countertop, sink and faucet. Also put in new appliances. We used a 12x12 stone tile on the floor instead of vinyl. In the bathroom we actually did the tub/shower surround in tile instead of buying on the the ready-made tub walls. And used a nice ceramic tile on the floor and lower part of the walls. All new fixtures in the bathroom. New carpet in the bedrooms, hallway, living and dining room.

The property manager did a walkthrough yesterday and said the house should rent fast because of all the improvements.

NOW THE BEST PART:

We made an offer on another property that is right around the corner. It has a brand new roof, new siding, trim and rain gutters - but needs a new kitchen, bathroom and flooring.

The paint is actually peeling away from the plaster on the walls and ceilings, but the plaster itself is still in good shape.

They wanted $9,900 for the house, we offered $6500 and they accepted this morning.

The houses are in Ohio. Decent neighborhood.

The property manager I'm working with is also a police officer there, so I think I'm getting a great 2 for 1 deal on that - Property Management and a Security Patrol - what more could you ask for.

HaHa - yeah, a good guess for sure - just shows you've done some homework ...but I was suprised you did not mention Pittsburgh, PA or Muncie, IN

Wish I could find deals like there are in these areas closer to San Diego :roll: :roll:

In some areas... well, you could say that was true :lol: For the most part though no, it's not like that at all.