Is it worth buying fully renovated properties for long term investing?
Member since 2021 · 9 posts · 6 votes
Is it worth buying fully renovated properties for long term investing?
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Rental Property Investor · Oregon City, OR · Member since 2020 · 324 posts · 780 votes
3yHey David,
I can chime in here. That's what I did. My first few deals were turnkey and they've been performing well. I actually spent a whole year actively investing doing BRRRR deals. I still couldn't recreate the cash flow I had going with my turnkeys. And I put in a ton of man hours.
@Zach Lemaster and his team helped me and he's been a great mentor. Take a look into their company and see if they can help you.
13 Replies
- Investor · Tampa, FL · Member since 2019 · 1k+ posts · 1k+ votes3y
Hey @David Travieso,
If the numbers work, why not. In today's market since prices are settling down you can see more supply of remodeled properties, which leaves the properties that need cosmetic updates behind which is beneficial for a long-term investor because you get to purchase at a good discount and add value.
Always get the property inspected by a professional and he would be able to assist you with referrals and recommendations for the work needed on the property.
Good luck!
- Real Estate Agent · Member since 2023 · 92 posts · 80 votes3y
Can't go wrong either way to be honest. Overtime, the fully renovated ones will cash-flow better. However, so will the ones that need updating. It sounds like your main concern is having the time/money/experience to fix it up? If so meet some good local contractors!
- Realtor · Providence, RI · Member since 2022 · 404 posts · 262 votes3y
Hi David, connect with an experienced contractor you can trust; just note that in this business risk will always be present regardless of your experience.
The BP famous BRRRR strategy is something to consider and study if not already which takes into account both equity appreciation and cashflow. I believe the idea that a fixed up property will cashflow better is not always true, generally you will be buying at high prices and will likely have to dump a lot of your own equity in order for it to cashflow.
As long as you get it for a good price. ITS ALL about pricing. So many want to buy value add out of state. I hear this daily. Well how are you going to do it? You are not "swinging the hammer" You are not the one dealing with all the inspectors, contractors etc. So you want someone to find you a SUPER deal do all the work, (all you are doing is closing) , and you make all the money, Not going to happen I keep those but do provide good deals, just not SUPER good lol. So yes, if you can get a rehabbed house for a good price, who cares up or down 5%,if you are thinking long term, have good rent at least 10% net cap, then go for it
All the best
- 3yStephanie P.Pro MemberWashington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
Quote from @David Travieso:
Good day BP family,
I'm a newbie investor looking to finally take action of my first property. The last two years I have read and heard that it's better to buy distressed properties so you can add value (equity) to it. Which makes sense.
With that being said, I'm a bit scared of biting off more than I can chew. I don't have much experience with rehabbing properties.
I see properties fully renovated and I think " wow, all I need to do is buy this and then rent it out." But of course the numbers need to work.
If I plan on holding these properties for the next 20-30 years, how much importance should I put on adding equity? I prefer positive cashflow if I had to choose.If there is any advice or helpful tips, I greatly appreciate it. Thank you ALL!
Here are the tips I give to new investors
House hack if you can.
Use an FHA 203K loan type so you can renovate a property the way you want it using the bank's money
Get multiple units using FHA so you can get the most doors with the least money out of pocket
IF house hacking is out of the question, look for seller financed properties.
If that's out of the question then use conventional financing as much as possible. It's the least expensive with the lowest cost.
Find properties by going to meetups and REIA's and talking to investors
Build a team of people you can trust to help you. Contractors, Realtors, lenders, brokers, insurance folks and title companies
Good luck and all the best
BTW Remember it's all just a math problem. If the numbers work, pull the trigger.
Stephanie
- Property Manager · Raleigh, NC · Member since 2014 · 729 posts · 596 votes3y
@David Travieso
People look to add value because it helps make the numbed work. In some markets, trying to find turnkey properties that cash flow are almost impossible to find. Finding a fixer upper allows the numbers to work.
Some issues anyone can fix. Painting, new appliances, etc can be done by anyone.
- Investor · Member since 2020 · 291 posts · 592 votes3y
Hi @David Travieso!
You need to come up with what you feel is an acceptable return for your time and money and then learn the strategy(ies) that will allow for those returns. If the strategies require skillsets you do not currently have, you will need to learn those skills or build a trustworthy team to fill those roles.
I had similar concerns to you, so I decided to start with a turnkey property and it has helped me learn a lot about buying and owning a rental property. That knowledge is invaluable as I continue my investing journey and decide what my next steps are.
Post below describes my first purchase.
Best Wishes!
- Real Estate Broker · Chicago, IL · Member since 2014 · 2k+ posts · 1k+ votes3y
Quote from @David Travieso:
Good day BP family,
I'm a newbie investor looking to finally take action of my first property. The last two years I have read and heard that it's better to buy distressed properties so you can add value (equity) to it. Which makes sense.
With that being said, I'm a bit scared of biting off more than I can chew. I don't have much experience with rehabbing properties.
I see properties fully renovated and I think " wow, all I need to do is buy this and then rent it out." But of course the numbers need to work.
If I plan on holding these properties for the next 20-30 years, how much importance should I put on adding equity? I prefer positive cashflow if I had to choose.If there is any advice or helpful tips, I greatly appreciate it. Thank you ALL!
Nothing wrong with purchasing fully renovated properties. Do you due diligence on the following:
1. Have a professional inspect the fully renovated property- We've purchased many fully renovated properties & there's always something that isn't exactly right.
2. Even if it's fully renovated purchase a Home Warranty package. Have the seller pay for the 1st year but you pay for subsequent years. Why? If any of the big mechanical items or appliances go bad you'll be covered by the warranty
3. Double & triple-check the value against recently sold comparables. Fully renovated usually sell at a premium. Check to make sure that the premium being asked is comparable to what's recently sold.
4. The most important part- Check the rental comparables, and vacancy rates...- Will the property have a positive cash flow and meet your Return on Investment (ROI) requirements? - Property Manager · Member since 2022 · 196 posts · 125 votes3y
Hey there,
I can see where you're coming from. When I bought my first house-hack (3-family) I was nervous because my network wasn't as strong as it is now in order to tackle problems. You will grow into this with time for sure though.
Buying a fully rehabbed property will cost you more up front most likely and you'll pay a premium. Generally your cap ex, initial maintenance, and "oh ****" costs will be low or nonexistent in the beginning. So, if the numbers work and you're happy with the cash-flow in the deal then you're good.
That said, you have to remember your network is your networth. Getting a property that needs the value add up front can be very beneficial for you. Higher equity up front, chance to pull your money out sooner to repeat the play, you gain a TON of experience in a short period of time. Partnering with someone who has the skills that you lack can be a great way to take down a deal like this.
Get familiar with contractors, investors, realtors, and property managers. Any one of those thats good at their job will be able to get you referrals or help guide you through the process that you'd be going through. For example, our company is mainly property management but we have contractors, multiple realtors, access to capital/experience/knowledge - all in house. So our clients who buy with us don't have as much fear when they buy value adds/large projects. We can steer them through the whole thing even after closing so they can sleep at night.
- Rental Property Investor · Oregon City, OR · Member since 2020 · 324 posts · 780 votes3y
Hey David,
I can chime in here. That's what I did. My first few deals were turnkey and they've been performing well. I actually spent a whole year actively investing doing BRRRR deals. I still couldn't recreate the cash flow I had going with my turnkeys. And I put in a ton of man hours.
@Zach Lemaster and his team helped me and he's been a great mentor. Take a look into their company and see if they can help you.
- Real Estate Agent · Member since 2019 · 569 posts · 257 votes3y
Quote from @David Travieso:
Good day BP family,
I'm a newbie investor looking to finally take action of my first property. The last two years I have read and heard that it's better to buy distressed properties so you can add value (equity) to it. Which makes sense.
With that being said, I'm a bit scared of biting off more than I can chew. I don't have much experience with rehabbing properties.
I see properties fully renovated and I think " wow, all I need to do is buy this and then rent it out." But of course the numbers need to work.
If I plan on holding these properties for the next 20-30 years, how much importance should I put on adding equity? I prefer positive cashflow if I had to choose.If there is any advice or helpful tips, I greatly appreciate it. Thank you ALL!
Turn key can save you on time and risk. If you wanted to build a faster equity position I would learn to renovate in the future or have value add.
- Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes3y
You'll never have experience if you don't do it. If you can find turnkey property that is at a discount than I would do that all day. Distressed is where you can get steep discounts.
- 3yDrew SygitBusiness MemberProperty Manager · Royal Oak, MI · Member since 2012 · 13k+ posts · 9k+ votes
@David Travieso everything is a tradeoff - the challenge is making sure you KNOW the tradeoffs!
If you buy a turnkey, Class A property to rent out, getting a mortgage with the standard 20-25% down - you're highly unlikely to have positive cashflow for 3-5 years.
---How will you cover the negative cashflow for that period of time, until rents increase enough for positive cashflow?If you buy a Class B property to rent out, you should at least break-even from day 1 - if you're patient and will to make multiple offers to ge a property that meets your metrics.
We don't recommend newbies buy Class C rentals to start out - unless you hire a well vetted PMC to offset your lack of experience.
Another common newbie mistake is using the same Vacancy Factor, Cap Ex est, etc for every property Class - they should be different for each Class.
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