Should this be my first single family rental?

Question

Greetings! I am looking to start into residental rentals. I found this listing and I honestly don't know what to think. The outside looks like its in decent shape. I would of course need the pool removed to rent it. But the inside is GUTTED apparently due to fire. It's in a quiet town extremely close to Des Moines Metro and in a good school district. I'd call this town a super tiny suburb. I am confident that if I do the remodel nice I can get $1050+ a month.

Here is the listing.

Here is the Assessor's information

My questions and concerns are:

• -Cost obviously. This is a blank slate inside. I've not done this yet to when i look at the pictures I can't decide if this is a gem or a turd. AM I looking at $40,000? $50,000? More? (Can any of you help me dial that in a bit?)
• -1 bathroom. With it being gutted I might be able to add a half? 
• -It was purchased by what appears to be an investor in December for 30,000. They must have decided to not go forward with remodel. I'd try and get it for that price or less if possible not only to make it feasible but it's just not worth the listing price in current condition. Assessor has nearly the same value, but it's gutted.

Please help! Any advice, estimates, or red flags I want to hear!

Darson Grantham · Answer

Hi @Andy Walsh, first off i applaud you on jumping into real estate investing!

As a rule of thumb, I try to just run general numbers on properties before choosing what I go look at.

So couple questions, do you have a contractor that is familiar with fire burn out properties?  Or are you doing the work? Has the city and/or a structural engineer confirmed it is sound and can be built out?  Aside from rental numbers have you ran the numbers to see if you could end up selling at a profit if it doesn't rent?

I’m a licensed broker in Des moines and I’d be happy to give you an analysis on the numbers as I see them.

Shana Patrick · Answer

Hi @Andy Walsh, definitely an interesting opportunity.  Personally, for a first investment, I tend to lean toward the more steady eddie, tried and true, properties with less risk. This gives you a chance to get your systems in place for underwriting, market analysis, vendors, get any kinks worked out, etc. before jumping into an opportunity that needs a ton of work, and has potential structural issues, and limited re-sale potential. I prefer properties that do not have material adverse facts tied to them, which could limit its sales potential in the future. In my opinion the home would need a lot of capital up front not only to determine its soundness, but for rehab. Without seeing the property, I would assume it would need new electrical, new HVAC, plumbing, drywall, finishes, appliances, and you would want to talk to an expert in restoring properties due to fire---as their could be issues with the roof, siding, windows. While I couldn't give it an exact number on expense to rehab, I would be concerned that it would be significantly higher than the amounts you mentioned in your post.  Without running the numbers, I would assume that your costs for this home would be more than you would be able to cashflow, even on a 10-year hold, so personally, it would be too much risk for me as an investor, too much money up front, and not enough return, or not enough return quick enough. I do not rehab properties myself though, so if you are handy, expenses may be able to be controlled, which would change the numbers for the better.

Good Luck with your venture, and keep us updated on how its going, or if you need any help!

Shana Patrick