Expensive First House. Buy or Not?

Question

Hello!

I am looking at buying a house, and it is on the expensive side when I ran the numbers. Right now it is $300,000, 2 beds and 1 bath in Orem Utah. It is a little old, and some new floors and a window or two will have to be put in, so a little repair is needed. Without looking at the price, this is what I am looking for: a residential home that needs a little bit of work to apply the BRRRR method.

When I look at the house, down the road I can picture a small ADU in the back and a finished basement added on to the main house. This can add two or three more rooms, making the numbers look a lot better. So the question I have is: Should I buy this home with the potential that I see? I don't want this to be a purchase solely based on emotion (although I do think it is pretty cool), or bad numbers/estimates on my side.

Any tips and tricks would be greatly appreciated!

Caleb Ryan · Answer

I would be careful, especially if this is your first investment property. I would always purchase based on the numbers, and make sure you have multiple exit strategies in mind. Maybe look at purchasing as a primary residence with an FHA loan, and house hack if possible.

Sam Kimball · Answer

I got a property in Orem last year as a first house. At 3% interest rate and a little over 5% down it cashflows fantastic. Plus the appreciation over the last year is already at +16%. I have been able to take some of that equity and put it towards another downpayment while also leaving a cushion with the remaining inflation to not become over leveraged. Just have to search for the deal.

Jon Q. · Answer

It is unlikely you’ll find anything your area that will cash flow.  Trust me, I’ve looked.

You’ll need to invest out of state to cash flow.

Jonathan Bonin · Answer

I just ran the numbers using the BRRRR Calculator (estimated a couple of numbers) and it doesn't look good (-80% ROI in the first year -60% in the second). I am not a pro yet, else I would share the pdf.

When I ran the numbers in my own excel sheet, the numbers were a bit different. It had a better outcome, but still bleak.

Long story short, it seems like it is better to buy a good (profitable) deal right of the bat rather than build it (through construction) into a good deal.

Thanks for the input!

Tyler Cazier · Answer

I agree with the posters already: BUY ON THE NUMBERS NOW, NOT WHAT THEY COULD BE. I too am an investor / agent in Orem. Feel free to reach out if you'd like to talk.

Expensive First House. Buy or Not?

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