I recently picked up a property, perhaps a bit in haste without crunching the numbers ahead of time as I normally do. Normally, my strategy has been buy & hold. But the numbers don't seem to make a lot of sense on this one. I have flipped one house and learned a lot...but it was a flop. I have three rentals and have had good success. I would give it another go on a flip but my concern is putting the property on the market during the winter months. Below are some numbers:
- Purchase Price: $155,000
- Estimated Repairs: $20,000
- ARV: $220,000
- Closing Costs (2 closes - initial HML, refi to conventional): $15,000
Flipping this would probably get me around $15,000 profit after commissions, etc. I could put in less to get it rent ready (likely $500-7000). But I wouldn't expect to have the house appraise for $220k if that is all I did. So my cash out of pocket could be around $30k + closing costs and a cash slow around $200/mo with less than 6% cash on cash return. The only silver lining in this scenario is some equity capture (maybe around $30-40k).
How would you approach this one?
How much monthly rent can you get here? We could reverse it out of your cash flow estimate, but easier to ask. How much monthly do you get on other properties? If this one is a better producer, and you expect appreciation, I suggest holding. It depends on what opportunities you might lose while tied up in this.
$1700 comps. But if I want to fill it quickly in December/January probably $1650.
Cash flow on my other properties is $300-550. Typical COC return is around 10-12%.
How did you make out with this and what did you end up doing?
@Dan M. I listed it for rent in December at $1695. Very few bites + competition dropping theirs to $1600. In January I got aggressive and listed it for $1500, which drew in a ton of people. I was clear with everyone that this was only for 6 months. I figured if I was going to take a loss I'd like to change the tenant cycle to have it available in the summer months when demand is at the peak. Getting it occupied was my main goal. I ended up with a tenant who is paying $1575 for the first 6 mo, then $1775 for months 6-12. The increased rent is due to pet fees.
So all in all its not a homerun but at least your cashflow positive. Do you see yourself flipping this or going the buy and hold route considering you now have a tenant for one year?
Buy and hold is my model. But if I cannot turn it into a better performing asset I may try to look to seller finance a sale. I want to see if I can polish this rock a bit first.
Free eBook from BiggerPockets!
Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!
- Actionable advice for getting started,
- Discover the 10 Most Lucrative Real Estate Niches,
- Learn how to get started with or without money,
- Explore Real-Life Strategies for Building Wealth,
- And a LOT more.
Sign up below to download the eBook for FREE today!
We hate spam just as much as you
Create Lasting Wealth Through Real Estate
Join the millions of people achieving financial freedom through the power of real estate investing