Is This Too Much Rehab for A BRRRR?

Question

I've been speaking with this gentleman about a house he's trying to list in an up and coming area just north of the Johnson County line in KCK.

The house is a 3BR 1Bath. Needs about $40-50K in renovations, most likely $60K. New kitchen, new bathroom, new flooring. Needs the entire HVAC system to be rerouted above the ceiling through the attic space. It has brand new windows and sliding glass door. There's a screened in porch that's underneath the roofline that I could turn into a 4th bedroom rather easily. The house was filled with two hoarders and still has a smell of cats and ammonia.

Rent:

$1,195 - Current rent

$1,419 - Rentometer 24 month 3BR

$2,055 - Rentometer 24 month 4BR

$1,600 - My estimated rent for a 4BR with new kitchen, bath, flooring.

He originally valued the home at Zillow's $124,000. I explained to him that's newly or recently renovated house price. He admits the kitchen, bathroom and furnace need to be all redone/rerouted.

Stats:

3BR SQFT: 1,200

4BR SQFT: 1,425

Lot SQFT: 10,700

Built: 1954

No price history

County Assessor:

2018

$101,800

2017

$97,260

2016

$89,230

2015

$85,800

Redfin - $114K

Zillow - $124K

Remax - $106

MY OFFER: $75K

Questions I have:

- How should I propose an owner finance deal if I'm renovating?

- How to calculate how much he's saving by selling it to me off-market/not paying agent?

Updated about 24 hours ago

Anybody?

Michael Glaser

Andrew Syrios · Answer

If the home needs $40-60,000 and you'd be buying it for $75,000, you'll be all in for $115,000-$135,000. Even if the house is worth $125,000, you would want to aim to be all in for around $90-95,000.

Andrew Syrios · Answer

Don't get emotional about a house, it's just real estate, there's always more. It doesn't matter if you think the offer was reasonable, only the seller. I would just move on to the next one. Real estate is a numbers game.

Michael Glaser · Answer

@John Teachout The numbers will always tell me what to do. The owner, like some, get excited about the Zillow number. Only the Zillow doesn't take into account that this house is in a less than desirable county, but close to the most desirable county.

The neighborhood is in the middle to middle end of a transition. This area borders Johnson County, the richest and most affluent county in all of Kansas. 81st in medium income in the entire USA.

The number I've offered is what works for my numbers. I think it's pretty reasonable given the work I'll have to do to the property to make it up to par with rentals in the area. To command a good return, rent will need to be $1,400 - $1,600. The house is long overdue for a proper makeover.

John Teachout · Answer

I think the biggest thing you have against you in this situation is that there's not a motivated seller involved. If the property is cash flowing nicely and the tenants aren't squawking about the condition, why rock the boat? If the property becomes vacant and the owner is going to need to spend a bunch on it, then there may be a greater incentive to sell. This is a common scenario where landlords milk the property and don't put anything back into it, then it's run down and has a lower value but if they've owned it long enough, it may not matter to them.

Just keep looking, the whole area is full of houses I'm sure...

As far as your offer being denied, don't worry about it, happens all the time. We had an offer denied earlier this week and in retrospect, I'm glad because I think our offer was more than it should have been. If they come back, we're not putting that number on the table again.

Zach Quick · Answer

Have you physically seen the property inside and out?

Michael Glaser · Answer

I've done it. Now I'm emotional about why my offer was denied...

I think it was a fair offer, more than fair actually considering the work that needed to be done. I could've bought it at around $90 and kept a $1,100 renter in it, but the house needs real work done.

Is there a play that I'm missing? Get a renter in there for 2 yrs at the home current condition and punt the reno until construction crews aren't as busy? Meaning, timing the market dipping which is a dangerous game to play I realize.

Thoughts @Andrew Syrios @John Teachout

Michael Glaser · Answer

@Andrew Syrios Offer was denied. This is probably not a good deal even at $75.

I could probably rent it for $1100 and buy it in the $90’s, but the numbers don’t work.

Another play would be to sit on it for 3yrs and hope the market slows down. Contractors need work and I could get a discount.

I’m not trying to force anything. I think the seller and I are too far off.

Andrew Syrios · Answer

I'm not a fan of trying to get a property under contract with the intention of retrading, although if something comes up, by all means retrade. If you think the propety is actually worth $162,000 fixed up, you're a lot closer and I would aim to be all in for about 70-75% of that. Just make sure that the house a block over is actually comparable and not an aberration.

Michael Glaser · Answer

@John Teachout

Slab.

City Sewer.

There are more than a few directions I could go with this one.

Is This Too Much Rehab for A BRRRR?

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