Seeking advice on Investment Strategy

5 Replies

Hey BiggerPockets community!

I have received a lead from a motivated seller. I am trying to figure out what kind of investment strategy I should go about this deal. (Stockton, Ca)

It’s a duplex with tenants occupying both units located in a bad quality neighborhood. They do not want to hassle with brokers so they would like to sell off-market, property has been paid off so I would assume they have equity built. Seller has mentioned both units are outdated and poor condition. We have set a time and date to view the property this weekend.

I do have a lender and realtor so financing and legal contracting is not an issue but I have not yet come to them for advice. 

My question is:

How could I generate profit with this off-market duplex in a bad quality neighborhood?

Thank you in advance for your help!

Gerald Donaire

@Gerald Donaire what area are you asking for help in? Running the numbers? A short cut to profits? One thing you can never fix is location. And with that, you’ll attract certain types of tenant. And that certain tenant might trash your place/sell drugs/throw parties. There’s got to be a reason why the current landlord just wants to get rid of it. The numbers might look good but think about the headache you’ll take on for $200 a month. One repair might kill your cash flow for the year. Nothing is easy and simply asking how can I be rich wont get you much on here.

Yes I am asking for help on running numbers. I will be meeting with the seller to check out the property so I will dig up as much information as I can but I see what you’re saying, I guess I’m looking for quick profits but I understand it does not come that easy. Thank you for your answer man I appreciate it!

@Gerald Donaire

Well, you've basically got two options for this duplex in Stockton:

1) Flip it

2) Hold it

To flip it, determine what the current market value is (your agent should have already done this for you), what the property will be worth after you fix it (looks for renovated comps in the same area, realtor can help), what the repairs to reach ARV will cost (contractor can help estimate), and how much you can get it for, which is all negotiation.

To hold it, determine your PITI and holding costs after purchase, and use current rents and pro forma market rents to see if that's worth it to you to hold it.

That's all there really is to it.

  1. What is the property worth now?
  2. What would it be worth after you renovated it?
  3. How much would those renovations cost?
  4. Does the current rent offer positive cashflow with your financing?
  5. Would you be able to increase rent after buying or renovation to get cashflow if it doesn't now?
  6. How much can you buy the property for?

Those six questions answer just about everything you need to help you make this decision. Best of luck :-)

@Gerald Donaire

Sure thing man. Happy to help. Lived in Stockton for over 10 years so know the area well. Feel free to reach out if you have more questions or need help with the transaction.