Alright Milwaukee, Wisconsin real estate people. So I was looking to roll some of my money out of the my stock portfolio into another cash flowing property. I own one duplex in Bay View, and stumbled upon another deal in Tippecanoe, about a block in from Howell Avenue. So when my realtor and I looked at the deal, there were some foundation issues, which we wrote were to be fixed 5 days prior to close (per the engineering report), in addition the lot came with an additional side lot.
The seller wanted $30k for this additional lot, I included it into my offer for basically the property at $195k and the additional lot for $18,250. The entire deal is for $213,750 for an upper and lower that can probably fetch $1100 and $950.
So anyways, we moved forward in the transaction and the bank noticed on the appraisal that the lot division was not how it was disclosed. We had reviewed the lot, but later found that the lot was divided into 3 parcels, and not two...in addition the seller had liens on him. This finding changed the deal completely in my eyes. We just had the appraisal and the bank valued the property at $213k without the additional lot, however I'm starting to think I'd be better off taking my $60k in cash and working with a partner, finding a cash deal, and growing my cash reserves with a BRRRR. I'm not overly concerned with a worst case scenario in which I lose out on my $2k of earnest money, but I'm wondering if I should even pursue this deal or make better use of my cash.
Anyone have any thoughts? I'd love to hear from you all!
@Doolan Wesley I am not sure if I can follow your train of thought here - you are under contract on a duplex and three parcels instead of two for the price of the duplex and you want to can the deal, because...? What was your interest in the parcels?
Is it the deal or is it your strategy that you question?
Having clarity and certainty about what you are looking for is critical, yet not so easy to find. You always want to start there, develop your financial model, know who your tenant is going to be, before you go an even look at a property. The real estate is only the physical component of the model you have developed before. Most people have the cart before the horse, they start with the property, and then develop their business model based on the parameters the property dictates.
Maybe this will help: a BRRRR will most likely not grow your cash reserves. Ideally you generate 25% equity during the rehab, which usually does not happen (at least not for me, I average about 10%) - unless you defer some of the needed updates to the future. In particular stuff that will not have much of an impact on the appraisal as long as still functioning like roof, siding and windows. Those 3 are usually 40k combined, so that will move the needle.
Be careful with partnering; I have seen more partnerships end up in expensive divorces then succeed. First, it cuts your profit in half, second it makes decisions difficult and third you never know where it will take you.