So my uncle has a friend who has a house that is for sale in a lower income residential area for $15k. The whole inside of the house needs to be gutted and redone and needs a back porch and a couple of windows need replaced. He is willing to front me 15k, but he thinks the house needs 20k to renovate if I do the work. He knows how to do it all and will show me so I will have a good teacher. The house and property is currently listed as only being worth $27,000. My hope is after renovation the house would be appraised for more. The problem is, is that I do not have the 20k. I'm wondering if a hard money lender would help me out with that? Do you think this deal would be worth it? I want to make it a Rental.
Investor · Boulder, CO · Member since 2016 · 1k+ posts · 1k+ votes
6y
@Nathan Oakes... Hope is not a strategy, my friend. Just from what you have shared... I have some real concerns. First, your ARV puts you upside down by almost 10% already. These type of homes tend to not hold any value nor appreciate well UNLESS it's in a development area on the city Master Plan. Next, lenders don't want to make loans on projects of that size (nevermind the class), so you are probably in for all cash. Also, statistically speaking, lower-income housing can have higher vacancy and higher turn costs due to damage and evictions. What would this property rent for?
The question is, how many headaches are you willing to deal with?
Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
6y
If the ARV is only $30K that's terrible deal. I would only consider this property if the rehab budget was more manageable or the cash-flow was crazy good after the rehab (like 1.5-2% deal).
Following the BRRRR strategy maybe it's a winner but now you have to deal with low income tenants.
New to Real Estate · Augusta, GA · Member since 2019 · 96 posts · 34 votes
6y
@Nathan Oakes - perhaps you can speak to a local agent and get them to tell you the ARV (after repair value) based on the recent comps they can see. Then you can do the math to see if it's a good deal for you or not.
Investor · Boulder, CO · Member since 2016 · 1k+ posts · 1k+ votes
6y
@Nathan Oakes... Hope is not a strategy, my friend. Just from what you have shared... I have some real concerns. First, your ARV puts you upside down by almost 10% already. These type of homes tend to not hold any value nor appreciate well UNLESS it's in a development area on the city Master Plan. Next, lenders don't want to make loans on projects of that size (nevermind the class), so you are probably in for all cash. Also, statistically speaking, lower-income housing can have higher vacancy and higher turn costs due to damage and evictions. What would this property rent for?
The question is, how many headaches are you willing to deal with?
You need just rehab supplies, what about a Lowes and Home depot credit accounts?
Good Luck!
(This reminds me of "Empire City" except Uncle Max would front the cash for the deal take-down and the fix-up as long as contractors were used to do the work and financial projections were done. But alas TPTB in the East worked hard to shut this down, now it just sits idle--and waiting.)<==Now if anyone gets this reference you get extra points and a smile!