Hello Team BP,
I'm new to the site but have been listening to the podcast for awhile. I've got an offer on two sfh in Greenville, NC walking distance of East Carolina University. The homes are currently being rented for $1,425/month, but need some work. I've gotten a quote from a contractor that is double what I was anticipating on spending for the repairs. I'm now trying to decide if it's still worth going through with the deal since the numbers have changed. I would only be losing a couple grand if I pull out now due to inspection/escrow costs. Would love any advice based off my breakdown below:
-total cost for the two homes: $265,000
-total anticipated costs for the rehab: $45k
-I would be putting 25% down ($66,250) + the $45k rehab costs for a total out of pocket expense of $111,250 (not including closing costs)
-once the upgrades are complete the two homes will be able to rent for $1,550/month minimum for a total of $3,100/month
What's the best way to calculate whether or not this is a good deal/investment given how much cash I'll be going out of pocket? I've tried the various calculators but want to ensure that how I'm breaking this down makes sense. It looks like I'll probably be looking at an all in cost of around $320,000 - meaning renting the properties for $1,550/each ($3,100 total) falls just short of the 1% rule. Does that make this deal a bust?
Any advice is much appreciated.
Depends on what you are trying to get out of the deal. Cash flow vs equity. Try a second opinion on the rehab costs and ask yourself if the rehab is worth the anticipated $100 - 125 extra a month.
I’m assuming I’ve looked those two houses as they were both listed as renting for $1425 in the grid (an unusual number) I actually looked at all 4 of the properties in that sellers portfolio. Those were scary homes to me and I have current rentals in Greenville as well as have flipped houses in other states. I have the knowledge and ability to do most projects myself. That is the problem with buying in the grid, fairly never vacant as tenants turn over and new ones in pretty quick. This doesn’t allow time to get the work done and owners let them get so bad. I felt that once the projects get started there will more issues found. The positive is that it’s student housing and expectations from renters aren’t high.
I would go back to seller and see if can get a $25k discount.
Great, thanks everyone for the advice.
@Jason Hamilton I would love to connect and hear about your experience in Greenville if you have time.