I am getting to be “too close” to this deal so... would you invest in this?
I’m already under contract but can back out during due diligence.
-118k price
-7.5k closing costs (so high!)
-20k repairs
= $145k all in
-ARV is 160k
-Rent $1350
-$175 cash flow/mth
So all in all there's low CoC at around 3%. Requires $51k out of pocket. The area appreciates quickly.
I suppose my hesitation is that it requires a lot of work to renovate and maybe my $50k could be more efficiently used elsewhere. On the other hand it took me forever to find a deal that cash flows.
Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes
6y
Really does depend on your strategy. Not much room for a flip here as ARV - purchase + repairs pretty much gets eaten up by the sales costs. Cash flow is actually 4.1% [($175 x 12)/51,000] which isn't terrible if your strategy is to hold a few years for potential appreciation. How solid is the $20K repair number? If this fully loaded or a rough guess? Can you beat 4% return for the same level of risk elsewhere seems to be the question.
It really depends on your strategy for the property and your return requirements. The potential problems I see are what happens when someone does not pay and gets evicted, then the unit is made ready and it is then down for months. Years of returns are gone. If you are purchasing to sell for appreciation in years, that could be a route to pursue, but is really a gamble. If you are looking for cashflow, this might not be the best use of your capital. Maybe you flip it and invest your capital and profits into a better rental?
Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes
6y
Really does depend on your strategy. Not much room for a flip here as ARV - purchase + repairs pretty much gets eaten up by the sales costs. Cash flow is actually 4.1% [($175 x 12)/51,000] which isn't terrible if your strategy is to hold a few years for potential appreciation. How solid is the $20K repair number? If this fully loaded or a rough guess? Can you beat 4% return for the same level of risk elsewhere seems to be the question.
Rental Property Investor · Clinton, TN · Member since 2018 · 39 posts · 28 votes
6y
This comes down to your criteria/goals/strategy. If those numbers work for you then it may be an ok deal. Personally, this deal doesn’t work for my criteria.
Houston, TX · Member since 2020 · 19 posts · 11 votes
6y
I'm new to all this, so take my advice with a grain of salt :-) In addition to considering your strategy, what does your current portfolio look like? Meaning, if this is a first house, it doesn't seem like a bad deal to get your feet wet and start the momentum train towards your real estate empire, assuming buy and hold and rent is your strategy.
I'm looking for my first house, and that's the best cash flow I've seen for the deals that I've analyzed. I'd be tempted, but that $51k is a bit steep for me at the moment.
Rental Property Investor · Highland, IN · Member since 2020 · 4 posts · 5 votes
6y
@Charlie Anne
Personally this is a deal that I would pass on. That’s a lot of capital to tie up for such a low return per month.
My luck says I close on this and then the next day something comes available that would be a much better deal in cash flow.
For context I own a duplex that I’m “house-hacking” living in one side and renting out the other side and I also own a SF that is cash flowing $400 a month. But I live in Indiana where is cash flow everywhere if you have capital.
Have you ever considered a flip? You have a substantial amount in cash that could go a long way with a flip that would turn a much better profit and much faster but with more risk on the table.
Carlsbad, CA · Member since 2018 · 11 posts · 12 votes
6y
@Charlie Anne I don’t think the juice is worth the squeeze here. Your locking up $50k, putting in a ton of work, hoping for appreciation and cash flowing $170 a month? No way! Not worth my time and shouldn’t be worth yours. Partner up with a friend or group of friends and put in the same work on a larger project that can provide you all greater returns. Good luck!
Danville. CA · Member since 2017 · 313 posts · 221 votes
6y
@Charlie Anne you can get a higher return in a savings account without the headache. What market is this in? At $120k pp it doesn't sound like a strong appreciating market but I could be wrong. My buying criteria is $250/door at 12% CoC. Sometimes I'll go to 10% CoC if it's a B+/A neighborhood
Investor · Columbus, OH · Member since 2016 · 4 posts · 3 votes
6y
@Charlie Anne
I guess it depends on where? I would not take those numbers in Columbus Ohio but Depends on location and your objective. If you are buying for the appreciation and rents and prices are going up and there is very few cash flowing opps then beggars can’t be choosers. I buy in that same price range and net $500 door so your taxes must be higher. I would buy in a class A area that paid for itself like that but at that price point I am guessing not class A.
Investor · Columbus, OH · Member since 2016 · 4 posts · 3 votes
6y
@Charlie Anne
Also I don't like the thin margin on the ARV vs all in cost of $15k. If you can improve more and increase rent more and equity would be better. If already near cap for area and you are just waiting for appreciation I would personally look for another deal.
Investor · Pasadena, CA · Member since 2017 · 612 posts · 523 votes
6y
@Charlie Anne Can you refi after the rehab? That should be able to get you half the 50k back @ 75% ltv refi, with an arv of $160k. Then work out the return based on the new #’s. Also, you could do a lease option, in order to increase your rent and increase your cash flow, as well as possibly get some of the future appreciation, depending on your lease option terms.
San Antonio, TX · Member since 2019 · 930 posts · 836 votes
6y
@Charlie Anne
3% CoC? You would probably be better off buying a savings bond.
If the price is stuck at 118, I would pass. Maybe use your renovation SOW to try to negotiate lower? This could (barely) work as a flip if you can get it at 105.
Investor · New York City, NY · Member since 2014 · 289 posts · 374 votes
6y
Consider how much time you'll have to spend dealing with this property each month. Maintenance, bookkeeping, annoying tenant calls, etc. Then ask yourself if $175 cashflow is really worth it. Our properties don't generally require much, but sometimes they do. If I accepted $175 per month cashflow, I would be greatly undervaluing my time. Your time is worth money. Don't forget that when deciding what works for you. If there was more upside on the ARV, perhaps accept a lower CoC and cashflow. This deal would be a hard pass for us.
Rental Property Investor · Member since 2019 · 304 posts · 462 votes
6y
Definitely not. The returns are too thin. If there are any major changes in the economy, you could be under water on this deal. 3% CoC return is pretty dismal.