Is a Bird in the Hand Worth 2 in the Bush?

Question

I’ve got some capital from a recent property sale and expect to have about 200% more in another 2 months that I had planned to use half of for a 1031 and some of all the rest to leverage the 1031 into a much larger deal.

I’ve been watching a SFH in my market that’s priced really affordably and two days ago had the price lowered on it. My realtor contacted the selling agent today and set up a showing for me and got more information on it. It probably needs about $35,000 worth of work to it. Given its location it likely will never appreciate greatly but if rehabbed correctly will be a home run property for cash flow and down the road will recoup my investment in both purchase price and rehab.

My realtor presented me afterward with a 3 unit he plans to bring to market in the time frame of me selling my 1031 property. It will be priced so I could do the 1031 and use some money of the other capital I have and get a small mortgage to buy it. Two units are currently rented and the third unit “needs work” to be rentable. But the realtor says I will love the location and the property and it will be a money maker. I’ve worked with him for 20 years and he knows my tastes.

I believe I can buy both, but the rehab on the third unit of the 3 unit may have to wait awhile.

Does everyone think I should attempt to buy the first SFH as the second is not guaranteed and see what happens down the road assuming the SFH shows well when I see it and etc. and play the second one by ear?

I know nothing is guaranteed in real estate, just want to make sure I’m making the right decision on this.

Thanks for helping me make the right decision!

Account Closed · Answer

You did not provide nearly enough information and had better keep the money burning a hole in your pocket in a safe place for several years and until after you are so positive about what you are doing you will be telling other people to do vs. asking.

Every safe investment decision had to be base on math that you have to do hundreds, or thousand of times if necessary until you are so positive you found the right property nobody on this planet can convince you that you are making the wrong decision. What I am talking about is the absolute opposite of your asking someone whether or not you invest because most people giving you advice don't give you good advice because there are very few investors who even know how or care how to do the math.

Virtually, every real estate broker tells you that every property on the market is great for you. In my 50+ years of investing I met only one broker who seriously did the math for his clients and only one broker who semi-seriously got into the math with me only because I kept telling him the properties he was pushing on me was crap and I kept sending him my spreadsheets with my calculations.

Don't even think about it until you can teach other investors how to do the math and what the right questions are to ask.

Sorry! I am not a negative person. I am a very successful investor who lost millions of dollars before learning how to do the math and how to avoid most (not all) risks. I learned how to keep moving forward one step at a time vs. 1 step forward and 1-1/2 steps back.

Dave Foster · Answer

@Alecia Loveless, Maybe the numbers work with 2/3rds of the 3 unit rented for a while. Maybe it could be rented as is for a while. That's a twist on the Brrrr approach a lot of folks don't think about. the first "r" doesn't have to be rehab. It can be rent until you're ready to rehab. Nothing wrong with having projects lined up in advance as long as they're cash flowing as is.

The other possibility would be to use as much cash as possible for the first purchase. And immediately after purchasing do a cash out refinance to purchase the 2nd. That might eliminate the need to make the 2nd property part of the 1031 altogether. But still let you get it.

Is a Bird in the Hand Worth 2 in the Bush?

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