Is this a good deal?

Question

I wanted to see if anyone can help me. I am new to real estate investing. I have signed up to join a cohort through a program in my town, because I didn't know anything about real estate, but that doesn't start until February. However, I have been watching a lot of Bigger Pockets and have been reading a ton. I found a property (triplex, but set up like a rooming housing with 4x4 on the bottom floor, 3x3 middle, and 3x2 on top) in Atlanta for $650,000 but it needs renovations.  They are willing to do seller financing and cover 100% of the renovations and the estimated ARV is $750,000. But I need to bring about $130,000-150,000 for a down payment. The plan is that is the skin I put in the game and then they will pay for the renovations and then I can either sell it and make a profit or keep it and do short or long term renting. I plan to keep it since I estimate, that with renting it per room, I can bring in at least $10,000 or make it an AirBnB property since it's in the west end of Atlanta. Does this sound like a good deal? I am planning to go to a hard money lender to get the down payment, then have it appraised and have a contractor look at it to make sure their renovation numbers are correct. My offer has been accepted, but I just want some more assurance that I am going in the right direction or is this a bad deal.

Jonathan Greene · Answer

As others have said, that looked like a disaster. It's good you let it drop. The numbers didn't make sense on that at all, but who sent you the deal and do you have an investor-friendly agent watching over your best interests? If you are new to investing, don't have investor contacts yet, a deal like that is always going to be too much. When you are new, you have to ask yourself why other investors would have passed on the deal. Meaning, if you are new, and something has been around the block, there is a reason someone is trying to sell it to you as a new investor and it's not a good one.

Rick Baggenstoss · Answer

It doesn't sound ok.  I'm very familiar with the West End.  Good price largely depends upon the rents.

What do you estimate the rent/unit to be when you've renovated?  $1200?  Also, how many square feet is the building?  It sounds big.  You can't easily get financing for a rooming house, so rents will drop a lot from rooming house to triplex.

Be sure to get an appraisal early.  I wouldn't do this deal.  It's way too risky with your being new, then violating zoning (rooming house or short term rental) to make it work.

Brenden Mitchum · Answer

@Charlene Byssainthe

You should have spoken with Padsplit first. They have over 2000 affordable housing units in the Atlanta MSA, most in SFR that are being rented by the room. But, yes this still would have been a pretty big project for your first deal. Doesn't mean you were right to drop it, but doesn't mean you were wrong either. You made a big decision, likely your biggest in REI since decided to dive in. And you consulted with fellow investors before making the decision. So, definitely still a win!

Charlene Byssainthe · Answer

@Rick Baggenstoss, @Michael K Gallagher, and @Brenden Mitchum thank you guys so much for your feedback! I really appreciate it. My husband and I backed out of the deal last night because as @Rick Baggenstoss mentioned for our first deal this feels really big and risky. I don't want to get ourselves into something that cost us to lose money to start, when starting small would have sufficed. I had previously looked and there are only 7 legal rooming housing in GA and it seemed overwhelming to start having to look at zoning laws and things, in addition to learning the REI process, when we're just getting into this. I signed up for coaching from a real estate investor that a friend recommended in the area and she does long term rentals and AirBnB, so hopefully at the end of that I'll have even more clarity and can feel more comfortable moving forward, because I am motivated to get started!

Michael K Gallagher · Answer

@Charlene Byssainthe I'm not familiar with the ATL market, but it looks like you already have great advice on that realm in this thread, my only other point of observation and what I'd instantly want to check on is what are the local rules around licensing and taxes with an Air Bnb.  Here in my market we have to pay a separate line of taxes as well as go through a different registration process to do an air bnb.  So figuring out what the local rules are and how they impact your financials would be my biggest question.

Brenden Mitchum · Answer

Hey @Charlene Byssainthe, welcome to the BP community!

@Rick Baggenstoss is right, your first question should be zoning. If it's zoned SFR and you run it as a triplex or rent-by-the-room (RBR), you could be violating zoning laws. Now, there are plenty of these types of properties ITP so you likely won't run into any issues unless you piss off the neighbors or ever have a county inspector come to the house for some reason. There is a major affordable housing shortage here in Atlanta so the city is not about to come knocking on doors that they think are providing this (unsubsidized) service. If you are thinking about going the RBR route, check out Padsplit to help you with this. They help manage thousands of affordable housing units across the MSA.

Hope this helps a bit! Please, feel free to reach out anytime if you want to chat more about this model!

Is this a good deal?

Most Popular Reply