buy a fix and end up with no equity, but nice cashflow?

Question

Hello Everyone,

I am looking at a possible deal that is a 4 unit property.  The average gross rents would be around $2100/month comfortably.  If I can purchase it for about $20K, it would need about $50K overall to bring it up to speed.  It may be slightly over improving it, because the ARV is around $70K.  I am still considering the deal, because the cash-flow on the back end would be nice and I can refi and pull much of the money for the rehab overall back out of it.  After this deal is complete, I would have a property that the cap ex would be low for many years to come and I may be able to 1031 or something along those lines into something larger.  Just looking for some overall input as I really think this is a coin toss depending on your perspective.

Thanks,

Daniel

Daniel Holtz · Answer

@Darren Budahn I live in Rochester NY or the rust belt.  We have great cashflowing properties in many areas, but don't have a ton of equity all the time.  There are many other properties on the market, but right now, the market is very strong from what I have been seeing and the properties on the market right now are listed at retail value and still need work.  Not quite as much as the one listed above, but most of the properties here still need much work overall to get them up and running.

John Casmon · Answer

@Daniel Holtz How are you determining ARV? If you can't buy a rehabbed 4-unit for $70k, why would this rehabbed 4-unit only be worth $70k?

Aqil Dharamsey · Answer

hello all. I have purchased several deals where the house was just a shell and had to rehab everything from plumbing to electrical to roof , etc. it's a massive headache and extremely time consuming. Not to mention the permits and the city inspectors putting their two cents in everytime they drove by. Because of low inventory of 4 and larger units, rehabs unfortunately is the only way to go. I wish you good luck, in the end cash flow is king... Atleast in Rochester.

Daniel Holtz · Answer

@Stephanie Irto Yes, thank you for your input, I am of the same mind with you.  Also, I have been finding that myself with some of the rentals and the crazy prices for something that is retail that needs work as well.  I am hoping to find something here.

Scott FRy · Answer

You should check out the one I'm finishing up @daniel holtz pm me if you want to check it out.

Stephanie Medellin · Answer

@Daniel Holtz  I am in upstate NY near Albany and our market is very similar.  Lots and lots of rental that haven't been updated in decades.  I honestly cannot believe that people will rent in the condition that some of these places are in.

For an investment, I would take a 20K property that needs 50K worth of work any day over an old building that hasn't been updated for 70K.  You're getting everything new and you know the quality of the work that was done.  Your building will also be the first choice among available rentals because yours is updated.

Yes, other people have a point about the opportunity costs of not buying elsewhere, but that's true for any investment.  If you want to keep your business close to home it sounds like a good option.

Daniel Holtz · Answer

@Scott FRy The property has 1 2 bed 1 bath and then 3 1 bedroom 1 bath apts in it.  There are many things that need to be done mechanics wise.  Roof is alright for now, but it needs many of the other major updates like siding, multiple heating units, pex piping throughout and many other areas.  I also agree with you with putting in materials that would last through multiple tenets.

Daniel Holtz · Answer

@John Casmon I was actually asking the real estate agent that I was going through the house with.  Much of the ARV is determined by other comps in our area as opposed to cashflow for the asset itself.  The market is currently pretty thin as far as deals that are available that are not in need of repair after aquisition.

Scott FRy · Answer

@Daniel Holtz,

Depending on the area in rochester. I am always on board with getting a property and doing the rehab,that way I know what is/isn't done I control the quality of materials and often opt for more durable materials that will hold up for multiple tenants.

Based on your numbers it sounds like your looking at a 4/ 2br? $2100 sounds about right, your but get of 50k might be a bit tight on 4 units depending on the current conditions. I assume major mechanical  updates. Roof doors windows? Are done 4 furnaces 4 hot water tanks?

buy a fix and end up with no equity, but nice cashflow?

Most Popular Reply