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

Multi-Family and Apartment Investing
10yFollow

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

Daniel Holtz
Investor · Rochester, NY · Member since 2016 · 21 posts · 4 votes

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

0Reply
52 views

Most Popular Reply

Darren Budahn
Investor · Milwaukee, WI · Member since 2014 · 811 posts · 420 votes
10y
Daniel Holtz It would be good cash flow but why buy something for 20k, spend 50k, and have it be worth 70k? If you aren't concerned about equity, couldn't you just buy another 4 unit that is move in ready and not have to deal with the massive headache of a 50k rehab? If I'm going to spend 50k on a rehab and all the time involved with doing so, I'm certainly going to back sure there's equity when I'm finished.
1Reply
See this reply in the discussion

15 Replies

Jump to latestLatest
  • Luke Grogan
    Investor · Cocoa Beach, FL · Member since 2015 · 132 posts · 59 votes
    10y
    $2100 gross rent for $70-80k all in? That sounds like a phenomenal deal. Even if all expenses and debt service cost 60%, you'd still have a 10% Cash on Cash return. How many of those can you find??
    0Reply
  • Darren Budahn
    Investor · Milwaukee, WI · Member since 2014 · 811 posts · 420 votes
    10y
    Daniel Holtz It would be good cash flow but why buy something for 20k, spend 50k, and have it be worth 70k? If you aren't concerned about equity, couldn't you just buy another 4 unit that is move in ready and not have to deal with the massive headache of a 50k rehab? If I'm going to spend 50k on a rehab and all the time involved with doing so, I'm certainly going to back sure there's equity when I'm finished.
    1Reply
  • Daniel Holtz
    OP
    Investor · Rochester, NY · Member since 2016 · 21 posts · 4 votes
    10y

    @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.  

    2Reply
  • Daniel Holtz
    OP
    Investor · Rochester, NY · Member since 2016 · 21 posts · 4 votes
    10y

    @Luke Groganundefined Those are mostly what I look for in my area.  We have more of a cashflow market overall rather than an appreciation market.  You do have to vet the area as much as the deal, because there are many pockets in Rochester and the wrong area can really skew your numbers on the repairs or cap ex side, because people would just not take care of your properties.  That can happen really anywhere, but the area does play a role here.  

    0Reply
  • Aqil Dharamsey
    Rental Property Investor · Rochester, NY · Member since 2016 · 303 posts · 154 votes
    10y

    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.  

    1Reply
  • Luke Grogan
    Investor · Cocoa Beach, FL · Member since 2015 · 132 posts · 59 votes
    10y

    That's a great play for cash flow, from the sound of it. Yes, the headache will be there, but sounds like you'll have a team and if you can target 8-10 of these deals, you'll have a nice stream of income... Best wishes on getting it done!

    0Reply
  • Daniel Holtz
    OP
    Investor · Rochester, NY · Member since 2016 · 21 posts · 4 votes
    10y

    @Aqil Dharamsey Yes, thank you for your input for sure.  I am thinking the same thing.  I still look at everything after the fact and typically most all if not all your Cap Ex is completed after the rehab is done.  

    @Luke Grogan Yes, I go after cashflow myself in my investing career right now.  I will make the switch at some point to do equity plays or a mix of both, but right now, cashflow does help considerably.  

    0Reply
  • Jeff Kehl
    Rental Property Investor · Charlottesville, VA · Member since 2012 · 1k+ posts · 726 votes
    10y

    @Daniel Holtz That cash-flow for sure looks tempting but let me just give you a few considerations.

    1) Contingency Plan - Hypothetically let's say we have a nasty recession next year just as you finish the rehab. How many of those units will you fill and how many of those tenants will actually pay? If you have to settle for less than optimal tenants because times are tough they will likely trash your units. What's your ARV then? Nothing because no one will want it.

    2) Opportunity cost - you should always look at what else you could have done with that money. If I read right you are coming out of pocket $70k to do this. For that you could probably buy a $340k house pretty close to the ocean in Cocoa Beach Florida. You wouldn't make a ton of cash-flow but if the economy stays good (which is what you're betting on right?) it may be selling for $440k in a few years and you would have doubled your money with a lot less work.

    As a middle ground, why not look at buying 4 $80k houses in a highly sought after neighborhood in Rochester or better yet the Southeast or West where population/job growth is rising. Fairly stable rents and property values in a recession AND appreciation if the economy keeps going strong.

    0Reply
  • John CasmonPro Member
    Cincinnati, OH · Member since 2013 · 1k+ posts · 1k+ votes
    10y

    @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?

    1Reply
  • Scott FRy
    Wholesaler · Rochester, NY · Member since 2015 · 46 posts · 7 votes
    10y

    @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?

    0Reply
  • Daniel Holtz
    OP
    Investor · Rochester, NY · Member since 2016 · 21 posts · 4 votes
    10y

    @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.

    0Reply
  • Daniel Holtz
    OP
    Investor · Rochester, NY · Member since 2016 · 21 posts · 4 votes
    10y

    @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.  

    0Reply
  • Stephanie MedellinBusiness Member
    Mortgage Broker · CA · Member since 2014 · 1k+ posts · 644 votes
    10y

    @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.

    [email protected]
    Stephanie Medellin, Loan Factory58 Reviews
    WebsiteView Page
    0Reply
  • Scott FRy
    Wholesaler · Rochester, NY · Member since 2015 · 46 posts · 7 votes
    10y

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

    0Reply
  • Daniel Holtz
    OP
    Investor · Rochester, NY · Member since 2016 · 21 posts · 4 votes
    10y

    @Stephanie Medellin 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.  

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free