Would you rather buy......

Question

Would you rather buy:

Property A:

• 20% below market value
• Needs a full gut renovation

OR

Property B:

• 10% below market value
• Mostly cosmetic updates

Why?

Interested to see how experienced investors think through risk vs reward.

Mohammed Rahman · Answer

I'd probably choose Property A.

A full gut renovation comes with more risk, but it also creates the biggest opportunity to add value. If I'm buying at a 20% discount, I'd be willing to take on that additional complexity as long as the numbers support it and I have a healthy contingency built in.

A lot of investing comes down to understanding your own strengths, experience, and resources. The question isn't always whether a deal is good or bad. It's whether it's a deal that works for you and whether you have the ability to turn it into a great deal.

For an investor with renovation experience, strong contractor relationships, and the capital to absorb surprises, Property A could be the better opportunity. For someone who values simplicity, speed, and predictability, Property B might be the smarter choice.

Personally, if I have confidence in my team and my ability to execute the renovation plan, I'd take Property A and focus on maximizing the value I can create. The key is making sure you're being adequately compensated for the additional risk you're taking on.

David Amir · Answer

@Jules Aton

I tend to agree with that approach. In my experience, “cosmetic” rehabs often uncover a few surprises once you get into the project. I’d rather budget for bringing the property up to current market expectations than risk under-improving it and leaving value on the table. Have you found buyers or tenants are paying a noticeable premium for the more comprehensive renovations?

Nicholas L. · Answer

@David Amir

neither - this isn't below market value enough to be worth the trouble of purchasing and fixing.

David Amir · Answer

@Jake Baker

I agree. One thing I’ve noticed is that “cosmetic” rehabs often stop being cosmetic once you start opening things up. At least with a full gut renovation, you’re generally budgeting for major replacements from the start, which can make the scope a little more predictable.

Jake Baker · Answer

@David Amir

Property A for me.

If I'm doing a full gut renovation and know exactly how much the costs are because I'm assuming that everything is getting replaced, plus I have more flexibility with design. With cosmetic rehabs, you often uncover things you did not know about when you purchased a property, such as plumbing issues, system issues, etc

Adrian Lammersdorf-Scioll · Answer

Neither, I would look for 30-40% under market and consider the 30% if it was cosmetic fixer

Chris Seveney · Answer

B. Less risk due to cost and time creep. Always a fan of taking bird in hand.

David Krulac · Answer

I bought a house in the last year that was appraised for $220,000.  I bought for $155,000, or 70% of appraised value in current condition.  Another recent pourchase was a house apprised at $384,000, which I bought for $250,000 or 65% of appraised value.  Neither were gut jobs, the first was built in 2007 and the second one was built in 2006.  Both houses required paint everywhere, floor covrings everywhere and some minor maintenance, minor drywall repair, and a thorough cleaning, as well as lawn mowing.  So my answer to @David Amir (great name) is I would buy neither.  I did buy a gut job a couple of years ago, removed all the palster walls, rearranged room configuration, new kitchen, added a new bath, removed 2 chimneys, but bought the property for 28% of ARV, bought with cash so never had an appraisal done.

Ryan Arth · Answer

@Arman Ahmed If we are trying to grow wealth, B all day long. Turn those dollars over as quickly as possible, and then repeat.

i was talking to some of the HomeVestors guys a a mastermind once about a rehab I was working on right then. I mentioned that it was a full gut and that I was moving some walls and they looked at me like I was nuts.

Their policy was either clean it and strip it down and sell it to a rehabber or fix the glaring issues to get it to retail for whatever it would pull. In and out.

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