I purchased a 3BR 1.5Bath fixer upper in a nice neighborhood and moved in May 2014. I purchased it w a 203k FHA Loan. Purchase price was 135000 and the property appraised for 155000. I borrowed an extra 9000 w the 203K for a new furnace and I needed kitchen appliances. So total mortgage was for 144000 and I put 3.5% down. A realtor told me if rehabed it would be worth at least 180,000 but probably more. Said to count on 180,000 to be safe. Total rehab to make it worth that, would be around $30,000. So if did that I would have 179000 into the property w closing costs. I would plan to rent the property then. But after doing that, with what I could rent for I'd basically be breaking even in worst case scenario. Best Case Scenario I'd be making 5%-6% (which is probably a bad return for most of you). What is killing my Return is my PMI. Without PMI it'd be 5%-6% worst Case and 8%-9% best case. First, is this worth all the work and money to make the property worth $1000 more than what I'd have into it and then maybe just break even on renting it? I'm just getting started in the last couple years, so I'm always looking for any guidance I can get! I think I just need to make sure I find better deals in the future!
Is the property need 30k to get rent ready? If you plan to rent it then do the minimal to get a tenant in at the cash flow you want.
If you are saying worst case scenario on the flip is 180k then I would find better comps than that and see what it takes in rehab to get a better return. Otherwise those numbers are to tight.
The property doesn't need 30k rehab to rent. It is livable the way it is, as I currently live in it. But it could use a new roof, a repaired retaining wall and the outside painted mainly. And will have to do a few minor things to get it up to rental code. Thanks for your input. I think that is a smarter plan.
@Adam Lynch save the 30K and rent it out. Especially if the monthly cash flow is juicy. I recently bought a property that turned into a flip and will end up costing me $12K to rehab. I could sell and make a few thousand dollars after tax, but the PITI is $661 and I could rent it for $1,250. I've decided to keep it and rent it.
@Adam Lynch, I agree. As a rule, most flippers will not do repairs to the property if when they sell it they only receive the repair cost back. They are usually looking for properties that have solid structure with minimal repairs. If you are going to utilize the property as a rental property than I would most certainly put minimal repairs into the property as Bryan suggested. Congratulations on your investment. I don't believe any experience is a loss. Even if you do not "knock it out of the park" on this property, you probably learned many valuable lessons on what to do and what not to do the next go round. Continue to evaluate and move forward.
Yes, I should definitely be able to cash flow this property, just maybe for not as much as I'd like or what I will look for in future deals. Thanks for the input everyone. It's very helpful. Now my next question is how do I get rid of the PMI after only owning the property for 6 months, doing an FHA loan and only putting 3.5% down? It is about $153/month. Without this expense it would really help my cash flow. So I'm not anywhere near 80% LTV? Can you refinance into a conventional loan without being at 80% LTV?
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