Do I just go for it?

12 Replies

Hello everyone! This is my first original post- though reading and commenting has been fun!

Over the last week, an unexpected deal has fallen in my lap! It’s a cute place, with probably about 30k worth of work to do. However, I could sell for easily that much profit, or hold and rent out the two units for a great cash flow after expenses. 

Seems too good, right? But even my husband is on board- which is usually NOT the case. 
 Should I just go for it? House has been vacant for almost 3 years, so I know there could be a lot of surprises. But it was winterized before they left, and the issue that caused the family to leave has finally been settled in court, and should be handled by end of summer. 

Also- HELOC or Hard Money, if we're planning on holding?
Thanks, everyone!

It depends but I'd say if it the market comps and surrounding rent rates or values prove it's worth AND it furthers your investment goals, then go for it. Have that clear understanding of why you are doing it and then the decision becomes easy. Alot is dependent on your market so hard to say if it's good without knowing vacancy rates, crime rates, and overall numbers.

Just have a plan A, Buy and Hold and a plan B, Sell for a Profit. Using a HELOC or HARD Money can be expensive long term. Typically used on short term holds but just pencil it out and if it works, take action!

Originally posted by @Joe Villeneuve :

1 - Numbers...??? You don't base decisions in REI without having actual (not "should be", could be", or "about" numbers).

Well, yes. The numbers make sense to me. It's basically in my bckyard, so I know the neighborhood and the market, I know the resale value is there, AND the rental value is there, as well. The question of whether I should "Go for it" is because it was totally not expected, and while a good deal, something that catches me off guard and out of my "timeline" or plan always makes me step back and question whether it's the right move right now. 

While I don't necessarily love posting exact numbers, here's a rough outline:
100K Purchase.
30K into it to fix/spruce up/put appliances in

To Sell: EASILY 165-175K (but the way things are, I would be confident for multiple offers)
To Hold:
Large 2 bedroom, 1 bath apartment - $1,200 (including utlities, as they are tied with other unit. Would be $900 without.)
Large 3 bedroom, 2 bath apartment with 3 car garage/basement area - $1,700 rent (Including utilities. Would be $1400 without)
Both apartments have W/D hookups, natural gas heat, large kitchens and living areas. 

If I hold, after utilties and mortgage (I would want to cash-out refi), I would still be looking at about $1,000 cash flow in the winter, and about $1,500 in the warmer months.
Granted, these numbers could shift for sure, but my numbers are solid - good school district, 2 colleges within 7 miles of it. And I have been around the renovation game - that $30K is my high end estimate, and I am fairly solid at that number. 


 

Originally posted by @Jillian Kemmerer :
Originally posted by @Joe Villeneuve:

1 - Numbers...??? You don't base decisions in REI without having actual (not "should be", could be", or "about" numbers).

Well, yes. The numbers make sense to me. It's basically in my bckyard, so I know the neighborhood and the market, I know the resale value is there, AND the rental value is there, as well. The question of whether I should "Go for it" is because it was totally not expected, and while a good deal, something that catches me off guard and out of my "timeline" or plan always makes me step back and question whether it's the right move right now. 

While I don't necessarily love posting exact numbers, here's a rough outline:
100K Purchase.
30K into it to fix/spruce up/put appliances in

To Sell: EASILY 165-175K (but the way things are, I would be confident for multiple offers)
To Hold:
Large 2 bedroom, 1 bath apartment - $1,200 (including utlities, as they are tied with other unit. Would be $900 without.)
Large 3 bedroom, 2 bath apartment with 3 car garage/basement area - $1,700 rent (Including utilities. Would be $1400 without)
Both apartments have W/D hookups, natural gas heat, large kitchens and living areas. 

If I hold, after utilties and mortgage (I would want to cash-out refi), I would still be looking at about $1,000 cash flow in the winter, and about $1,500 in the warmer months.
Granted, these numbers could shift for sure, but my numbers are solid - good school district, 2 colleges within 7 miles of it. And I have been around the renovation game - that $30K is my high end estimate, and I am fairly solid at that number. 


 

OK.  Let me ask another question then.  Why would you not do it?

 

Go get it! I'd use a HELOC. That's what I did on my first property 6 years ago. No regrets!

@Jillian Kemmerer Always, always, always have an inspection done. If it's ok I'd say go for it with the HELOC. IN 1 year and 1 month my $100,000 3br 1ba house with about a $35,000 renovation has appreciated in value to somewhere in the $245,000-$289,000 range. So you never know.

The discrepancy in the range of value is because I’m considering selling it and still vacillating between hold and sell, and my realtor and I are waiting to see how quickly a few comparable properties go under contract at the high end of the spectrum.

If it stays in the $245,000 range I likely will keep it in my portfolio but if it gets to the higher end I will try to sell because I have another investment idea in mind.

If I were you in your price range I’d hold your property cash flowing $1000-1500 a month, in 3 years you will make more money and tax write offs than selling it and getting hit with capital gains.

@Jillian Kemmerer if those numbers are accurate it seems like a solid deal. Just a couple of things to keep in mind though - if it does only sell for $165, you are looking at a profit of less than $15k after selling commission, closing costs and holding expenses IF everything goes smoothly and according to budget. That’s still a decent profit for a first flip, but just make sure it is worth your time.

If you are doing cash out refi and holding (my personal preference) then keep in mind that 75% of a $165k valuation wont get you all you investment back out. That shouldn't stop you from doing the deal, but be sure you have your own cash available that you don't mind leaving in the deal and understanding that the cash flow for the first year or so is just going to be paying yourself back. So definitely don't borrow 100% from a hard money lender. But depending on how much of a HELOC you have available I would probably try to borrow at least some from the hard money lender and use my heloc to fund some rehab and have extra available if something goes wrong. It's a lot easier to use your heloc for emergencies than having to back to a lender.