Best Path Forward on a Rehab For a First-Timer?

Question

Hi, I'm Christopher and I'm new to BP and investing.  My family has an unoccupied single family home, 3/2, in Houston (77048) built in the early 1960s that they are willing to give me (transfer the title).  The house needs a serious rehab, somewhere in the range of - full to gut.  I had a scope of work done and the estimate is about $100K.  I initially thought about doing a fix and flip, but there's a similar home on the same block that's been on the market for five months with an asking price of $175K, which actually started out higher.  Ideally, I'd like to hold and cashflow the property, but I don't have the money for the rehab.  Any ideas on the best path forward?

Travis Timmons · Answer

I lived in Houston for a dozen years, and if you are close to Pearland or south of the beltway in 77048, it may be worth renovating; however, most of that zip code is rough. I would just sell as is and get out from under it. Putting $100k in a house in that part of town is a recipe for disaster. If you are honest with yourself, you know whether it is a desirable area or not. Drive by at night and make a realistic assessment of the tenant and buyer pool that would want to live there.

Christopher Marlon · Answer

I have not yet Jaycee.  I'll contact you via email.

Elealeh Fulmaran · Answer

Christopher, treat this like a BRRRR with other people’s money or pivot to a creative exit. If the flip comps are soft, don’t bank on resale; instead, lock a clear buy box and scope, then raise private money or use hard money for purchase plus rehab with a refinance takeout once it’s rented and stabilized. If long-term rental cash flow won’t cover that debt safely, consider a wholetail/novate to a retail buyer, or sell on terms as the bank (rent-to-own/owner finance) to capture higher price and avoid full gut costs. Next step: confirm ARV and realistic rent for 77048, tighten the rehab to only what increases rent and safety, and line up a lender term sheet for both the rehab loan and the refi before you start.

Travis Timmons · Answer

@Elealeh Fulmaran I have no doubt that you are an experienced and high level operator, but your suggestion is disconnected from reality for a first time investor. This guy has no business doing any of these advanced strategies.

Also, this is an example of treating real estate like numbers on a spreadsheet over engaging all 5 senses. I know that zip code. It's full of crappy or questionable neighborhoods. You are suggesting that he levers up to spend six figures of high interest debt on a bad asset in a bad location. There is SO MUCH risk at every turn. It's just a bad idea that could bankrupt him if an when things go sideways.

Rents are low, vacancy will be high, it's an old property, a landlord insurance policy in Houston is going to be in the neighborhood of $4k (and getting it insured during the rehab will be VERY expensive), that's a part of town with real flood risk, and it's an area likely high in petty theft and crime.

@Christopher Marlon If you don't have the money for rehab, don't borrow up to your eyeballs. Hard money or private money lenders will give you cash with an interest rate commensurate with the risk - 12-14% with several thousand dollars of fees on the front end. Sell it for what you can and buy something of higher quality with that cash if you insist on investing in real estate.

Jaycee Greene · Answer

Hey @Christopher Marlon, welcome to the BP Forum! Have you looked into financing the rehab costs?

Christopher Marlon · Answer

Hi Elealeh, thanks for the insight.  This information is very helpful.  I'll reach out if I need more assistance.

Christopher Marlon · Answer

Hi Travis, thanks for the reply.  The house is not south of the beltway.  I'll take your suggestion into consideration.

Best Path Forward on a Rehab For a First-Timer?

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