Wayne, PA · Member since 2012 · 144 posts · 24 votes
Hey guys, I am still looking for my first deal and back on the hunt! Buy & holding "average plus" properties in my area doing yield a positive cash flow in my area. My new strategy is to rehab a "fixer upper" and turn it into an asset that produces positive cash flow.
Below are some pictures of a 3b/1ba 1300 sq foot house. What do you think an estimate would be to do a full rehab to this property? The end goal is to rent it out so basically going low-end on a lot of things.
50-60 in renovation costs. And that's just the stuff we can see. I have no idea of ARV but if you play it safe at 1200/mo rent you'll be in 1% rent-to-purchase price. It's not the worst spot to be in but the 3/1 setup wouldn't be near as desirable as a 3/2.
I don't mean to sound flippant but if your guesses are from 10-30K definitely walk it with a GC. I'm no construction cost god but everything costs twice as much as you and I think. Like Walt said, a lot of work in that one.
@Kyle M. just from the pics I would call it a total gut job needing a new roof, and sidewalk and who knows what else. What kind of neighborhood? Lots of work in that one. Might be worth it if that $1400 is valid, but it is not going to be easy and not a high CoC return.
@Kyle M. just from the pics I would call it a total gut job needing a new roof, and sidewalk and who knows what else. What kind of neighborhood? Lots of work in that one. Might be worth it if that $1400 is valid, but it is not going to be easy and not a high CoC return.
Thanks, I'd probably want to play it safe and assume $1200 or so as the rent. What would your estimate be for the construction that you mentioned? I would plan to hire a GC to knock this out. 10k,20k,30k in construction costs?
50-60 in renovation costs. And that's just the stuff we can see. I have no idea of ARV but if you play it safe at 1200/mo rent you'll be in 1% rent-to-purchase price. It's not the worst spot to be in but the 3/1 setup wouldn't be near as desirable as a 3/2.
I don't mean to sound flippant but if your guesses are from 10-30K definitely walk it with a GC. I'm no construction cost god but everything costs twice as much as you and I think. Like Walt said, a lot of work in that one.
50-60 in renovation costs. And that's just the stuff we can see. I have no idea of ARV but if you play it safe at 1200/mo rent you'll be in 1% rent-to-purchase price. It's not the worst spot to be in but the 3/1 setup wouldn't be near as desirable as a 3/2.
I don't mean to sound flippant but if your guesses are from 10-30K definitely walk it with a GC. I'm no construction cost god but everything costs twice as much as you and I think. Like Walt said, a lot of work in that one.
thanks for the advice. 1% like you said is not bad, but the taxes would make this negative cash-flow. And with it not even being 1.5 ba its most likely as pass on this one. At least this gives me a gauge of what a full renovation would cost when I look at future deals. thanks
@Kyle M. as @Mike M. said, 50K minimum if you hire the job out and everything goes well. You could cut that in half if you did most of the work yourself, but that is a huge job.
You could possibly do the demo work yourself to cut those costs a bit. I also was thinking that if you could it would be good to slip a 1/2 bath in there. It might not increase rents a lot but would make it more desirable which would help with vacancies.
No way to know the cost of the renovation without know what needs to be done and who will be doing it. Could be $15K if you do all the work yourself and just need to buy materials. Could be $150K if you get in there and realize that it needs to basically be torn down and you hire a builder to rebuild it.
That said, I agree with the others that you're probably looking in the $40-60K range, assuming no major hidden issues...
@Kyle M. as @Mike M. said, 50K minimum if you hire the job out and everything goes well. You could cut that in half if you did most of the work yourself, but that is a huge job.
You could possibly do the demo work yourself to cut those costs a bit. I also was thinking that if you could it would be good to slip a 1/2 bath in there. It might not increase rents a lot but would make it more desirable which would help with vacancies.
yea making a .5 bath would be a good idea, the problem is that it would take years if I was to do it all myself! I know very little about construction and work full-time, but I could hire my own separate contractors to cut costs.
No way to know the cost of the renovation without know what needs to be done and who will be doing it. Could be $15K if you do all the work yourself and just need to buy materials. Could be $150K if you get in there and realize that it needs to basically be torn down and you hire a builder to rebuild it.
That said, I agree with the others that you're probably looking in the $40-60K range, assuming no major hidden issues...
Assuming the process goes: 1. home inspection (to find out all issues) 2. then estimates from a GC or separate contractors to get accurate cost of rehab? nice thread in BFI btw, thanks!
My concern is for the price of the property and the price of the rehab...could you just get into a better property that doesn't need as much work?
yes I could, but it would not be ideal in my area. A "average plus" property is likely to have negative cash flow due to high home values/taxes and low rents in comparison.
I personally would never use rentometer or zillowestimator . They are off $300-700 in my area. Are you handy? Are you planning on doig the work yourself?
My husband and I gutted our first primary and than turned to into a rental. We lived in it for a year while we redid it definitly we were transferred and rented it out. By living in it we got owner occupancy rates and status. We were also able to do 90% ourself. We only hired out the chimney rewrap, garage door installation and had a handyman help us get a few finishing touch items done as we expected orders.
You should bring in a contractor you trust to give you an estimate. There is a lot of "it depends" here. But shooting from the hip, which is largely how I operate as opposed to many, I agree with @Mike M. 50k-60k. I'm pretty comfortable with those numbers.
At that purchase price those taxes are still 3 months rent. Factor vacancy and you are over 25% annually right there. There are not many businesses that can survive that hit.
$4200 per year in taxes? Sounds very high for a 50K property. May I ask why they are that high?
Unless they have changed how they do it, Philly sets the tax rate for the first three years based upon the purchase price. After all it is hard to contest the value based on what you just paid. After that it can be adjusted. So I would expect that the taxes would drop significantly upon purchase.
There's a step between #1 and #2: Putting together the scope of work.
You can't just hand the GC the inspection report and expect the property will come out the way you expect. For example, all the light fixtures may work in the property (so they won't show up as an issue on the report), but you still may want to change them all so that they are new and updated. As another example, if the carpet is destroyed in one room, it won't be clear from the inspection report if you want to replace it with new carpet or something else (tile, hardwood).
There will be a lot of stuff in the SOW that doesn't come from the inspection report, though everything in the inspection report will likely be in the SOW.
Can you appeal those taxes? The assessed value must be way off. I bought a fire damaged house and appealed the taxes which will greatly (by about a 1/3) reduce them for a couple of yrs. It all depends on the timing.
Can you appeal those taxes? The assessed value must be way off. I bought a fire damaged house and appealed the taxes which will greatly (by about a 1/3) reduce them for a couple of yrs. It all depends on the timing.
it is a suburb in NJ and the town is losing residents due to high taxes, not out of ordinary to see taxes on 10k/yr on a 3b/2ba house
There's a step between #1 and #2: Putting together the scope of work.
You can't just hand the GC the inspection report and expect the property will come out the way you expect. For example, all the light fixtures may work in the property (so they won't show up as an issue on the report), but you still may want to change them all so that they are new and updated. As another example, if the carpet is destroyed in one room, it won't be clear from the inspection report if you want to replace it with new carpet or something else (tile, hardwood).
There will be a lot of stuff in the SOW that doesn't come from the inspection report, though everything in the inspection report will likely be in the SOW.
$1,450 in rent is pretty nice but you do have a big job ahead of you! Just like J Scott was saying, the inspection report is bare minimum. Even if you fix those items, you will have a heck of a time renting this place in its current condition. It really needs a major upgrade. Your rehab costs should take into considerations the area you are in (potential tenants' expectations) and how you want to market your property (high-end, mid-range, low-end). For example, in the past, we used the same color on walls, ceilings and trim because it's quick and much cheaper for repainting. Although more economical, the homes looked nice and clean but kind of bland and cheap. We now paint all ceilings and trim in pure white and use a modern, neutral color on the walls. We get more showings and our homes rent much quicker.
We tend to over-rehab our homes because I strongly believe that's how you find and retain good quality tenants. Kitchens and baths are where I would spend more too as you get the biggest bang for your buck.
My biggest advice though is "do it right the first time". Spend a little more if needed, but take comfort in the fact that you won't get the call at 9:00 PM on Saturday that something isn't working right. Also don't focus only on the cosmetics. Those things that won't directly impress your tenant are equally important. It's your asset - protect it... inside and out.
First of all, don't pay list price to the bank if you can avoid it. At $1200 rent, I would limit the reno budget to $22,000. Prioritize what you need vs what you want. It can look nice inexpensively. You don't need granite. If your numbers don't work, find another property where the numbers work for you.
1) Get actual MLS comps for recent rents and what this sells for when completed as an alternate exit strategy. No rentometer etc.. See how many similar places are up for rent which is your competition and the current rents.
2) Get the inspection report and do an oil tank sweep and get (3) General Contractors to give you written bids once you write your own clear scope of work for them.
3) Then crunch your numbers and your conservative timeline to complete to see if the deal will work based on the Bigger Pocket rules
Anything less; you are gambling and hoping and praying this deal may work and since this Iis your first deal it doesn't usually turn out good. Be prepared and do your due diligence and if the numbers are not real good then walk away and look for a better deal.
1) Get actual MLS comps for recent rents and what this sells for when completed as an alternate exit strategy. No rentometer etc.. See how many similar places are up for rent which is your competition and the current rents.
2) Get the inspection report and do an oil tank sweep and get (3) General Contractors to give you written bids once you write your own clear scope of work for them.
3) Then crunch your numbers and your conservative timeline to complete to see if the deal will work based on the Bigger Pocket rules
Anything less; you are gambling and hoping and praying this deal may work and since this Iis your first deal it doesn't usually turn out good. Be prepared and do your due diligence and if the numbers are not real good then walk away and look for a better deal.
perfect step by step, this is exactly what I needed to see.
I estimated about $55k as it would cost about that here for a full gut rehab. HOWEVER some important pics are missing which are pics I always include when sending pics to rehabbed (when wholesaling) or when my business partner and I analyze a potential rehab: roof, electric panel box and switches, wall outlets, siding, windows backyard, front yard/walkway/steps. In addition to the pics of the heating and plumbing system these pics tell me about the major mechanical systems that I may need to either repair or upgrade.
BTW the pics of the heating system look brand new along with the copper piping appearing in decent condition so it doesn't look like you have to do too much with the plumbing. Is there central AC? If so then you need pics of the condensers.