I am considering offering on a property that is being offered by a wholesaler. This property would be a buy and hold rental.
Some numbers that I have come up with that I think will make it meet my criteria for being a possible deal are as follows:
Asking price: 37,500
Cash flow: $378/month
If I can keep the rehab costs under $15,000 I think it will make my all-in price at enough of a discount that I can make the deal work.
All of these number are conservative estimates and it gives me a 22.79% discount on a buy and hold property. I plan on doing the BRRRR method and I know that doesn't reach the 30% threshold, but I am comfortable with it.
What I am not comfortable with is estimating the cost of rehab. I would like to fix it up nice enough that it will last a long time, because I plan on holding it possibly forever. It is a small house (952 sq ft) with 3 bedrooms and 1 bathroom. I would like to do wood/laminate flooring throughout and granite counter tops as I think those would last the longest and not have to be changed every time a tenant changes. I think it would also give me a leg up on the competition to keep this house rented consistently. Is this crazy to do in a house that only has an ARV of 68,000?
I am very much a novice when it comes to estimating rehab (I just got J. Scott's book in the mail yesterday, but won't have time to master it before this deal).
I'd like any and all help with pointing out stuff I don't realize will need rehabbed and help with estimating how much this house will take to get in great shape.
I have included a dropbox link of the pictures I took today. I took lots of pictures, because I wasn't even sure what was important to have pictures of. If you want more detail check out the pics too.
Can this house be rehabbed for < $15,000??
Thanks in advance for any help,
Fwiw, I am willing to help with work, but wouldn't be much help with anything other than standard appliance installation and demolition. Most if not all of this work I plan on contracting out. This property is in Indianapolis, IN if that helps with rehab estimates.
I am a fan of granite in any house, however I don't buy and hold rentals. Granite does help with avoiding damage, and you can get cheap granite these days. One house I did had only $1350 worth. Sure it's more than laminate, but one hot pan/pot on the laminate and you might be replacing it quick.
I can't see the photos on my phone, but if you upgrade anything that will take abuse, and the HVAC, windows and roof are in good shape, you might be able to renovate in that $15k budget.
@brian pulaski thanks for the insight. Do you have an opinion on wood/laminate flooring throughout? I know it would look better and might attract better rents. I'm just wondering how much more durable it is than carpet and if it will pay dividends in the long run to spend extra up front for what it costs compared to carpet? Is there another type of flooring that might be a better alternative than either of those options?
For flooring I would recommend vinyl plank flooring. It will hold up much better than laminate will (and looks better). It's almost double the cost of carpet though, but if you're looking for something to last for awhile then that is what I would do. As far as granite goes, you can get scraps for about $20-25/sqft including installation. These are all based on pricing in Atlanta.
@Patrick Cruse it all depends on your contractors and whether or not they treat you fairly. If you're planning on holding onto this forever then it may make sense to go ahead and invest more than $15,000 into it because your returns are going to increase exponentially over time.
In the midwest turnkey companies typically pay $15 per square foot for heavy rehab. I wouldn't call this a heavy rehab. The kicker here is turnkey companies have access to contractors and materials cheaper than you and I do.
However, it may take you a little more time, but if you ask around for contractor recommendations in your network, and then hire each job individually I think you'll save the most money that way rather than hiring a GC. That is what I did for my flip in Brownsburg. If time is an issue then spend the extra money and hire a GC. It really all depends on the time you have to commit to managing the contractors and the work. For some investors it makes more sense for them to spend the extra money and hire a project manager and GC, for others they manage everything themselves.
You don't need granite in this type of home. There are other materials that are extremely durable just like granite, but at a much lower cost.
Some people will say yes this can be done for less than $15,000, while others will say no. The best thing to do is to come up with worse case scenario. Say something blows up and now it's $20,000 in repairs. You're still not losing money, and you've learned a lot along the way, you have a cash flowing investment, and you've built relationships that you can leverage on future deals.
@Patrick Cruse Congratulations at finding a deal that looks good. I see some good refinance potential here to get your REI dreams off the ground.
In addition to what @Ben G. said, I would recommend finding a GC and asking for ballpark estimates for some of the jobs that would need to be done to the home and then put together a rough estimate that way as well. if you haven't read J Scott's book on flipping houses here on BiggerPockets, I totally recommend that as well as it gives some nice estimates for jobs as well as insight to potential renovations that could increase the value of your investment.
@Adam Abdel-Hafez Thanks for the input. I just sold my house in Vegas and relocated to the Indy area. We are renting a little apartment here until we figure out exactly where we want to live and find a house. Anyway, our apartment has the vinyl plank flooring that you are talking about in it. I was mistakenly referring to it as "laminate", but that is what I had in mind to put in the rental. It seems really durable and looks great.
I think scrap granite would actually work well in the house since none of the counter tops are very large.
Thanks again for your help.
@Patrick Cruse , as a contractor, terms like light fixer, heavy fixer are meaningless. If you want a ballpark figure, decide EVERY detail on what you need to repair, replace, or rebuild. You need an accurate and complete scope of work. Then you will decide what fixtures, appliances, cabinets, etc. you will use and put together a bill of materials. An experienced contractor will know you are just looking for a number if you are just looking for a number. We love to be experts and share information and knowledge, but we know when our time is being wasted. Be upfront. If you plan to GC the job yourself, it's your job to make sure the appliances fit the cabinets, window treatments fit the windows etc. as well as determining the duty cycle of the water heater, roof, and HVAC. A good GC will get this right and probably save you time and money. Good luck with your project.
I agree that before any works gets done that I should have a much more detailed scope of work and have exact price estimates laid out. However, I am just looking to get a rough estimate of how much I can expect to spend on this rehab. In my opinion, a difference of $1,000 would be a big deal when dealing with exact estimates for actual work from a contractor. However, in this situation, just knowing within a $5,000 range how much rehab is going to cost would be very helpful in determining if this will work for me.
I have reached out to a few contractors to just do a 15 minute walk through with me in exchange for a $100 bill, but haven't been able to organize one yet. I am mostly just looking for peace of mind here and not exact numbers.
@Patrick Cruse one contractor will tell you 10k and another one will tell you 20k. I've witnessed it 1st hand getting estimates on other homes. I had one contractor give me a 45k bid said foundation was fine and another one give me a 180k bid saying house needs rebuilt from foundation up.
@Patrick Cruse this was a house in Fletcher Place, it really depends on what you want to spend in most cases after you fix the things that absolutely need fixing.
@Patrick Cruse granite in a 68k house seems excessive to me, though with scraps might be a nice touch. I'd look at the list of most expensive replacements first and make sure they still have life, roof, hvac.
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