Rehab Costs on a 10k house

Rehabbing & House Flipping
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Rehab Costs on a 10k house

Joshua Hollandsworth
Cleveland, OH · Member since 2017 · 161 posts · 38 votes
I see more and more investors buying 10k SFR's in low-income areas. They put 5k-7k into rehabbing the house, and renting it to Section 8 for a nice, consistent ROI. I personally know 3 people who do this. They actually never even step foot on the properties they are purchasing, and they are all doing very, very well. A friend of mine let me see the numbers on one of his deals. Here it is. $5000 purchase. $7500 getting the home Sec 8 ready. Gross rent is $800. Property taxes are $100/Mo. Insurance is $60/Mo. Water+Sewer is $80/Mo. Vacancy/Repairs/CapEx $200. Rental Registration $3/Mo. Lawn, trash, snow, are not paid for. Taxes include Trash removal. PM is $75/Mo. Expenses- $518/mo. Cash Flow- $282/Mo. No mortgage, really not losing anything during turnover periods, and I think that CapEx is more than conservative. 3br 1 bath. 1200 sqft. Also I would like to add that he does NOT rehab the houses himself. He has bought and rented 2 houses per month, for the past year. Curious on what your opinions are, and why you do or don't like this strategy.
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Linda S.
Investor · Richmond, VA · Member since 2016 · 1k+ posts · 2k+ votes
8y

@Joshua Hollandsworth,

This is exactly what my mentor does, and he makes insane amounts of money!  I think that model works A+++ if you have A LOT of units, because there will be some bad apples, so I think he had 100 houses, 1 eviction isn't a big deal, but if you are starting with say 5 houses, 1 could hurt, so I think scale is the most important factor with that business model.

   We do a modified version,  normally buy $15K,  and  instead of $7K in rehab costs, we will do $15K, and make the houses look nice and updated.     Our houses look gorgeous, and we never have a problem renting them out.   You just have to define your business plan, and make it work for you!

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  • Joshua Hollandsworth
    OP
    Cleveland, OH · Member since 2017 · 161 posts · 38 votes
    8y
    Thanks for all the advice. I am not currently looking to touch anything like this. I am only looking in "less than desirable" working class neighborhoods. It's just something to think about. I understand the whole rent collection issue. I just don't see it being a consistent issue if we're using Section 8. However, you guys know your stuff. So, I will take your word for it. Thanks again
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  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 31k+ posts · 20k+ votes
    8y
    Originally posted by @Ross Denman:

    I think that difference is that @James Wise, myself, and probably some others in this thread manage hundreds of properties for ourselves and other parties. These properties range from good to bad and maybe even worse. After you've seen homes that need $7,500+ in repairs almost every vacancy and the fact that they are the types of tenants that you can never recoup the money from, you realize that I will take less cash flow to almost guarantee a profitable performance as opposed to more cash flow that gets wiped out every year or two because of what a tenant has done to the home... or just simply issues because of the age of the home.

    If you cash flow $500/mo that is $6,000/year. If you spend $8,000 every two years and lose 2 months rent and have holding costs of $200/mo during those months you are losing $9,400 of the $12,000 cash flow. Now we are down to $2,600 for 2 years. That's no better than the $200/mo made on the $100k house, just a lot more more headaches. Personally, I don't like to stress... so I prefer to invest in better assets.

    It's no different than the person who pays $2,500 cash for the 20 year old car that get 18 miles to the gallon and needs repairs twice per year or the person who pays $400/mo for a new car that gets double the gas mileage and doesn't need anything other than scheduled maintenance. At the end of the day, either one works, it's just about the experience of owning that particular asset.

     Well said. Your level of experience shines through on this post.

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