Found a 2bed 1bath for 99k. It requires full rehab. The only thing good is the framing (it has already been guttted).
I am complete noob to real estate investing as far as real world experience. I bought a house so am familiar with the buying process .I've read some books on real estate investing so am sort of familiar with basics.
I am very handy person. I recently completed a pretty major remodel in my own home.
Did all the work myself.
Should I stay away from this type of investment as first?
Rental Property Investor · San Anselmo · Member since 2015 · 659 posts · 599 votes
7y
First of all I would select a niche that is appropriate for your goals. Although Flipping can potentially be beneficial to "Buy and Hold" investing, they are two very different animals. One is a job, and the other creates cash flow and wealth.
Educate yourself, narrow down on your goals, and stay focused on the goal you create.
That sounds like a very large project for your first deal. A fix and flip could be a good way to get your cash up. You also may want to be sure of marketability of 2 bedroom houses in your area. Most areas it seems to be a hard sale.
Rental Property Investor · San Anselmo · Member since 2015 · 659 posts · 599 votes
7y
First of all I would select a niche that is appropriate for your goals. Although Flipping can potentially be beneficial to "Buy and Hold" investing, they are two very different animals. One is a job, and the other creates cash flow and wealth.
Educate yourself, narrow down on your goals, and stay focused on the goal you create.
Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes
7y
It all depends on what the profitability of the deal looks like. I would not be afraid of a full rehab just make sure you get multiple bids from qualified general contractors. Create a detailed scope of work so you can compare apples to apples. Once you know the cost then you can nail down the profit margin. and make a sound decision.
I get the question all the time whether or not to start out with long-term rentals or flipping. It all depends on your goals and comfort level. You can generate cash quicker by flipping. It will take a number of years to generate significant cash flow with single-family rentals depending on your area and the availability of properties with enough margin.
The current owner is real estate investor himself. He got a CMA done pricing the house at about 230k-240k after repair. He got a few bids from some contractors and he thinks it will be about 60k-70k for the rehab. He wanted to match some mismatched roof pitches and add a bigger porch.
property taxes are very cheap since it is not livable.
Out of the theoretical 170k necessary, we would need to finance 140k probably with a HELOC?
So there could potentially be about 60k (230k-170k) of margin minus holding costs.
Flipper/Rehabber · Louisville, KY · Member since 2008 · 1k+ posts · 1k+ votes
7y
I would be very leery of a deal where you think another investor is dumping a house with 60K in potential profits. Most investors are smarter than that. It is possible he is in a position that forces him to sell but IMO it is more likely he knows something about the property or the market that you don't.
My first adventure was a Fix and Flip that was a full rehab. One piece of advise I would give is don't try to tackle everything yourself. While I kept the cost down a ton by doing it myself the time line was much longer than I wanted.
I'll walk away (house should be on the market in a week) with a nice chuck (50k invested and 60k to 80k profit per the market) it eat up a lot of nights and weekends of my life. I would gladly take a smaller profit and have less time into it.
Yorkton, Saskatchewan · Member since 2016 · 53 posts · 26 votes
7y
Try this formula Pascual. First, figure out the ARV (after repair value) - maybe it is $230K, maybe its not. You gotta get this right. Find some good comps for starters. Two, buy the property at 40%-60% of that ARV (the lower you buy, the more you can rehab). Three, rehab up to 70% of the ARV - forced appreciation - and expect to sell at 90% of the ARV. That should leave you with 20% profit margin. Do the math, and then do the math again. And no matter how much math you do, you will never truly know until you try. "One flip, two flip, three flip, four, review the numbers and then do more." Have some fun doing it and tell me how it worked out.