I have paid cash for a $104000 2 bed 1 bath property that needs $20000 in work to get it rent ready. It should rent for $1150 or $1200 a month once finished. After remodel value will be about $130000.
My property manager came up with an idea to turn it into a 3 bed 2 bath which will cost an extra $20000. It will then rent for $1300 (maybe $1400 but that might be a stretch.) It will increase the value to $150000.
Our main goal in buying the property is not equity but to meet the %1 rule and bring in cash flow. We also want to purchase at least 2 more buy and holds in the next year.
Would you do the remodel? To me I am having a hard time justifying spending the extra cash but I am wondering if I am missing something. We are thinking we'd rather not spend the extra cash on the re-model as it only brings us an extra $100 or so a month which will take us along time to make up the cost of the remodel and we'd rather use that extra $20000 to buy another house.
Thoughts and advice all welcome please!! Thank you. We are considering down the road after we have our next houses bought we can go back and upgrade it then.
Further info....we own one other property worth $130000 with a $80000 mortgage on it at 6%. We are planning to try (never done this not sure if this works or not) refinance that property along with pulling money out of the second house we paid cash for to use that money for at least two more houses. Most of our cash is all used up now from paying cash for the second house.
What are you renovating for 20 grand? What market are you in? How old is the roof? The windows? Do only the necessities. I wouldn’t do the extension just yet wait to get that property established the way it is first then maybe down the line do it.