C class single family home dilemma!

15 Replies

If you bought a $130K house in a C class neighborhood that needs 50K invested to flip for a 30K profit or $70K invested to cash flow $600 month what would you do? Keep in mind it's our first flip on our own and could possibly use the profits to BRRR a duplex. We wanted to jump in with both feet but we didn't think we wound drown in deals!

@Russ Wahl a 50k rehab on a single family is the big question mark on this deal. What all do you need to do in that 50k? Is that just cosmetics, or are you touching mechanical systems for that? The profit margin is pretty slim in my book for a flip. Also, how much can you rent it for where you can cash flow $600 per month?  Are you renting this 180k investment for $2500 per month or something?

@John Warren

The house had a value of $275K 6 years ago but was lost to forcloser. It needs a new roof, windows and doors, and all new mechanical. Not a full guy on the inside but pretty close. Unfortunately in our area everything is pretty expensive. The $50K is also including the taxes, insurance and private money interest fees.

The only way to make this house cash flow would be to add a basement suite. It wouldn’t even break even without it. That’s where the additional costs would come from.

@Russ Wahl you are a contractor, so I don't want to second guess the numbers but that 50k seems too low to me. I spent around $125,000 renovating a 4 bed/2 bath home in Berwyn 2 years ago and I GC'd the project myself. The other thing is that this is not a good rental so you will only have one exit... sell. What if the reno goes over budget? 

Sometimes the best deal is the one you didn't do. 

@Russ Wahl , markets will clearly vary, but here is a quick break down on my costs:

Roof - 6,000 - 8,000
Windows - $250-300/window installed for cheap option
Doors - $150 for cheap interior prehung slabs installed, and $500-1000 installed for exterior
HVAC - replace furnace and AC, but no duct work or electrical $6,000

I would image you are at $20,000 right there, and these are not even the most expensive things.  Counters and cabinets can be $10,000 right there, appliances another $5,000.  Tile backsplash, floors, lighting, full bathrooms, cabinet pulls, etc. 

We just finished 1,300 sq ft near gut with most of the items you mentioned (we did not need a new roof, but did have to reside and new gutters, which was actually more than a roof).  We are all in about $115,000 with a near full gut interior.

@Evan Polaski

Because it’s our first house on our own we will have to do the labour ourselves.

- roof (completed) $2200

- windows $4800 (ordered) 10 units

- furnace, water heater $10K (quoted)

- drywall and mud tape $3500

- flooring $2000

- kitchen $5500

- appliances with washer dryer $6000

- lights $1500

- faucets $500

- tile backsplash and shower $1500

- gutters $500

-finish package $2000

- paint $2000

- 10% over run budget of $5000

Takes you pretty close to $50K.

This one is just buying us a job but hopefully we can compound the profits into another and do a little less of the work on our own.

@Russ Wahl , okay that is making a little more sense.  Labor will typically be about half or more of your rehab costs when hiring out. 

Back to your original question of flip or rent, clearly your goals are different than mine. All I can say is I would be careful with your projected cash flow numbers. To really understand if it is a good investment you need an apples to apples comparison. If your $600 includes all debt payments, insurance, taxes, management, leasing commissions, vacancy reserves, capex reserves (i.e. you just put a new roof on, but in about 25 years you will need to do that again, and to hire it out will cost a lot more than $2,200), turn over costs, etc, then you can compare it to what returns you think you will make in the stock market, or syndication, etc.

A lot of times I am seeing others not making an apples to apples comparison. If you replace the roof for $2,200 that is great, and may be worth it. But that is work you are doing, time away from your family, your personal injury risk, etc. When you invest in the stock market, you sit back and collect a dividend, maybe some appreciation, and decide when to sell.

I am not condoning you invest in stocks versus real estate (I chose real estate and am very happy I did). I am just saying you need to be looking at your each dollar AND each minute of your time and find a way to maximize the value and growth potential of each.

Our friends did the same type of rehab, C-class area but nice street appeal. They are contractors & own a granite store. Biggest issue they had was on the sale, everything looked great, sold it just under list BUT the buyers conv. financing appraisal came in way too low. After all those months & work they barely cleared $10k to split between them. 

We did a flip last year in a great A-B class area, did all the work ourselves, so it took 7 months. It didn't need a roof or windows BUT EVERYTHING else, but at least we walked away with $50k, yet I'd be reluctant to do another.

@Pat L.

So what would make you reluctant to do another? The time spent or the risk?

We would love to move into the flipping and holding (BRRR method) but we wanted to hold properties in a B neighbourhood. For us this is step one. I've been learning and researching this for about a year now, so we decided to take action instead of sitting on the sidelines. We have learned a lot already. Thank you for your input and insight

Originally posted by @Russ Wahl :

@Pat L.

So what would make you reluctant to do another? The time spent or the risk?

We would love to move into the flipping and holding (BRRR method) but we wanted to hold properties in a B neighbourhood. For us this is step one. I've been learning and researching this for about a year now, so we decided to take action instead of sitting on the sidelines. We have learned a lot already. Thank you for your input and insight

It was both the time commitment (partner bailed) & my age. Plus the fact it's possible to make the same money with several other REI strategies. But we also hold the mortgage (60% LTV) on that last flip so that pulls another $7200/yr.

@Jordan Atkin you would be a seller? Like a wholesaler? We have a private money investor in with us but for me that just adds to the stress because now it’s not just my money I could loose but someone else’s. I’m trying to soak in all of these strategies to be able to narrow it back down to find what fits best for us.