Should we flip it ourselves or sell for cash?

2 Replies

My dad owns a home in Pittsburgh that is too big for just him and needs a lot of work (roof, water heater, HVAC). He has spoken with a local investor that wants to purchase the property from him for 100k. My dad owes about 30k on it so he would walk away with about 70k and not have to deal with the stress and hassle of hiring contractors to fix the place up himself. 

The homes on the street have been selling for 225k - 245k. The exact home next door just sold for 225k all fixed up (without central air)

I'm trying to convince my dad to fix up the property himself with the help of my uncle and with about 20k that I could invest. 

The house needs at least 50-70k to get it retail ready and probably 30-40k to get it rental ready. 

Ideally my dad would keep it as a rental property. However he does not have the extra money to cover any additional repairs. Would it make sense for him to take out a HELOC on the home to cover the rest of the renovations and then use the BRRRR strategy (minus the B) to pay off the HELOC, pay me back and use as a down payment on another property?

Or should my dad, my uncle and I work out a partnership to just flip the property and sell it retail. We are having a tough time figuring out the terms of this one though. My dad brings the house and money from the HELOC, my uncle does the work and I bring 20k - not sure how we go about splitting the profits?

Sorry for the long post but any advice would be great - even if it is just to sell it the investor for a 70k profit. 

Thanks!

@Brendan August how confident are you in your budgets?  And what did your dad pay for the house?  What he owes is only one piece of the overall return on the property?

Rehabs are a major pain in the butt.  Most contractors are slammed these days, cost of materials is rising and a lot of things are backordered (my window order that was quoted as 6 weeks just got delayed another 6 weeks due to manufacturing, a lot of appliances are a couple months backordered).

If your dad wants a rental, are there turn key properties he could buy using that $70k as a large downpayment?  Is he in a good rental area?

Thinking it through, house is worth $225k finished, you will likely have $15-20k in closing related costs and $30k owed, so he walks with $175k at closing. If he is using a HELOC to finance the rehab at $70k, he only nets about $100k. How much are you and your uncle taking to partner with him to flip it? If you and your uncle take more than $30k for your own time/investment/etc, then your dad is netting less than he would to sell outright.

Are the repairs that need to be done just HVAC, hot water tank and roof?  or looking at the photos of places that sold nearby, do you need to redo kitchens? The three items you mention are pricey, but not that hard to pay someone to do.

Have your dad talk to a realtor-not sign any paperwork, to get an idea of market value as is and with the new roof, hot water tank, HVAC, a fresh coat of paint, maybe new kitchen countertops (and hardware), but leaving the bones as is.  Then go from there.  An investor willing to pay $100K for a house worth $225K after renos could be low balling or maybe the house needs that much work.