Hi, I have found a property that has been damaged by fire. the structure is solid no issues. however it will be a full gut demo and rebuild other than framing. the property is listed for 20k and i estimate (waiting on meeting with contractor on monday) around 40-50k for repairs to get it to quality standards. ARV for the neighborhood that its in and its size should be between 78-86k. my plan would be to hold and rent the unit rental rate should be about 900/month. I have cash to cover purchase and closing costs of the property, however would have to borrow money for the repairs. Zillow shows rental estimate of 995/month. i may be wrong but when i try to calculate things to guesstimate expenses and such i try to lean on the higher side of percentages that i hear people talking about. so i caluted at 950 for rent. then for expenses im coming up with about 835 a month only leaving 115 for cash flow every month (after refinance) i have trouble with a couple of factors though, mainly repairs and capex obviously something needs to be held back here every month because it will happen, but everything will be brand new so risk of anything major such as roof, hvac, plumbing, electrical should be extremely low. with using Brandon Turners 4 square method it shows after refinace that i should be about to pull all my money out if im 60k in total after repairs and its worth 80k and would be at a 23% Cash on Cash ROI? maybe im confused and mixing strategies. please help!
the difficulty is this would be my very first deal ever so im more messed up than a football bat.
@Joshua Hataway does your contractor have experience in fire repairs? There’s more to it than just ‘rebuilding’ to ensure the house doesn’t smell like smoke forever.
I'm also a bit concerned that your ARV doesn't give you much wiggle room. $20K + 50K reno, plus closing and carrying costs puts you right up around the ARV. Any extra costs will end up putting more move into the house than it's worth... while not catastrophic, could be problematic.
There are folks here who specialize in fire restorations and will probably have more ideas.
Hi Josh, it seems like you have the right idea based on the everything you've mentioned. The fact that you plan on holding it as a long term rental definitely makes more sense based on your estimated ARV. I recommend getting multiple bids from different contractors to get a better idea of how much the rehab is actually going to cost. Even if the source of financing you plan on using doesn't require an inspection, I would definitely suggest getting one done even at your own expense. In addition check with several property managers in the area to determine how much rent you can expect once the project is complete. At the end of the day it may look like a good deal due to the properties current condition, however I wouldn't overlook the big factors such as...location, population growth, job market, etc. I hope this helps, good luck everything!
Thank you both for responding.
@Mike McCarthy thats my main concern. I want to get into real estate. I know not every deal will be a win. I just would hope to start on the right side of the fence.
@Cody Barna thank you. i agree totally with inspections. As far market numbers. I know how to find that info but not how to translate what it means. I assume a property manager might could help with that?
i dont know if it matters but this is a wholesale listing also
@Joshua Hataway Yes a property manager should be able to give you an accurate number for rents in the area. It wouldn't hurt to link up with an investor "friendly" realtor who can help you articulate those numbers.