Negative cash flow deal in Raleigh,NC? Would you do the same?

Question

Real estate can be for the most part easy, especially if your a realtor. Haha just kidding, but seriously it pretty much is right. You make an offer, spend some money and get money from people in return to live in your place. Well…… lots of people say deals are tough to come by and in todays market feeling impossible! But is it really ? Or are you just not looking in the right way?

I’m gonna tell you about this deal I just made and offer on and got accepted, so tell me your thoughts.

Location: Downtown Raleigh one minute from historic Oak Wood.

Property type: Duplex 2700 sq ft

Asking:575k

Purchase price: 550k

Points at closing: 2.5

Interest:9.9%

Days to close in offer: 7

Financing: hard money

Currently renting for $2850

Leases end in 6 & 10 months

Repairs: $55,000 at my costs being a Licensed general contractor

27k outside

28k inside

ARV: 900k+

Plan: performing repairs on outside of home and get renters to move out as soon as possible. Offer to pay first months rent at new place or something. And than finish repairs on inside or if I can do both and than have them out great!

Afterwards I plan to Airbnb each side! On average the area will bring 200-400 a night each side by my research. All depends on time of year and ect…

So 8k every month at 50% capacity. Shoot low and be happy when it hits high.

Would you have done this deal? We are talking 2200 a month in negative cash flow temporarily. And also tons of equity and possible big cash flow.

Tell me what you think?

Nathan Gesner · Answer

My family is sleeping and I'm looking at other markets, so I took a few minutes to check out Raleigh. I found a duplex for the price and location you mentioned, NW of Oakwood and under contract in six days. I then looked at Sold homes in that area and almost everything is under $600k with some well under $200k. That's a pretty wild fluctuation.

I did a search of homes that have sold in the past couple of years around Oakwood and Zillow showed 330. Only 8 of those were over $900k.

I believe we're in a peak market with a lot of unknowns coming at us this year. Your plan seems high risk, but maybe you know something this amateur keyboard warrior doesn't.

Drew Sygit · Answer

It's interesting how investors are basing the prices they will pay for properties on STR rental rates instead of LTR rates.

With the changing legislative and tax situations for STRs, there are bound to be some that experience big losses with this strategy.

May be prudent to buy deals based upon prices that break-even with LTR rates and recognize STR income as a "bonus" for as long as it lasts.

Dan Rowley · Answer

To your negative cash flow comment..... Warren Buffett once said, “The first rule of an investment is don’t lose money. And the second rule of an investment is don’t forget the first rule. And that’s all the rules there are.”

Andrew S. · Answer

I assume you are up to date on Raleigh provisions regarding shortterm rentals? Also, you may be in a Historic District overlay which makes everything (including STR and outside renovations) much more painful.

Mike Davis · Answer

@Patrick Knapp since you know you will have negative cash flow use that to negotiate with seller to hold a second note. Get HML and structure the deal where you have positive cash flow and differ payments on the second note on the seller financing (maybe a 1-year balloon on the seller financing)

Chad Gray · Answer

@Patrick Knapp That's awesome. I'm pretty familiar with the Oakwood area, I have one myself down Oakwood Ave. in front of the cemetery. Don't see many duplexes appraising for 940K around there you must have found yourself a good one.

Patrick Knapp · Answer

@Chad Gray

Appraisal just came back at 943k

That’s true, but there is other ways to meet the same numbers like rent per room and ect.

I know it’ll get 4000 each unit if we did corporate housing too.

The key is to have multiple options not just one.

Chad Gray · Answer

I would be extremely cautious evaluating deals based on the STR income. How exactly did you come up with an ARV of 900K+?

Negative cash flow deal in Raleigh,NC? Would you do the same?

Negative cash flow deal in Raleigh,NC? Would you do the same?

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