Buy gutted duplex or Duplex thats rent ready?

Question

Hello all.  I am a new real estate investor this will be my first purchase.  I can get a gutted double, or ran down place for about 15k, or I could spend 45k and get a rent ready duplex?  Was wondering which would actually be better?

Darien Gilbert · Answer

You know I have wondered the same exact thing.  Yes they are within blocks of each other.  Mrs. Rivers and I have contemplated building on an empty lot as opposed to both, for the long haul.  Wise advice Mr.Josh.

Pyrrha Rivers · Answer

Newbie chiming in here!

As I was reading all of the comments that echo the voice of reason I kept wondering if both duplexes are in the same area and stand to attract the same tenant pool. It makes me wonder how much more you would get with a virtually new duplex if it's in the same neighborhood where others, although not as nice are available.

Maybe my thought process doesn't make sense because I'm too new at this. What I know makes sense is to encourage you to wait a bit because the powerful minds in this forum will give you plentyful and sound advice.

Josh Sterling · Answer

You will see cash-flow sooner in the rent ready property (obviously) and it will be easier initially. The rehab will probably not be as high quality.

In the complete rehab property it will probably end up being less of an investment overall and you will get a higher quality rehab.

We have mostly gone with the full rehab properties, as we feel it is a better value in the long run. Occasionally it is nice to pick up the rent ready property (maybe 1 in 10) just to get the instant cash-flow. Just be sure it is not a lipstick on a pig remodel.

James Wise · Answer

If the gutted one will cost dramatically less then the rent ready one I would buy that one. If the prices are similar I would go with the one that is rent ready.

Do not forget to account for your holding costs and lost wages during the rehab. Your the one who will be paying the heat and electric bill's for the house while its empty not to mention the lost rent during the rehab.

Carl Schmitt · Answer

I don't know what things cost in FL, but where I am, there is no way you could get a gutted duplex liveable with 30k.  Well, I guess it depends what you mean by gutted.  If it needs new electrical, plumbing, sheetrock, fixtures, everything, not a chance.  If it needs patching of walls, new flooring, some fixtures, cosmetics, then you could probably do it.

Also keep in mind, the benefit to buying a gutted property is that you have instant equity when it's done.  if you buy the rent ready or the gutted property and end up at 45k all in, what would be the point of putting time, effort, and lost rent into the gutted property.  Now, if you can buy the gutted property, have it fixed, rented, and be all in for only 35k, now it makes sense.

Darien Gilbert · Answer

Wow

Darien Gilbert · Answer

Patrick, and Liam. Great points and information.  Please if u think of something else please share.  Thank u both for your time

Patrick L. · Answer

Keep in mind your local building regulations and permit issues if you try to do it yourself.  Where I live and invest I need a permit for just about anything and I cannot pull a homeowner permit unless I am occupying it as my primary residence already.  So if I want to change a window, a door, replace more than X amount of sheet rock, add/remove/move a wall, fix any electrical, change out plumbing, replace AC or just about anything else I need a permit pulled by a licensed contractor otherwise the city will fine me, shut down my job and have my utilities disconnected if I don't comply.

Darien Gilbert · Answer

Good points Jay.  I have always heard that investors don't buy cash we create it.  You know I never liked working for money, I always wanted it to be for fun.  I think I would get alot of joy out of working with my sons on a duplex that maybe I should have stayed away from and my children and I turning i profitable.  I wonder how much of this is poor thinking?

Liam Goble · Answer

@Darien Gilbert I am a contractor and purchased a run down duplex in March 2013.  Half was rented, so that really helped with the cash flow while I was working on the gutted side.  I put about $15K into the property on nights/weekends.  The unit was finally rent ready by mid-November 2013.  It's now rented and the whole duplex cash flows about $400/month.  If I didn't have a day job, purchasing run down buildings, rehabbing and renting would be the way I would go.  Because I have a day job and my wife wants me home for dinner (!), I am now focusing on rent-ready units -or- units that are not in good condition, but that do cash flow at the time of purchase.

For example, I purchased a duplex in Aug 2013.  The building is not in good condition and really needs a full gut rehab.  However, the duplex is fully rented and cash flows as is.  When I rehab the building, I will be able to significantly increase the cash flow.  The current cash flow is about $100/month ($50/door).  With the whole building rehabbed, the cash flow should increase to about $300/month or so.