Tricky Deal. Help Needed!

4 Replies

Myself and a business partner are new investors who stumbled across what we think is a good deal and we would love some of your input on whether or not this is a good deal. The property is listed at $47,000. It is formerly a 4-plex with 4 beds and 4 baths, which is fantastic for this area and would be a huge selling point. We would like to turn it back into a SFH. The assessed property value dropped from $118,500 to $47,500 last year due to the condition of the building. The property is located in a lower income level, but is a block away from a brand new CVS, new strip mall, and a bus stop. In addition, there is a vacant lot adjacent to the property. We would like to flip the property but are concerned that the surrounding houses could decrease our eventual selling price. The median house value for the neighborhood is $90,000. There is also a 5 year tax abatement on any taxation increases incurred on capital improvements.

Hey @Account Closed You mentioned a median house value of 90k but thats too generic for my liking. Have you pulled any comps in the area for like properties? That's where I would start. Need to figure out what the place is worth and go from there. If its going to be a flip then you would need to figure out the ARV and budget for repairs if needed. But, first step is to see what its worth.

@Account Closed  

I doubt this is going to be much of a deal, but there might be a few bucks to squeeze out.

Running off the assumption that you'll sell it for 90k:

70% of ARV = 63k (this is a good rule to look at properties from a purely numbers based perspective) The 30% covers closing costs when you sell and holding costs while you renovate.

How much is the renovation going to cost you?  If the definitive answer, which has been verified by at least 3 different GCs, is less than 16k (63-47), you should be able to make a few bucks on this deal.

Given what you've said, this sounds like a lousy deal.  What I heard:

The place is in rough shape.  So bad in fact that the assessed value dropped by more than 70k when the city looked at it again.

It needs to be converted back into a SFH. That means lots of walls, lots of dry wall and lots of new electric work.

This doesn't sound like much a deal.

If your comps pull 20-30% higher, you might have the makings of a good deal.  

Have you checked the price of the vacant lot?

Originally posted by @Andrew Dickelman:

We would like to flip the property but are concerned that the surrounding houses could decrease our eventual selling price. 

That is the definition of ARV....you can only sell for what homes in the area go for. That's not a concern it's a fact. Trying to squeeze a higher priced flip into a lower priced neighborhood=square peg round hole.

This is where you should start, not where you should back into. Meaning what will your sale price be then see what you need to buy at, not the other way around.

Great points above!

You will also want to check for any liens on the property. If you are purchasing with a QCD that should be something you consider long before making an offer.

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