Hey BP, I am a new investor who just turned 20 years old and after months and months of educating myself on anything and everything REI I have been really itching to actually put it to the test.
I have located an area that I feel is the best starting point for me as a new investor in my area. I have been really digging deep into the area's statistics and I drive through it every day on my way to work.
Last week my business partner and I found what we thought was a great rehab project in the area and in our price range and we went and checked it out with a local agent...well unfortunately, we decided it was too much work for our first deal, so we kept looking.
This week I've had my eye on a property but I would really appreciate some experienced guidance first.
The property is listed for $51K with 2 beds and 1 bath at nearly 700 sq ft and valued at $61K. It was built in 1941 and based on the pictures it seems to be in decent shape. Parts of the exterior need some paint as well as the interior, the yard needs some work, the kitchen needs new floors and new cabinet doors, etc. ( I have yet to visit the property in person but this is what I could gather from the pictures). Most, if not all, of the rehab work would be done by myself, by business partner, and my father.
As for the comps in the area the neighboring properties are valued at $67K and $70K, there are about 4 properties within a few blocks of this property for sale with the same specs that are all listed for $70K, there is a property 2 blocks away from the property that was just sold at $88K with the same specs, another property that has similar specs that is near this property that was sold for $86K and another property that was sold just 2 weeks ago that is 1 block away with similar specs for $75K.
With this information I put together what I thought would be a very reasonable ARV for the area on this property at $69,900 based on a very rough estimate of repair values at $5K-$10K.
I also just want it to be known that I am really not looking to make a HUGE profit on my first deal, I want to get some experience under my belt first but I don't want to lose money either. I know some of you shoot for $100K profit or so on your deals, but to start, my goal on my first deal is to profit at least $10K. With that, I have some questions on how to go about pursing this property, or my first property in general.
1. Being just turned 20 years old what would be the best way to finance a deal? (I have a grandfather who is into real estate investing who may be able to finance a few of my first deals, but I want to make sure I look at other options first.)
2. Is it probable that with that conservative ARV number I would be able to profit at all?
If you need any more info on the deal I have plenty of it, I just didn't want to make my post too long. Also, more details are to come on this as I plan to go visit the property this week.
I appreciate all your help BP Community!
First, I don't know if your estimate of rehab costs are just the materials with you doing the work or the cost of contracted work. If just the materials then the contracted work might cost $10K to $20K. I don't know what it means that the ARV is based on the estimate of repair costs. The ARV is the price the house can reasonably be sold in good condition.
If you use the 70% rule then the calculation is .7 times $69,900 or $48,930. This is the amount you can pay for the purchase + rehab. If you subtract $7,500 for rehab then you can afford to pay $41,430. Don't deviate too much from these numbers.
Many businesses are started with funds from family and friends. Many would want to get better return than they are currently getting.
I am new to REI too, but after reading your post, I don't think this property sounds like the best deal. Don't be afraid of larger rehabs unless your plan is to do the work yourself. You may be better off wholesaling this property rather than rehabing it. Bill's comment is right on- if you do the math, your return is really low and may not be worth the effort. You will only really be able to determine if it's 'the one' after you go inside and can have a solid rehab cost. Your time is worth a lot and you may be able to pay someone else to work if 10k is your profit goal.
Are the comps as old as this property? I might use 65% tops on a property this old and maybe less but I dont know your area. And if you feel pretty good that rehab is $5-$10k then figure $15k. And you have the right idea being conservative with ARV, we want to price it to sell.
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