I am in a tricky situation guys and I need some advice. A lead from my DM campaign that I have been looking at as a flip just called me again. Property is in a good neighborhood and the ARV is right at 147-155k. He is asking 120k on mls but I know he accepted an offer for 85k that fell through. (investor decided it needed more work) He is going to take it off the market if it doesn't sell by Sept. We were looking at this as a flip however it is a really good rental area. Our max offer would have been mid 60's with an estimate of around 40-45k in rehab. After hml, interest, and realtor fees we would pocket around 20k in profit. Our long term strategy however is ultimately to buy and hold. With his offer I am thinking that this may be a good one to hang onto.... Rents in the area are in the 12-1300 range and appreciation would definitely occur. This is an A class area. We would have to figure out how to fund the repairs and possibly put in some sweat equity. Ask him to take out a heloc? Or???
What do you numbers looks like on the buy and hold strategy?
The deal looks thin to me:
60k owner financing
1k owner financing closing costs (title search)
?? transfer tax
5k conventional financing closing costs (to cash original owner out)
It looks like you'll squeak under the 1% rule. Which makes the deal worth looking at.
I would find out exactly how much the following expense are going to cost you each month. "The tenant pays" is a good answer as well. Put those numbers up here and I'll tell you what I would pay for the place.
Sewer and Water
Cap Ex and Ops (my personal minimum is $150/roof/month)
Mgmt Fee - as a % (general consensus here on BP is 10%. include it even if you think you are going to self manage)
Vacancy- as a %. (8% represents 1 vacant month/unit/year)
From what we have figured and ran it should cashflow a few hundred a month our main goal here would be the appreciation and the large amount of equity. We are trying to figure out though how to do the rehab. Is it possible to take out a heloc on it right after purchase? I have seen some people mention that HD offers a loan with 0% for 6 months and a limit of 25k? What other options do we have?
The deal as a flip looks thin to me. I would be inclined to pay about $57,000. Given your estimated ARV I would budget $132,880 as net after selling. Using your rent estimates and 50% as an expense ratio I get a cap rate of 5.6% when comparing to the $132,880 net.
It would not pencil out as a rental to me either. I value cash flow more than potential appreciation so I am probably biased in this situation. Just my two cents worth.
I am hoping you guys can educate me. Maybe I am running my #'s wrong. I was under the impression with a flip you go for 75% arv -cost of repairs ='s max offer amount. Our plan was to list the property at 159k when done and close a few thousand under that. Area is in high demand and properties do not last long. We already had the #'s ran by our HML who is normally conservative who said he would gladly fund it at mid 60's. My thought would be to offer the seller a two option offer. Offer one "we close in 2.5 weeks at 55k." Offer two "we take him up on his seller financing and get closer to 62k". What terms should we negotiate as far as length, term, interest, and dp? What would be ideal? How would you source funds for the rehab if we go the seller financed route?
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