Rent or flip

13 Replies

Just got a house under contract, SFR in San Jose, ca

$365k price, rehab, $30-35k

Rent estimate: $2400/ mo

ReSale price: about 430-460 k and maybe a little higher depending on market

All cash deal
Any suggestions would be appreciated. I have a couple other property for rent already.

Congrats @David Song  - Keep us posted on the progress.

I assume based on the post's title that you haven't decided if you will hold or flip it?

What neighborhood in SJ?

Best of luck.  I live in San Carlos and have a few nearby deals in the works.

Please don't tell us it's 224 Doris Ave. Yes, it's a small world. :0)

Are you making a appreciation play? Based on what you posted I don't think it will Cash Flow. If it was my deal I would probably either flip it or whole sale it.

This house does not fit my formula for a flip or buy and hold.  Either this is not a good buy or you expect an ultra high appreciation rate.

Good Luck.

Bill

This is in alum creek, 4 bed 2 ba,

Lot 6500 sf
Floor area about1200 sf
1car garage

Rehab: kitchen bath floor, roof, a couple windows.

For rent: budget 10k (about 2-4 weeks)
For flip: budget 25 k ( about 2 month)

This is in alum creek, 4 bed 2 ba,

Lot 6500 sf
Floor area about1200 sf
1car garage

Rehab: kitchen bath floor, roof, a couple windows.

For rent: budget 10k (about 2-4 weeks)
For flip: budget 25 k ( about 2 month)

If we sell it right away, there is tax issues I have to consider. (About 80-90k pretax profit). After tax, about 50k-60k.

If we hold it for a couple years, an addition might be worth it after a few years. Can add more spaces to about 1800 sf and another in law legally with the lot size. Probably worth around 700-900k, depending on size of addition.

bTW I am a broker and general contractor. I save about 2.5% both ways when flipping. It is very difficult to find good deals these days in Bay Area.

if you don't need the cash and it is in a decent area I would go for the long strategy with the extra unit if that pencils out. Just my 2 cents. 

Originally posted by @David Song :

This is in alum creek, 4 bed 2 ba,

Lot 6500 sf
Floor area about1200 sf
1car garage

Rehab: kitchen bath floor, roof, a couple windows.

For rent: budget 10k (about 2-4 weeks)
For flip: budget 25 k ( about 2 month)

If we sell it right away, there is tax issues I have to consider. (About 80-90k pretax profit). After tax, about 50k-60k.

If we hold it for a couple years, an addition might be worth it after a few years. Can add more spaces to about 1800 sf and another in law legally with the lot size. Probably worth around 700-900k, depending on size of addition.

bTW I am a broker and general contractor. I save about 2.5% both ways when flipping. It is very difficult to find good deals these days in Bay Area.

 I guess the answer is it depends. If you need the money for other deals, then sell it and take the tax hit to use that money to make more. If you don't need the money and believe in the San Jose economy and real estate market for the next few years then I would hold on to the property. 

Just closed the deal and got the building permit yesterday.

Paid $2000 for the building permit alone. I went to the building department and trying to get a OTC permit using a dry rot/termite repair report. The technician said no and I have to use my GC license to get the permit. Got to the city hall around 3 pm, the last person to leave the city hall (around 5 pm). Fortunately, I don't have to go back again. 

Also, surprising, they want a floor plan (instead of the dry rot report). Fortunately, I had prepared one as a backup and that was used for the permit. 

Here is my current estimate on the remodel portion (rough):

1. Demo and Haul away ($1000, accurate price from an Amigo)

2. Labor (2 guys that I employ at $300/day for both, estimate about 5 weeks work (30 days), total bout $9000).

3. Materials:

TBD, estimate $12000 - $15000

4. Permit fee: $2000

I got some pictures before rehab now, and will post when I got more time, along with the building plan.

If you paid $365, rehab is, lets say $30 based on the last figures (with nothing built in for issues), you have $395.

If it sells for your high estimate of $465k, less 3.5% for the lower selling commission, you have $448,725 IF you have absolutely no issues with the rehab and you sell at the top of your possible sales price.

I just don't understand why you say "about $80-$90k pretax profit"?

Originally posted by @Andy Collins :

If you paid $365, rehab is, lets say $30 based on the last figures (with nothing built in for issues), you have $395.

If it sells for your high estimate of $465k, less 3.5% for the lower selling commission, you have $448,725 IF you have absolutely no issues with the rehab and you sell at the top of your possible sales price.

I just don't understand why you say "about $80-$90k pretax profit"?

 I am an RE broker. So I get 2.5 % on the buying side and only pays 2.5% when sells (to the selling agent), which cancels out. So only need to calculate the purchase price + rehab, and compare to sale price. 

David,

I didn't question your numbers to make the deal sound bad, it sounds like you can make some money.  I always worry when someone starting out (and I'm assuming that), uses profit figures that don't fit the house.

I've seen too many people think they can make $x on a project, and end up making $1/2x and are disappointed, instead of being happy they made money on it.

I go into any deal looking at the worst case scenario, if it works out better, and I plan on it working better, I am more than happy.

Just remember to look at your numbers from reality, and always, always plan on unknown cost,,,10-20% is what I normally use, but it really depends on the rehab and what is involved.

Look at the numbers closely on any deal, I know you said you get 2.5% on the buy side, and pay 2.5% on the sell side,,,but hopefully your selling for a lot more than your buying, so you still have the 2.5% on that money.

andy

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