What would you do?

Question

Seeking feedback on a property:

3 bed, 1 bath ranch, recent addition of a large sunroom, partially finished basement, 1/2 acre lot w/ mature landscape, quiet neighborhood.

Price: $91,000

Rent: $1,200

Monthly expenses: $550 (vacancy, insurance, maintenance, management and RE taxes)

Mortgage: $590 (assuming 100% financing, commercial loan)

Recent comps: $125,000-$130,000

Other than a few cosmetic items, property is turnkey.  Heating/cooling systems, roof, etc. are all recently replaced, so I would anticipate few maintenance issues early on.  Nice neighborhood, above average ranch for the area; I expect modest appreciation.

What would you do....hold or flip?

William Hochstedler · Answer

We love nicer props with a little equity where we can get stable 100% LTV mid- long- term financing in a market that's not declining.

We take them and play the serial lease/option game--maximizing sale price and minimizing closing costs and PM.  This sounds like a good candidate.

It's the hybrid of the two options you suggest.

Bradley Smotherman · Answer

I think it really depends on your current goals...especially your current cash position.

If you have $10m in cash and don't need the income, then you can always bury cash in rental houses.

If you are more concerned with ROI, then you should never buy and hold a property that has reasonable equity. Turn it, and move on...assuming you can structure this deal to make sense. Right now it seems pretty tight.

Cash to asset to cash to asset, as quickly as possible is the ticket to fast wealth creation. IMHO

Joe Villeneuve · Answer

Pass.  Less than $100/month cash flow on a property does not a good deal make.

Andrew Bosworth · Answer

Thanks for all the feedback!  I haven't done anything with the property yet, so just deciding what is the best route.  This is my first property (!!!)...I've been looking at places for over a year.  There have been other lower priced properties I've considered, but with much more work needed.

Although the deal is a bit thin, there is a lot of upside to the property due to its location, extra features versus other houses in the same neighborhood (sunroom, finished basement, etc.), little work needed on the house and recently replaced heating/cooling and roof.  IMO it's a good first property to learn on, though maybe a flip is the way to go.

Charles Colucci · Answer

The price of the property given here that is 3 bed, 1 bath ranch, recent addition of a large sunroom, partially finished basement, is really very nice for a family. I think it is a great deal for a person who is seeking for a property. I think $1,200 is a nice cost of rent.

Joseph Ball · Answer

Hate to admit it, but @Joe Villeneuve is correct. In my opinion.

Look for lower hanging fruit.

Glenn McCrorey · Answer

I'm willing to take less in cash flow if I have no money in the property.  Where I buy, I don't think about appreciation too much but maybe it's different where you invest and that's more of a consideration.  Regarding the financing, I am getting 4% at 25 year amortization through a credit union.  Maybe you could get better financing.  I don't think there is anything wrong with having some cash in each deal if you decide to go that route.  This deal seems a bit  thin at 100% financing but there is not right or wrong answer.  Good luck.

Frank Jiang · Answer

You're undervaluing your time imo.

But at the 6% management, along with the other information you provided, the deal just looks mediocre.  14% levered IRR, ~7.5% cap rate.  Not fantastic but also not terrible.  Increasing it to properly account for your time invested makes the deal much less attractive as a hold.

John Santero · Answer

rental is NG dont go at 1%

flip is slim- 130K at 10% closing/selling expense brings it to 117K purchase at 91K leaves 26K without rehab costs. If you can pre-market and get out within 3-6mo with under 10K rehab-OK then. If it sits for awhile and you have to drop price- then its slim.

Andrew Bosworth · Answer

Eddie, where in PA do you invest?  What type of properties - single or multi?

Glenn, I am purchasing and renovating with cash then getting a mortgage.  For sake of conversation I am assuming 100% financing with a commercial loan, with a rate of 4.8% at 20 years.

What would you do?

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