Please help me analyze this deal.

7 Replies

I have a contract on a sfh. 2b/1bth 600 sqft. For 21k ...It's sitting on a commercial lot C2 zoned.  It is currently rented for $500 a month. And the monthly rent will be well over 2% .  Tenant has been there for over a year and asked me if he can stay there.  

The property has an arv of around 45k. But needs about 10k on repairs.  It meets the 70% rule.. But it's still very liveable in its present condition.  What are some creative ways too make the most out of this transaction? I'd like to keep it but was wondering if I could come out better with a different approach since this is my first sfh on a commercial lot. Thanks you guys.

(210) 617-3422

It is a good rental if you do regular maintenance and don't have to put $10,000 in it.  It is OK rental if you have to put the money in.  It is not good flip now at current price.

Take Brie's advice and buy and rent for now.  Rely on appreciation to make this a good deal.

Good Luck.

Bill

thanks @Brie Schmidt  , I'll probably follow your advice.

I do have a question to @Bill Jacobsen , can you please elaborate on why it is not a good flip if I was to put the $10k plus $21k for a total of 31k? Is it because it isn't worth your time or is there something else that I'm not seeing? I thought that anything that can quickly be sold on the MLS and only costs you 70% ARV was a deal.

I'm newish and might not be seeing what you are seing, thanks in advance.

(210) 617-3422

As you stated if you use the 70% rule this calculates to being a good flip.  I would have to buy at $17,600 to make this a good flip for me.  Every investor has their own way of calculating the deal needed for a flip.  In this case mine is a little more conservative.

Hope that helps.

Bill

Originally posted by @Brie Schmidt :

@Ricardo G.  -  If I had a good property on a commercial lot in an area that was developing, I would leave the house as is and keep renting it then flip the lot in a few years to a developer

 I think this is a good approach.  How much of the 10K of work has to be done?

Would this be a tear-down for commercial use?

I don't know the particulars of how @Ricardo G.  OR @Bill Jacobsen  arrived at their numbers, but just on what's been said on this particular thread so far, my advice, Ricardo, if you are thinking about this as a flip, push to get the place at Bill's price, or don't look at flip as one of your exit strategies on this deal.  Since you've said you're pretty new to this, I look at Bill's price as a buffer against rehab cost over-runs against your 10k figure.  IMO, very likely cost over-runs if you don't have experience in project management/flipping houses.

Let's say your numbers are off, by say 10% on the ARV side, so you end up at 41.5k, and you run 50% over your rehab estimate, so at 21k purchase, you're now in for 36k. Very small margin at that point. You might net a bit after all the closing costs, but is it worth the time and effort at that point?

@Brie Schmidt  's advice looks a lot better on this one than looking to flip it, or at least COUNTING on flipping it.  You have a tenant in place who wants to stay in the place as it sits?  Take it.  Do minimal repairs now to keep the tenant happy, in place and paying and you have cash flow.  May make sense down the road to think about the rehab and flip as an exit strategy if Brie's suggestion to wait for commercial appreciation doesn't pan out, or if the current tenant bails, but not now, not at your numbers in my opinion.

thanks everyone I really appreciate everyone's help . This will not be my first flip but I I've always used the 70% rule. I have some experience in the construction business so I have a pretty good idea of how much it would cost to flip, although you can never be one hundred percent certain.  I understand your point @Richard Smith,  where this is a very low income area and the rehab can go south very easily.  I will definitely keep it as a rental after weighting everyone's comments. I already pushed down on the price from 30k asking price to my offer of $21k. So going lower is not an option. It has newish textured walls and paint, new wiring for the most part, it does need a bit of leveling and maybe a roof  in a few years along with more kitchen cabinets once the tenant decides to move out.  It only has 2 cabinets.   But the tenant seems happy and I could easily get a new renter for $550 in its present condition. Thanks everyone.

(210) 617-3422

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