Would you buy this house??? What would your exit be?

Question

Have a guy who wants to sell me a rental he owns..here are the details:

4 br

1 bath

1100 sq ft

2 car garage

Overall condition of property is pretty good

Only thing I would or might do is update kitchen and bathroom..probably spend 4-5k. Their are 2 things I don't like about the house..first the garage is in the back and about 30 yards from the house. This would turn off buyers I believe..and the second thing I don't like is there really is not a dining area in the home. The kitchen and living room are blended together so there is no room for a family to sit down and have dinner.

The seller wants 75k and I believe the true value of the property currently is 90-95k and if the kitchen and bath are updated probably  105k to 110k.

If I were to buy the house my two options would be to flip it for  a quick profit or rent it out.

If I were to flip the home I just feel a bit uncomfortable since the margins are a bit thin.

If I rent it out my cash flow would be about $115 per month (25 year, 4.75% 100% financed, 20% for vacancy and RM) which is a bit low but the equity in the house I think would make up for the shortfall.

What would you do and what are your opinions on doing deals that are a bit thin?

Fred Heller · Answer

In my opinion, the answer to questions like this always lies in how the property compares to others in the area.

A detached garage fronting an alley is not uncommon across the midwest, especially in larger cities. If the other homes in the area have a similar setup, then it probably won't be a problem. If the detached garage is unique to that property, then it could be a problem.

The deal breaker for me would be the 1 bathroom. I just can't see too many people interested in a house with 1 bathroom if it has that many bedrooms.

Lee Smith · Answer

You need to find out why the seller wants out... Maybe you can have him carry a seller held note/mortgage and you get it for 0% financing. Should help your cashflow as a rental.Numbers are to thin for my taste for a flip.Sell it as a lease-option. In theory, you don't have to maintain it. You can get a premium for sale price.We generally rent garages separately from the house.. So you can probably get an additional $50-100 a month off the garage.

Find a closet etc and put in a half bath.

Crystal Smith · Answer

In most markets 2 bathroom homes sell & rent faster than 1 bathroom homes.  Rather than speculate I recommend you get some sold & rental comparable data for 1 bedrooms.  The data should include days on market.  Get a separate run of 2 bedroom comparables.     Compare & contrast the value & days on market.  Then decide if it's possible or worthwhile to invest in a 2nd bathroom.

Regarding the deal being thin:  If you're objective is to buy and flip then a thin deal is high risk.  If your objective is to hold then may be ok.  Really depends on your own ROI goals.

Amelia Woolsey · Answer

I agree with Fred and Patrick. Four bedrooms to 1 bath. That's tight. It would be nice if you had wiggle room to turn one of bedrooms into bathroom.

Amelia

Joshua D. · Answer

"but the equity in the house I think would make up for the shortfall"

How dose eqity make up for a shortage in cashflow?

Joseph Ball · Answer

No. Margins too thin.

Patrick L. · Answer

Are you using only 1 bathroom properties for your comps? Don't use 4/2's to determine your ARV unless your rehab will include adding a 2nd bath.  Is a 4/1 a common floor plan in you area?  That's a lot of bedrooms for only one bathroom.  Most people looking to rent or buy a 4 bedroom have a bunch of kids and would probably rather not share a single bathroom.

Would you buy this house??? What would your exit be?

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