4 bedroom home in Michigan

9 Replies

Hi BP,

I'd love to get your thoughts on this potential deal.

Sale price: 4 Bedroom, 2 bath - $87,000, VA foreclosure.

Location: Michigan, area with good school district in Oakland County.

From the CMA, seems that the average cost per sqft was $104 (this property is $64). So say we fixed it, resold it for that sqft. Then we're looking at $135,000 ARV. Maybe $140 to be generous since it's a 4 bedroom and everything else in the CMA is 3 bedroom.

Rehab cost

Assuming we purchase at $87k, then the amount of profit for a flip is based on rehab costs. This requires someone with real experience, but off the bat, I know we need to:

  • Repaint the interiors ($2-3k?)
  • Carpet the upstairs bedrooms (3 small bedrooms - 2K?)
  • Replace the flooring in the kitchen. (2k?)
    • (What's your typical estimate per sq ft for flooring related things?)
  • Fix the 2nd floor bathroom (No idea what state it's in. could be working and just winterized..). ($4k)
  • The windows seem to work, but about 5 window panes are broken. ($2k)
  • No appliances provided, so new appliances should be installed. ($2k)
  • A few smaller odds and ends with broken cabinet doors etc, but fairly minor. ($1K)
That's probably at least $15-20k work there. (blind stab in the dark figure).

A few interesting oddities to be aware of:

  • There isn't a garage, but there is a brand new shed where there should be a garage. The backyard is enormous as this is a 5.8k sqft lot.
  • This is 1.5 streets away from a train line! 
  • There was a permit taken in 2001 to look at some sewer repair work, but the permit was never closed. I don't know whether this means it was fixed and just never updated.

I'm happy to either rent or flip it depending on circumstances. ($1350min average rent in the area.)

Happy to hear any and all thoughts!

A few extras: (assuming buying in cash... financing would give me the cash on cash value)

  • Purchase price (Once off) $87,000.00
  • Repairs* $20,000.00
  • Total Property Cost $107,000.00
  • Closing costs $795.00
  • Rent (Monthly) $1,400.00
  • Less vacancy & collection loss $70.00
  • Gross Income $1,330.00
  • Operating expenses
  • Property taxes $300.00
  • Maintenance $145.00
  • Insurance $50.00
  • Management $140.00
  • Total Operating Expenses $635.00
  • Net Operating Income (Gross Income - Total Operating Expenses) $695.00
  • Total Cashflow (NOI - Mortgage Interest) $695.00
  • ROI 11.69%

@James De Silva  

Lousy flip unless you can get another 30k out of that price tag.

Possibly good rental if your $1350/month number is accurate.  I'd still want to be all in for less than 110k.

Are you paying cash for everything?

Take your list to Home Depot and do the pricing yourself.  It is a good exercise and should tell you approximately how much it is going to cost you to do the cosmetic fixes you listed above.  Now double that number.

The big thing here is getting your purchase price down.  This deal has a ton of potential, but it is really thin if you buy at 87k.

where is the 2nd bedroom?  Is it stuck in the basement or in the Master bd?  Missing or broken cabinet doors can be a pain in the arse

@James De Silva I know exactly the property you are talking about because I was trying to get over there myself to see it. My quick impression was that most other homes that have recently sold had garages. This one does not not have a garage so I would reduce the ARV based on that. I did not see it so I don't know how close it is to the railroad tracks but that could be a reduction as well if it is too close. Good luck.

Jon W.

    @Jon W. Yep, it's actually in reasonable shape for a foreclosure, but it also has enough work to be an interesting rehab exercise for a new comer. To be fair, this is my main reason for being interested. As a newcomer to REI, I want to get the experience in doing some rehab work without getting bogged in something dire. So don't buy it from me ahaha (just kidding). The key thing is not to pick something that's a money losing enterprise.

    @Aaron Montague  I've asked for the seller to carry the closing costs. By the way, many thanks for the transfer tax calculator! :) And you're right about going to Home Depot, I think I will do that too.

    And yes the ROI is a bit misleading. That ROI number is the number I see other some other investors/turnkey providers use. (aka Rent minus taxes and insurance), so I can compare with other people's idea of a good deal. Your 7% figure is the more realistic one that I also pay attention to for other actual calculations.

    @Scott K.  The 2nd bedroom or bathroom? The master bedroom is on the bottom floor, 3 other bedrooms upstairs, plus a 2nd full (if tiny) bathroom.

    Originally posted by @James De Silva :

    @Jon W. Yep, it's actually in reasonable shape for a foreclosure, but it also has enough work to be an interesting rehab exercise for a new comer. To be fair, this is my main reason for being interested. As a newcomer to REI, I want to get the experience in doing some rehab work without getting bogged in something dire. So don't buy it from me ahaha (just kidding). The key thing is not to pick something that's a money losing enterprise.

    @Aaron Montague  I've asked for the seller to carry the closing costs. By the way, many thanks for the transfer tax calculator! :) And you're right about going to Home Depot, I think I will do that too.

    And yes the ROI is a bit misleading. That ROI number is the number I see other some other investors/turnkey providers use. (aka Rent minus taxes and insurance), so I can compare with other people's idea of a good deal. Your 7% figure is the more realistic one that I also pay attention to for other actual calculations.

    @Scott K. The 2nd bedroom or bathroom? The master bedroom is on the bottom floor, 3 other bedrooms upstairs, plus a 2nd full (if tiny) bathroom.

    Ooops yes that was supposed to be bathroom.  Also agree that if the whole neighborhood has garages and the property that you own does not.  It sticks out as not as good as the other properties.

    Originally posted by @Scott K. :

    ...  Also agree that if the whole neighborhood has garages and the property that you own does not.  It sticks out as not as good as the other properties.

     Garages are easy to build, but expensive.  TONS of lumber in a 2 story garage.  Even if they are unheated they get expensive.  Don't forget that the look and feel can be as important as the physical garage itself.  

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