Another possible 1st deal--please help!

[Dan Miller]

This is another call from one of my bandit signs in Washington, DC. It's an estate sale.

1905 rowhome, 3BR/1.5BA.
Owned free and clear
ARV: probably about $350-375
Repairs needed: uncertain, but lived in for 50 years, so probably needs significant updating (let's assume $50k)
Asking price: $235k
Area rents: about $2000

Really not sure what to do here. Please advise.

Thanks,
Dan

[Will Barnard]

First off, never assume anything. Get the facts on the repairs needed in order to represent an ARV of $350k. Second, what is your goal here? Flip, or hold as rental property? If you flip, I suggest you line up a buyer before closing on this deal and make sure you include all costs involved. Many leave out holding costs (interest, taxes, incurance, utilities, etc.), RE costs on the front and back end, possible value loss duirng hold time, possible necessity to fire sale below the $350k, etc. After all said and done, make sure the profit left over is worth your time/effort/risk.

If you plan on holding for rental, you will be negative cash flow with the numbers you provided. $2000 in rent with a total cost of $285k (235k+50k) is far below a 1% rent to purchase ratio.

Of course you may also be a speculator in "hopes" of holding out for appreciation while carrying a negative cash flow, certainly a well known strategy, but "risky" in this market and you better have capital and reserves to carry the losses.

If you are after your first deal, I suggest you look elsewhere for better.
Keep it up. This business can be very discouraging at first (a big emotional rollercoaster), but with persistance and dedication, you will get there!