What am I missing?

7 Replies

I found a seller who is selling two distressed houses. Both of them were purchased at auction and they have no mortgage. The owners said they would make a deal if both were purchased, and an even better deal if they are the contractors (they are licensed  and insured). Here's the breakdown;

House #1: 

sell price $79950

Rehab cost: $40000

ARV: mid 200's

Rent: $1200

House #2

Sell price: $49000

Rehab: $30000-$50000 

ARV: $175-$185k (if converted to a duplex)

Rent: $700 or $1000-$1200 as duplex

I brought this to a mentor I'm working with who is also a buyer. He doesn't seem terribly interested...am I missing something? This seems like a good deal to me.

Unless those houses are complete dumps, the rehab costs are very questionable. Those are some BIG numbers. How confident are you that the ARV is what you state? Lastly, you have to get permits from the city to convert an SFR to a duplex. That is not necessarily and easy task at all. I don't know your city zoning rules though so it is something you should look into. You can call them up or go down to their office and ask them if it is even possible and what the cost might be. I generally stick to much easier paydays.

IF your ARV numbers AND rehab numbers are correct, they seem to be good value plays. The buy and hold numbers on #2 are paltry. I wouldn't spend the money, time, effort, risk of a $79k investment for a $700 rent. Ever. Losing money every month with the bonus of headaches and hassles of tenants and toilets? No way.

Originally posted by Account Closed:

Unless those houses are complete dumps, the rehab costs are very questionable. Those are some BIG numbers. How confident are you that the ARV is what you state? Lastly, you have to get permits from the city to convert an SFR to a duplex. That is not necessarily and easy task at all. I don't know your city zoning rules though so it is something you should look into. You can call them up or go down to their office and ask them if it is even possible and what the cost might be. I generally stick to much easier paydays.

The ARV comes from a realtor from the area. I'll look into the zoning rules,but a duplex is pretty much the only way this property has any value. If it's not converted, it would pretty much break even.

Originally posted by @Steve Vaughan :

IF your ARV numbers AND rehab numbers are correct, they seem to be good value plays. The buy and hold numbers on #2 are paltry. I wouldn't spend the money, time, effort, risk of a $79k investment for a $700 rent. Ever. Losing money every month with the bonus of headaches and hassles of tenants and toilets? No way.

 I see what you're saying. #2 would require a lot of work and the only way and profit could be made would be IF it could be converted to a duplex, which may have some zoning issues. Would you move forward if they cut a deal with both properties if #2 could  be converted? Or just focus on #1?

I would just look at these as value plays to flip if the numbers are solid.  Too skinny and too much risk and effort for buy and hold, IMO.

Originally posted by @Steve Vaughan :

I would just look at these as value plays to flip if the numbers are solid.  Too skinny and too much risk and effort for buy and hold, IMO.

 That is probably why my buyer isn't interested in them. He wants to buy and hold, not fix and flip. Thanks for your input!

Welcome @Alicia Hensley .  Gotta match the deal with the buyer's criteria.  Now go get someone who wants to fix and flip! ;)

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