Wholesale or buy and hold?

Question

Hi BP:

Here's the deal, literally:

The four houses are in the suburbs of Chicago in primarily stable locations.  My problem is that the deal seems skimpy for a wholesale so I thought buy and hold.  My background in commercial made blanket loan seem like a perfect fit but I'm not sure where to look.

The properties are being bought w/deed from  a tax sale buyer.

Price 19,500

30,000

32,000

and 20,000

for a total of 101,500

Two have renters paying 500 and 1100 to the tax buyer currently and I have two renters lined up for the other two.  If I wholesale I'd be looking for 3000 for the two with renters and I'd keep the other two for the cashflow charging 750 each.

My estimation is that if the buyer wanted to they could put 15-20 into the rented ones and the ARV would be around 55-60.  See too tight for fix/flip, but good for buy/hold strategists. Property values are in the 50-70  range for O/O

But if I keep all four, I'm getting a nice cashflow that can help me in my primary business at the moment.

The wholesale seems to only work for 2 of the four if I'm right but I'm new so I may be way off base.  But I doubt it.

Julece Glaum · Answer

OK 10 days have passed and here is what I have discovered:

The two homes without tenants one is occupied, presumably by the previous owner they other is vacant.  In Cook county, it could be awhile before the owners are out and that makes that home extremely less attractive.  The other three still work.

They are individually deeded, but I thought it would be easier to keep track of one mortgage payment.  *I own another business that is very hands on at the moment.

Because two units have renters, I am budgeting for standardizing the units so updating not really doing much more than that.  So about 5-7K each which will give me a value around 60K each.  Not much in the way of equity but it will cashflow which I can use because I will be doing my core business full time.  The last unoccupied unrented unit my sister agreed to rent from me (yeah I know never do business with family!!!)  But because I am aware that she has been paying rent on time for the last 3 years and it is above what I would charge her I will be ok.  Plus she is aware that I am a strict landlord with very little tolerance.

So the number now look like this:

Three homes for 19,500, 20000, and 30000.  15000 to 21000 to rehab with ARV of

60000 a piece.  Not too bad especially since it's a buy/hold for equity and cashflow.

Julece Glaum · Answer

Tony,  great to hear from you.  I haven't been in the market but I'm back!  Where would you suggest.  I'll email you the list and you can let me know.  I did some quick BPO and comps and I agree.  I also see that commercial may be a better idea.  thanks for your response.

Gilbert Dominguez · Answer

My first question would be if each one of the 4 units has its own deed and is a legally separate property. You mentioned fixing up the rented units with an additional $15K to $20K each. If the comps in the area are there to support an ARV of $70K that is what I would shoot for. That would not only increase my chances of profiting from the fix and flip but justify higher rents.

If these properties all fit your criteria for investing I would just hold on to all of them. I would not go over board on fixing all the units and just make sure they are all rent ready. By fixing the properties up nicely You increase the value plus justify higher rents.

Not sure how that would work for you if at a later date you wanted to sell the units separate from each other.

You did not mention what it would take to fix up the units that are not rented or if they are in rent condition already.

If you wanted to provide more specific information separating each individual building then we might be able to help you analyze this better.

Julece Glaum · Answer

@MindyJensen, thanks.  These are in Riverdale outside Chicago, IL

Mindy Jensen · Answer

@Julece Glaum, what city are these properties located in? Different cities warrant different action.

Gregory Guillet · Answer

Hey Julece,

In the above scenario, you should do what is best for you and the business. It depends on what you can or cannot handle. Proceed with caution!