I need to make a decision today on this deal. Please advise.

Investor · Irwin, PA · Member since 2016 · 28 posts · 11 votes

I have a house that I put in a cash offer in on for 60k. It's a short sale and they countered at 65k. The house is in a solid B area. It needs a little bit of work no more than 10 K to get it looking great. The houses in the neighborhood are going in 100,000 to 120 range. I'm looking this as a buy-and-hold and I figure I can get at least 850 a month for rent. I'll refinance and cash out. I will most positive this is a good deal I just would like someone to make me feel better about it LOL. Thanks guys!

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Andrey Y.

Specialist · Honolulu, HI · Member since 2014 · 1k+ posts · 1k+ votes

10y

Originally posted by @Jay Hinrichs:

@David Wilson curious why you would want to buy and hold... whats a few rental houses going to do for you when you have the ability to generate the kind of flip profits your talking about.

one thought is to flip until you get a sizable chunk then buy a 10 to 20 unit.. if you want to be in the rental business.

Now I get the tax treatment and all.. but the scenario you describe is very very good. IN many markets you would have to spend 200k to make that profit were your only in it 70k.. those are homeruns.. maybe you just don't realize how good you have it.

Well for one... rental houses provide better (best out of ANY investment?) tax advantages than flipping, which provide no shelter or benefit that I can think of. Plus, flipping is more work in most cases.

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Chris SeveneyBusiness Member
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Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
10y
Not enough information to determine if jts a good deal. Who will pay utilites ? What does the $10k get you ? If you have any capital expenditures (roof, heating/cooling etc) within the next 5-7 years the I would say no to this deal.
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Brandon Holley
Lenexa, KS · Member since 2015 · 206 posts · 53 votes
10y
It's a little over 8% difference. Does 5k eat up all your potential profit? What other deals do you have lined up if you pass on this one?
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David Wilson
OP
Investor · Irwin, PA · Member since 2016 · 28 posts · 11 votes
10y
The 10k gets me a new kitchen, hardwood floors refinished, paint, new bath. All the caps are in good shape. Easily worth $110,000 when I'm done.
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David Wilson
OP
Investor · Irwin, PA · Member since 2016 · 28 posts · 11 votes
10y
Tenant would pay all utilities. Taxes are $1800 per year.
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Brandon Holley
Lenexa, KS · Member since 2015 · 206 posts · 53 votes
10y
The 5k is $25-$35 per month difference depending on loan terms. I would go for it! if it was a good enough deal to offer on, it's a good enough deal not to walk away from.
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David Wilson
OP
Investor · Irwin, PA · Member since 2016 · 28 posts · 11 votes
10y
That's what I'm thinking. I may counter offer 62500. I just wanted to get some feedback on the deal. I'd have over 30k in equity after I'm done. The area has a great school district and is appreciating and growing with new housing plans and business.
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Mindy JensenPro Member
BiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes
10y
Who is doing the work for that $10k? I've got a small kitchen, did 100% of the work myself, and it still ran $7500 - I did put in granite countertops, though.
If you're 100% DIY, that $10k isn't far off. But if you are hiring it all out, get bids or realistic quotes so you know what you're paying.
I don't think it's a bad deal if your numbers are right, just make sure your numbers are right.
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David Wilson
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Investor · Irwin, PA · Member since 2016 · 28 posts · 11 votes
10y
I will do most of the work through my construction company. I already have the kitchen in storage.
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David ShortPro Member
Flipper/Rehabber · Fishers, IN · Member since 2014 · 71 posts · 47 votes
10y
Just ask yourself the question. If I counter the deal at 62500 and someone comes in and gets the deal at 65000 what will your attitude be . Glad you didn't get it or pissed that you lost a 30k equity deal over $2500?. If your pissed then do the deal at 65000 and don't look back.
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Kevin Hunter
Rental Property Investor · Carlisle, PA · Member since 2013 · 1k+ posts · 543 votes
10y
If the ARV is 110K, and your going to be into it for 65K plus 10K rehab + 10% unexpected costs then you are at 76K. Add in holding costs and you are at 69% ARV on purchase, then go for it! That assumes your rehab costs are accurate before the 10% cushion.
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David Wilson
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Investor · Irwin, PA · Member since 2016 · 28 posts · 11 votes
10y
There have been five higher offers. They took mine because of the cash deal. I'm going to accept their counter. Thanks for making me feel confident guys!
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Andrey Y.
Specialist · Honolulu, HI · Member since 2014 · 1k+ posts · 1k+ votes
10y
Originally posted by @David Wilson:

I will do most of the work through my construction company. I already have the kitchen in storage.
Ahh, the truth is coming out ... albeit slowly. $10k sounds really low (or a smoking price!) for the things you mentioned.
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David Wilson
OP
Investor · Irwin, PA · Member since 2016 · 28 posts · 11 votes
10y
Andrey Y. I don't know what you are getting at. 10k might not go far in Hawaii but around here it really does. Especially if you have the resources and the means to get things done below cost. Which I do.
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Mark Elliott
Investor · west seneca, NY · Member since 2014 · 376 posts · 211 votes
10y
hi david. seems like a good deal on the surface. however, there is always the unseen repairs on any house when you are looking at a rehab deal. your $10k will probably become $20k before you know it. even at that, it still seems like a good deal. here is the big issue i find. refinancing to pull your cash out means you will probably refinance around $100k, pulling out your $15k equity. at todays rates, and adding in your taxes, your payments will probably come in at around $800 a month. if you can get $850 a month out of it, you are coming out ahead, except when you factor in maintenance costs and such on the rental property. then, if you suddenly find yourself without a tenant in the house, you are paying the whole payment yourself out of your pocket. are you prepared to do that? personally, the numbers don't work quite good enough for me, too many variables.
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David Wilson
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Investor · Irwin, PA · Member since 2016 · 28 posts · 11 votes
10y
I'm pretty sure I can do it for 10k. I don't see it going much higher. It's a three bedroom brick ranch with solid bones. This might just end up being a better flip option rather than buy and hold.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
10y
@David Wilson flip it and make 20k rinse repeat each month... or you can rent it and make 200 a month and it will take you 100 months to make what you could make in 90 days.. plus you get the joy of being a landlord..
And yes 10k buys you next to nothing in Hawaii.. the rehab your describing in most markets would be 20 to 30k.. using nice cabinets slab granite .. good fixtures builder grade stainless appliances.. stuff you would do to retail the house.
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David Wilson
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Investor · Irwin, PA · Member since 2016 · 28 posts · 11 votes
10y
Even if it would cost me 20k I can sell it for $120k all day and still make a nice chunk. I really want to buy and hold but I guess sometimes it makes more sense to flip?
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
10y
@David Wilson curious why you would want to buy and hold... whats a few rental houses going to do for you when you have the ability to generate the kind of flip profits your talking about.
one thought is to flip until you get a sizable chunk then buy a 10 to 20 unit.. if you want to be in the rental business.
Now I get the tax treatment and all.. but the scenario you describe is very very good. IN many markets you would have to spend 200k to make that profit were your only in it 70k.. those are homeruns.. maybe you just don't realize how good you have it.
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Dan RosenbergerPro Member
Residential Real Estate Broker · Westfield, IN · Member since 2010 · 85 posts · 31 votes
10y
Unless you really want to be a landlord, the fix and sell option might make the most sense. If you can sell at 110, you will probably see high 90's on the net to seller. That would put your rehab plus profit number in the low 30's. So if you can do it for close to 10K, it doesn't sound bad. If your likely buyer is FHA, you might want to time your rehab accordingly.
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David Wilson
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Investor · Irwin, PA · Member since 2016 · 28 posts · 11 votes
10y
Well the area is appreciating. I don't really need the flip cash. I have a good business that does well. I already own a duplex that cash flows and has a good bit of equity. My thought was to buy low in good areas and hold. Generate some passive cash flow while gaining equity over the next ten years or so. I want to own at least 10 properties with tons of equity by the time I'm 55. Then retire to the Caribbean. Is this not a sound strategy?
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
10y
@David Wilson sounds like a plan... although your direct involvement in your rental business will be correlated by asset quality.
if your in low to lower end rentals with lower to lower end tenants.. your thought of sitting on the beach probably does not play out.
If you can roll up and get solid B class multi or NNN commercial then I think your plan has merit.
Or enough SFR's that you can hire full time employee's to run them.. like you do your current business...
200 SFRs at 200 a month positive... is 40k a month... spend 10k a month on full time help to manage them then take your 30k a month which is probably what you need and sit on the beach if that's what you want.
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Wayne Brooks
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
10y
@David Wilson By the way, is that counter from the seller in response to your offer, or is it the counter from the bank, a month or so after you had a signed contract with the owner, that was submitted to the bank? If the latter, be ready for the possibility of further, higher counter offers from the bank.
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David Wilson
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Investor · Irwin, PA · Member since 2016 · 28 posts · 11 votes
10y
Wayne Brooks that was a counter from the seller. They want to close before the end of the month to avoid foreclosure. I don't think this will end up being a short sale.
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David Wilson
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Investor · Irwin, PA · Member since 2016 · 28 posts · 11 votes
10y
Jay Hinrichs thanks for the reply. I don't plan on buying anything that is not in a B or better area. I don't want to own anything that does not appreciate in value and rents. What is nnn commercial?
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
10y
@David Wilson Triple Net Leave investments.. you can look it up there are brokers who specialize in that space.... Dollar Generals are all sold this way for instance
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