Buy & Hold or Rehab deal structure

2 Replies

Hello all, I am a buy and hold investor but I came across a property that may have huge rehab profits. I've always wanted to rehab, but never had the balls to actually go through with it, I would just wholesale it to someone else.

Property Details:
4-plex, (2) 2br/1bth units & (2) 1br/1bth units OR if converted 6br/4th

2,850 square feet.

Currently 75% rented bringing in 1,775 in rent (there is room to increase rents)

Asking Price: 400k
There are converted comps at 676k & 755k

After speaking with the owner, he stated that he was going to attempt to convert it and gathered estimates that totaled up to 100k in repairs.

He's also willing to owner finance 200k.

Here are my questions:

1) Does it make since to took keep it as a 4-plex and hold it long term? To me, the price seems too high and the value is in converting the property. However, values are increasing in this neighborhood and given more time, property values could increase more.

2.) How would lending work with this property? I don't have all the cash necessary since this is a higher end deal. The owner is willing to carry 200k, if I were to reach out to a HML, how would that structure work with the owner finance in place?

Thanks for all the assistance in advance.

It doesn't look like a good deal to me.  $400k purchase, $1,775 rents at 75%?  Do you need to put in any rehab for the 4-plex to raise rents?  Do you think you can reach the 1% rule after stabilizing it?  I know the 1% rule isn't a concrete rule, but it's my personal minimum for when I look for cash-flow deals.

$400k purchase + $100k rehab with $676k ARV would work as a flip.

HMLs always want 1st position, so the owner would have to be in 2nd. I know HMLs that would allow a 2nd, as long as the CLTV (cumulative loan-to-value) is at most 80%.

Howdy @Edward Beard

I agree with @Nghi Le , at that purchase price you would need to double the rent income to make it a good Buy and Hold deal for me. Have you completed a Cash Flow analysis on the property yet? If so post it for review. If you decide to convert and Flip the property make sure you know how the property is zoned. I would have my own contractor look the property over and provide the estimate to convert it. Your numbers are already over my criteria of 70% ARV for All-in costs. $400K Purchase + $100K Rehab = $500K. 70% x $676 = $473.2K. That does not include Closing costs (2 closings) and Holding costs (Insurance, Utilities, and loan payments during the holding/Rehab period and until property is sold). How long do you think the conversion/Rehab will take? Do not go in thinking you will make $176 profit ($676K -$500K = $176K). The Rehab could be a lot more (or less) and the Closing/Holding costs will eat up more than you think. The bottom line is you need to complete a more thorough analysis either way to make a sound decision.

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