Any upside to recently renovated property purchase?

Question

I have been looking from the sidelines for quite a while, and hope to make my first purchase this year.  I learned from reading @Brandon Turner's book that typically you make your money on a property when you buy the property by making sure you get a good deal.  I recently came across a newly renovated (I am guessing a flip) duplex that is in my price range and looks like it might be something to take a deeper look at.  My two concerns are first that the flipper is looking to make a good return and therefore will be less inclined to make a deal, and second that most of the potential added value has already been added with this renovation.  I know it should all come down to the numbers, but I wanted to get some advice/insight from others on your thoughts regarding purchasing a recently renovated property... Thanks in advance for any insight anyone adds.

Tyler Blodgett · Answer

@Grant Rothenburger Thanks for the response and the advice.  I myself work for a larger GC, so I feel very comfortable as it relates to construction related issues.  I plan on finding a great inspector to team up with, even if he costs a bit more than the norm, I feel the few extra bucks up front could save me from a world of hurt later! Thanks again!

Grant Rothenburger · Answer

If you're looking to add value through forced appreciation, it doesn't sound like this is the property for you. If you're just looking for cash flow, then run the numbers and if it is a deal, then maybe it is for you.

I would look out for hidden problems. If the flipper hired a bad GC and/or sub contractors, the place may look nice, but be hiding problems in the walls. If you look into it further, definitely get a good inspector and/or contractor to look at it.

I wouldn't worry about if the flipper wants to "make a deal" or not, if you like it, make an offer and see what happens.

Hope that helps, good luck!

Tyler Blodgett · Answer

@Brent Coombs Thanks for the comment.  I am just looking for additional ideas and insight on how others do it.  It would seem obvious to search the usual spots to find this information, but was curious if anyone had a better site, program, or way to do this.  I am always looking to improve, and to be more efficient with my time, as I would hope everyone would be.  Obviously I would not move forward with a property unless I ran, and understood the numbers fully.  I am a Preconstruction Manager (estimator) by day and live and breathe numbers and spreadsheets daily.

Tyler Blodgett · Answer

@Ben Wilkins Thanks for the heads up, I will definitely take a look at those sites.  Let me know if you get any headway on the IFTTT on the rents.

Brent Coombs · Answer

I'm very surprised that you posted about this, without already knowing "the rental range you can charge for a potential investment, and how you determine demand in the area".

I reckon those points should be found out first, before looking at any buy-n-hold deals.

Only then will you (and all of us) know if buying "turnkey" works for y/our investment goals...

Ben Wilkins · Answer

@Tyler Blodgett - I usually recommend RentJungle for comparing rent rates. Put in a location and some optional information (number of beds for example) and it will show you what is currently on the market. This isn't exact, but it gives you an idea of what people are paying.

There is also a nice link for "Rent Trends", which tells you some of the averages.

I'm sure that you can use IFTTT (If This Then That) to set up a spreadsheet for rents on Craigslist. I use IFTTT for property listings, but never considered using it for trending rent rates... I'll let you know if I end up doing something like that

Tyler Blodgett · Answer

@Ben Wilkins Thank you for the reply.  I agree it would be nice to have most of the work, if not all, already done so I would have less carrying costs and could start generating income once I find tenants.  I recently finished a major renovation of my own home, and it was quite the task, albeit I would probably approach a rental property from a different perspective.

Curious as to how you go about finding the rental range you can charge for a potential investment, and how you determine demand in the area.  Is it just a matter of manually searching online for similar specs to your subject property and comparing?  Would be nice to have a program that is able to automatically extract the info from craigslist or other and export it to an excel file to sort (beds, baths, sf, rent).

Thanks again for the response.

Ben Wilkins · Answer

@Tyler Blodgett - there are a lot of companies that specialize in "Turn-Key" properties, which are usually something that they flipped and are reselling. From a cash flow perspective, this can potentially be a good deal. An investment property that already has major issues taken care of, fresh paint, and ready to rent?

If you have never done a renovation before, and you want to get into buy-and-hold rentals, this might be a good deal for you.

@Grant Rothenburger gave excellent advice to take an contractor through as part of your inspection process

Find what the rental income will be, what the rental market looks like (high demand?), and what the purchase price will be. Determine your estimated cash flow and decide if this property will fit your goals as a first property.

There's absolutely nothing wrong with buying a recently-renovated property if it fits your goals. The best investments are ones that you can improve / force appreciation / increase cash flow, but that doesn't mean that a turn-key is a bad investment either.

Best of luck!

Any upside to recently renovated property purchase?

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