What options do I have? Take a look! need advice!

Question

Hi BPers,

I have an off market property, let me show you the numbers, please tell me what YOU would do in my shoes... :

SFH 2/1Acquisition: 185,000

Rehab: 20,000

ARV: 250,000

Potential Rent: 1800/month

Taxes: 5,000 (yeah, NJ!)

I have the capital to put 25% down for a conventional renovation loan, but the only thing is no one will lend me money if I tell them i want to flip the property in 2 months.  I have to hold onto it for at least a year.  I was thinking maybe to renovate it and rent it out for a year and THEN flip it?

Marc Winter · Answer

I agree with @Brent Coombs --not enough meat on the bone here.  Maybe try a lease w/option or actual seller financing (short term--2 to 6 months) or some other strategy where the financing will work in your favor instead of against you.  Remember, acquisition and end sales costs, taxes, insurance, etc.  They all add up.

And don't forget about the inevitable 'glitches' like water main or HVAC replacement you weren't planning on.

Amul Sutaria · Answer

Thanks @Brent Coombs.  I'll have to get them to go down on the price for sure then.

Amul Sutaria · Answer

Thanks @Joe Villeneuve

Joe Villeneuve · Answer

I ran the numbers, and doing it your way it looks like you would get around $300/month PCFlow.  Add that to the possible $45k in profit an your CoCR would be almost 200%.

If you numbers are correct, then I would grab this and execute the deal/strategy just as you planned.  At worst, if you couldn't sell it right away, you should still be cash flowing until you can sell it.  The problem is, you would be out that $50k, so I wouldn't turn this into a HOLD property for very long.  A $3600/year cash flow return on a $50k cash payment means it would take you almost 14 years to recover the down payment.  Not good.

So you better be sure you can sell this for that $250k...and at that 1 year mark.

John Thedford · Answer

there is not enough profit in this deal

Brent Coombs · Answer

@Amul Sutaria, with acquisition and selling costs, the margin seems way too slim, if any.

eg. The "70% Rule" suggests that you shouldn't be paying any more than $155k (less closing and operational costs). Yes, I know that's just a made-up Rule, but, paying $30k more?

Meantime, renting it out for less than the "1% Rule" could result in negative cash flow...