Made offer on first rental property. Off market deal, house is currently right next to my personal house. I got it for 150K needs about 5K in repair but value after repair is 200K. I have a renter right now who is begging me to finish the house ASAP after closing so she can move in. they will be paying 1500 per month. SE Michigan
Hello @Jimmy Barrett , it sounds like you have yourself a pretty good deal.
1) - You have achieved the 1% (pending vetting the tenant well to verify work/eviction history) . Also verify expenses for property taxes could potentially increase.
2) You would be able to essential BRRRR the property if the ARV is truly $200k (Refi for 75% of ARV , you would be able to get cash out refi mortgage of $150k). You can pull out 20% down payment and Then rinse and repeat.
3) WHAT ARE YOU WAITING FOR ? GO BUY IT!
@Jimmy Barrett As long there is enough cash flow after expenses are paid, then real estate investment is good cash flow. Factor in for repair, maintenance and vacancy as well.
@Saravanan Saravanan after vacancy, Maintenance and repairs it seems to come out to roughly 420 per month
@Jimmy Barrett why not flip this and pocket the $45k? What is there to analyze?
It's a no brainer as long as you are highly confident it only needs $5k of work.
That's also an option but given after fixup it is 155K if I were to sell for 200K it would be 45K-roughly 18K= 27K profit in relator fees assuming I did not sell by owner. Currently in my area over the past year home values have went up 15 percent. so might rent it to start and go from there... However I am still considering both options
Buy and hold for sure! Flipping is not investing, it's a job! My biggest concern is that you don't understand your full capex. 5k of repair is not much. What will have to be replaced in the next 10 years? Kitchen? Bath? Roof? Driveway? HVAC? ...
If your math is correct and ARV is $200k, you have a strong first property in your portfolio. $5,040 annual NOI with $50,000 invested is a nice return. To Marcus's point, make sure you are factoring in all expenses and necessary reserves. If you have an excited prospective tenant, maybe consider locking her into a multiyear lease to protect future vacancy.
New furnace in 2014. New water heater is 2015
Roof is about 10 years old... Ac unit would be next to go it is really old but functional
Currently the prospected tenant is open to one year minimum lease
@Blake Brinson house couple streets over remodeled just sold for $190K no garage no basement.. I have both basement and 2 car garage. So I estimated it was ARV 200K. The inside needs more work than the seller was willing to do and she bought the place in 2009 for $50K needs a little cosmetics but nothing more than flooring and some paint
Sounds like a good deal! You probably are just bragging, ha!
I did a quick back of the envelope to run the numbers. Sometimes it helps to model things out (as a best practice, even if it is an easy "green light")
Without having to go deep into analysis, it (just) passes the 1% rule. And another way to look at it is...if you are spending 5k to added 50k in value...its a win. You could turn it around and flip it if that was your thing/strategy.
All the best!
Hard to analyze with so few details. How sure are you of 200k value, bed bath count? The hardest thing with newer investors if you are one is you are asking for advice assuming you know your numbers but the real analysis is whether your assumptions are correct. So we should be analyzing how you came to those numbers. 200k in GR though I will say sounds very doable. If you can make a quick 40k Id consider that because then you can use that as a downpayment on another rental without going into your current cash stash. I prefer getting at least a 5 but closer to 7 years of return now if I sell. So if cashflow is 5k a year I want at least 5 years of cashflow or 25k to sell now or I will just keep. Also keep in mind what tax bracket you are in.
I would agree with all the advice given here so far. It seems like you're approaching your assumptions with the right mindset. If you haven't already I would suggest walking the property with a general contractor to ensure that $5,000 figure is correct. That can be before you enter into a contract or during diligence (before closing). Those are details you can work out with the seller.
I'm happy to do a deeper dive with you. I consult with new investors to help them make strong real estate decisions. Solid financial forecasting and building the right team in a market can really make all the difference.