Live in Flip: Deal or No Deal?

Question

Hi BP,

I've been educating myself the past month or so on the current market here in PDX.

My partner and I are considering a 1930s property that needs about 35K minimum in work(before cosmetic). Interior outdated but it's 2200sf, a great lot, and plenty potential.

On top of that, it's our first purchase together.  We're comfortable with staying 3-4 years as we rehab/learn and gain some decent sweat equity. The propery is a good fit for us size and location wise, no rush to move out.

Rough numbers are:

ARV: 630-650K (thats considering current comps within 1/2mi)

Repairs: 50-65K for decent finishes, I think.  This includes the 35K for plumb, electric, furnace

Possible Mortgage: 3.5%($18K) down, $15K closing, $490K @ 2.6% (we can comfortably split the monthly)

Wondering how that purchase price sounds?

Right now part of the challenge is understanding where we want to come out after selling.  At minimum, we want to have down payment to do it again, with enough in reserves for a faster rehab (max 2 years) the second time around.

Also, probably missing some info.  Just let me know and I'll try to add it.

Thanks!

Kenton LeVay · Answer

I mean, if you plan on doing the work yourself, I'd go for it. It's hard to lose money when you're doing it yourself because your costs are so low. Even in your worst case scenario, you still make nearly $20k on the sale.$630k * 94% (assuming 6% for agents fees) - $508k (purchase price) - $65k (reno) = $20k

$20k / ($18k + $15k + $65K) = 20% ROI, which is still very solid. When you throw in the fact that these are likely conservative figures and you also get a place to live, it makes sense to pull the trigger.

Chris Wilburn · Answer

@Kenton LeVay right!? I’m thinking it could work.

@Caleb Brown we have a GC friend who will be walking us through some how-tos.  I’m technically inclined so will be a quick study I’m hoping.  Definitely leaning on good estimates during inspection and keeping in mind old houses will come with some surprises.

Market is crazy right now, not much at all of this size in the city below 500K.  Inventory is at .8 months last time I checked.  but, houses are starting to stick around for longer than a week.

Caleb Brown · Answer

Looks like great potential. I would just make sure to have a clear understanding from the lender about selling after 1-2 years so you don't run into issues. During inspections check everything and have bids on the items you mentioned plumb/electric/furnace, these need to be professionally done. Are you guys handy? On the partnership make sure to have all the paperwork done especially since it's your first one and you are diving into a 500K+ project. Purchase price sounds fine as long as rehab doesn't go beyond that. How is the market there? If you sell in 1-2 years take into account the market could swing, in a market like yours(OR) the prices can change quickly compared to a Midwest market.