Want to buy a 5 unit property for $12,000

Wholesaling
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Want to buy a 5 unit property for $12,000

Jennifer Fernéz
Investor · Reading, PA · Member since 2014 · 167 posts · 49 votes

There is an abandoned 5 unit property that needs a complete gut and renovation. It is about 2500 sq feet. How much do you think something like that would cost, and more importantly, where could I find financing to renovate? It is a great opportunity because it is in a fantastic location. Just not sure how I would pay for the renovation.

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Account Closed
Real Estate Investor · boston, NH · Member since 2014 · 401 posts · 32 votes
12y

as a wholesaler you dont need the money to gut it. you can just assign it to someone else after you negotiate it to a low enough price and they flip the house. you make 5-15k profit (subtract your profit in your negotiation)

im not contractor, but if you were looking to flip it yourself, i would ask some contractors and get bids on how much it would cost.

as far as the money goes, credit cards, loans. hard money lenders will give around 70% of arv as long as you can prove that the numbers will work. they have high interest rates though

i am new to this, so if i am wrong on anything someone correct me

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  • Account Closed
    Real Estate Investor · boston, NH · Member since 2014 · 401 posts · 32 votes
    12y

    as a wholesaler you dont need the money to gut it. you can just assign it to someone else after you negotiate it to a low enough price and they flip the house. you make 5-15k profit (subtract your profit in your negotiation)

    im not contractor, but if you were looking to flip it yourself, i would ask some contractors and get bids on how much it would cost.

    as far as the money goes, credit cards, loans. hard money lenders will give around 70% of arv as long as you can prove that the numbers will work. they have high interest rates though

    i am new to this, so if i am wrong on anything someone correct me

    3Reply
  • Gualter Amarelo
    Investor · Fall River, MA · Member since 2014 · 399 posts · 300 votes
    12y

    @Account Closed has the right idea. You should get at least 3 contractors to come out and give you a quote on the repairs. If you are trying to flip this thing for quick cash, wholesaling could make sense here. If you are considering keeping this as a buy and hold property you are going to want to stay away from hard money for sure.

    0% interest credit cards or a line of credit are a good option depending on how extensive the renovation costs are. Also since this is a commercial property you may be able to get a commercial rehab loan assuming you have a permanent job. Most commercial lenders will offer some sort of rehab loan. 

    For a buy and hold make sure the numbers work with the loan you acquire. There is no point in rehabbing to the nine's if you can't cashflow! :)

    Cheers!

    1Reply
  • Darron Stewart
    Investor · Hattiesburg, MS · Member since 2014 · 280 posts · 98 votes
    12y

    Lots of possibilities. Wholesale, flip. buy hold, owner occupied, etc. Go through the pros and cons and figured out which, then try to get to the solution.

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  • Account Closed
    Real Estate Investor · boston, NH · Member since 2014 · 401 posts · 32 votes
    12y

    @Gualter Amarelo

    what does rehabbing to the 9s mean

    0Reply
  • Jennifer Fernéz
    OP
    Investor · Reading, PA · Member since 2014 · 167 posts · 49 votes
    12y

    I want to hold on to the property. 

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  • Account Closed
    Real Estate Investor · boston, NH · Member since 2014 · 401 posts · 32 votes
    12y

    @Jennifer Fernéz

    again, i am no pro at this. but my advice is to make sure the numbers work before you buy. i wouldnt rely on the market to make you profit, you should have profit when you buy.

    you dont want this property to end up turning you into a huge dont wanter

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  • Gualter Amarelo
    Investor · Fall River, MA · Member since 2014 · 399 posts · 300 votes
    12y

    Hey @Account Closed it's just another way of saying "going all out". So my point was if you are going to buy and hold this as rental property. You can't go into each unit and put in granite counter tops, tile & hardwood flooring, etc... Of course that depends on your area and what your local market rents are. I suppose in LA you can get away with that, because each unit rents for thousands per month, lol.

    Just be very cautious with your budget on a buy and hold full reno. It's easy to get carried away and end up with little to no cashflow. 

    Another important thing to remember for this property tthat I just thought about is that this is a Commercial property. Which means that it is valuated based on it's cashflow. So keep that in mind when you are setting things up like utilities and landscaping. You want to make sure you have all separate utilities in the building to reduce expenses and increase NOI (net income potential). In commercial property your NOI (which is your gross rent minus your expenses) is the main factor in evaluating the value of a property. you want high rents and low expenses, and in most cases the renovation of the building is what can make that possible. Property management is the other half of it.

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  • Robert Leonard
    Investor · Lafayette/Baton Rouge, LA · Member since 2013 · 1k+ posts · 915 votes
    12y

    @Jennifer Fernéz I would recommend against trying to do a full gut rehab on your own as a first investment property.

    I recommend that you partner with an experienced investor if they are willing to take you on as a partner.  Or you could wholesale it to a house flipping pro who would be willing to allow you to shadow them and act as an assistant to start learning the business.

    It is very high risk for a new investor to try to take on what sounds like such a large renovation project.  Be smart and pace yourself by accepting a smaller profit on this deal for the opportunity to learn and establish a relationship with another pro who will help you grow your business.

    3Reply
  • Gualter Amarelo
    Investor · Fall River, MA · Member since 2014 · 399 posts · 300 votes
    12y

    Forget BOA! I would look more into the smaller local banks. You'll want to call up the community banks and the credit unions. They are more flexible and once you build some rapport with them, you will find that more doors open for you.

    I have litterally spoken to 15 different bankers in my area before I finally settled on 2 banks that seem like they are capable of handling me and my business plan. You want to find a good person you can work with, because this is hopefully going to be a long term relationship that you will be building. Choose wisely!

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  • Gualter Amarelo
    Investor · Fall River, MA · Member since 2014 · 399 posts · 300 votes
    12y

    I agree with @Robert Leonard You definitely want to find a good mentor that can help you out on this project. Make sure they have done something like this before. A great place to find a good mentor would be at your local REIA meetings or of course here on BP, lol

    Cheers!

    0Reply
  • Jennifer Fernéz
    OP
    Investor · Reading, PA · Member since 2014 · 167 posts · 49 votes
    12y

    Well here is the thing, I am really new at investing but I'm a high school math teacher and like crunching numbers. Even if the renovation costs $150k, I could profit minimally $40k annually from tenants depending if I could roll the renovation into a mortgage or not. I suppose I could apply for credit cards with 0%, but I'm scared to take that risk. I guess the best thing is to call some banks and see what they have to offer.

    @Robert Leonard , why don't you like the idea of investing in it? I'm not going to renovate it myself, if that is what you mean. One of my friends is a contractor so he would be doing the work. Do you mean you don't think I should put all my money in a renovation? The property is in the best neighborhood. There aren't other multi properties in this neighborhood, let alone a 5 unit. If I lower my expectations and go for a different unit, I'm going to have to rely on the city, which I'm willing to do, but rent goes about half less than the neighborhood here and the city is kind of gross and is also infested with bed bugs everywhere. Even if you clear out your property the walls are shared and the bugs just come back. It's sooo gross, our city is a mess.

    Anyway, thanks for your responses everyone!

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  • Gualter Amarelo
    Investor · Fall River, MA · Member since 2014 · 399 posts · 300 votes
    12y

    @Jennifer Fernéz Since you are somewhat new to investing in "buy and hold" you may want to read the book, "The ABC's of Real Estate Investing" by "Ken McElroy". It gives you a really good understanding about the math behind real estate investing and how commercial property is evaluated. I think it might really come in handy when deciding on your budget.  

    0Reply
  • Robert Leonard
    Investor · Lafayette/Baton Rouge, LA · Member since 2013 · 1k+ posts · 915 votes
    12y

    @Jennifer Fernéz I'm recommending you give up the idea of your huge profits for the benefit of learning just how this all works from someone with more experience.  I'm suggesting that a 5 unit property full gut rehab is probably more than a new investor can manage alone as the owner/investor. 

    These are your facts: You have no idea how much the repair will be.  You think it's possible to make 40k profit a year off of 5 -500 sqft units after you put ~$172k into it.  You have no idea how to finance it.  All of your own stated facts are reasons to know that this is more than you are ready for and you should wholesale it and make a connection with someone who can help you learn how this is done. 

    As the owner/investor, you take all of the risk when you buy and finance a project like this.

    3Reply
  • Russell Ponce
    Investor · Santa Rosa, CA · Member since 2012 · 402 posts · 96 votes
    12y

    I think he just meant its a pretty complex deal for your first one. Do you have a mentor or a local person that can advise you? 

    On the surface it sounds like a great opportunity, let us know how it goes!

    0Reply
  • Brian Mathews
    Contractor · Round Rock, TX · Member since 2013 · 767 posts · 389 votes
    12y

    I'm just curious as to what each unit will rent for that you will be making a $650/month profit on each unit on a building that you anticipate will cost you $12K? This after debt service, property taxes, insurance, maintenance costs, etc... I don't see anything you buy for that amount would make that much money, somebody else would have swooped in and bought it long ago. I might be wrong, I'm not there to look at it, but it sounds like you are wanting to make the numbers work to justify the purchase.

    0Reply
  • Elizabeth Colegrove
    Hanford, CA · Member since 2013 · 5k+ posts · 1k+ votes
    12y

    What are the rents for each of the units?

    Do you have savings or capital to be able to use to fund this project?

    Is it an all or none renovation and gut job? Can you get the common area and than renovate unit by unit as cash exists?

    We all start some where. The key is just to be able to make sure that the first "learning experience" doesn't end you before you start. Every job is always a learning experience, just later on you have more knowledge so you are able to prevent some of the speed bumps.

    0Reply
  • Richard Rountree
    West Hollywood, CA · Member since 2014 · 31 posts · 1 vote
    12y
    Where is it located?
    0Reply
  • Andrew SyriosPro Member
    Moderator
    Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
    12y

    Get some bids from contractors (and remember to add in things like carpet, HVAC and what not that most contractors don't do). In addition, add a large unforeseen allowance (at least 25%, probably on a project like this more like 50%) for add-ons, change orders and unforeseen problems. These types of projects always cost more and take longer than expected.

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  • Bob E.
    Queen Creek, AZ · Member since 2014 · 2k+ posts · 1k+ votes
    12y

    Is there a way to reclassify this as a 4 plex, If this were a 4plex you could do a 203k loan.

    0Reply
  • Jennifer Fernéz
    OP
    Investor · Reading, PA · Member since 2014 · 167 posts · 49 votes
    12y

    thanks for your responses everyone! This property is has been on the market for 5 days. Assuming each unit only has 1 bedroom each (there could be more bedrooms), 1 bedroom rents for around $725-$900 in this area. We are actually in the process of doing a 203k to our home - we are making our home from a 2 bedroom 1 bath to 3 bedroom 2 bath and increasing our square foot by 20%. A 203k would be perfect for this property but I don't know of any banks who offer 203k on investment properties.

    I do really want this property because of it's location. I can't foresee it being too complex for a first time investor if I could find the proper funding for the renovation. Does anyone have any other books try recommend? I love reading books and I'm looking for the really good ones.

    0Reply
  • Liam Goble
    Rental Property Investor · State College, PA · Member since 2013 · 287 posts · 99 votes
    12y

    I'm a contractor in State College.  For a first time renovation, you can ball park about $100/sf for the rehab.  Even if your friend says he can do it for $75/sf, use the $100/sf number or either 1) you won't have a friend when you hold him to the $75/sf number or 2) you're not going to make the money you need because it actually cost $100/sf.  

    Because it is five units, you will use commercial lending.  Look for a very small local bank.  They are much easier to work with to get these types of projects completed.  

    Banks do look for some experience when completing a project like this.  A few of the other posters have mentioned getting a mentor.  Have you talked with others to see if you can work with another investor?  

    1Reply
  • Jennifer Fernéz
    OP
    Investor · Reading, PA · Member since 2014 · 167 posts · 49 votes
    12y

    I have tried looking for someone to go in it with but haven't found anyone. I want to go to the next real estate investment club in our area so maybe I could find someone to be a 'mentor' like you all suggest. Thanks so much for the $100/sq ft range estimate. Does that include framing? Because all of the framing is already in tact, it just needs new dry wall, carpet, windows, etc. Basically we're building a new house but with an existing foundation and frame. Hmm... does anyone from here want to invest in it with me? ;)

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    12y

    12k purchase price for a 5 unit and  ( best area of town) seem not to go together..

    does not make much sense to me.. If this was in a ghetto then I could believe the PP

    be careful

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  • Darrell Shepherd
    Rehabber · Smyrna, GA · Member since 2013 · 864 posts · 510 votes
    12y
    Listen to Robert, he kept saying what I was thinking. You don't see the danger because you've never lived it. I was that naive once upon a time, too. I'm 14 years in and still got clocked on a rehab this year. It is NOT as easy as they make it out to be on TV. It will take twice as long and much more money than you think, your best protection is big margins. I wouldn't recommend doing one that big on your first one, especially if your background is not working with your hands. I've got a finance degree, and love running the numbers too, but what looks good on paper doesn't always work in real life. Ask me how I know this. I don't know your area, but $12k for 5 units seems way off in a good area, even needing a lot of work. Might be a typo by the listing agent, I've seen that happen way more than once. Assuming that's not the case, throw us your numbers and we'll help. 5 units means 5 kitchens, it gets expensive quick. Full blown rehab on 5 units could go (way) past six figures easily if they all need all the big stuff- electric, plumbing, HVAC. I'm a firm believer in "If the deal is right, the money is always there". If you talk to a couple of investors and they pass its a red flag. As is a really good deal not getting scooped up right away if its listed in this environment. I don't know of any traditional lenders doing loans on gut rehabs, especially to someone that's never done one. Private lenders are a good start, hard money if you have to, but they're pretty much off their rocker with their rates and terms these days, and don't like to lend to newbies.. Credit cards are an option, I used to borrow on my Visa at 5% when they wanted 7% secured by a house. Go figure. It takes a while to build up six figure credit lines on cards, though. They aren't gonna just hand you that kind of limit because you asked, no matter what your score is. As stated, you're gonna be commercial at 5 units, a small bank may do that loan, but it'd be a long shot. J.Scotts book on rehabbing is one of the better ones I've read. Plenty of good stuff out there, and there's a wealth of knowledge on this site.
    2Reply
  • Jennifer Fernéz
    OP
    Investor · Reading, PA · Member since 2014 · 167 posts · 49 votes
    12y

    Here is the property:

    http://www.zillow.com/homedetails/927-Franklin-St-Wyomissing-PA-19610/8939826_zpid/?z&utm_source=email&utm_medium=email&utm_campaign=emo-savedsearch-address

    Thoughts on rehab costs?

    I know you all keep advising me not to invest in it - what do you think about me looking at it with a contractor before I buy?

    0Reply
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