2 Bed/1 Bath...Are my numbers right? Best method of acquisition?

Question

Hello BP,

I'm looking at this deal for a family member. I've heard some folks say they would have jumped on it, but now that I'm running it through the deal analysis here on BP I'm a bit confused. The full report is HERE if you care to look and help me out. Here's what I have though:

• ARV: $84,000
• Purchase: $48,000
• Construction: $10,000
•     Total: $58,000

Acquisition W/ Conventional Mortgage:

• 20% Down: $9,500
• Construction: $10,000
•     Total: $19,500

I've basically narrowed it down that for my family member to obtain the property they would either need to use a HEL/HELOC for the full amount (I believe they are a bit short on equity in that) or take out a HEL/HELOC to pay 20% down payment and construction costs, and finance the rest traditionally. However, this report shows monthly income as $328.77 which is only 0.55% of the purchase price monthly, and that's not including a loan on top.

All that being said, is this even a buy and hold property, or would this serve better as a fix and flip for myself going with a HML? I'm assuming my Wholesaler is correct in his construction (hopefully a bit less) and rent/sale comps. I'm waiting for more accurate data from an agent/contractor. As a fix/flip after $48,000 + $10,000 not counting interest and closing costs it barely makes the 70%. Assuming I'm correct in my HML assumptions, then after the points and fees, this would be at about 73% of ARV.

I'm looking at this as a first fix/flip but because of the age of the house, and the location I'm a bit worried that the resale is where I will get stuck with the property. I have to impress my business partner and make us some money here, so I REALLY don't want to flop.

Thanks for hearing me out. I appreciate any advise or input anyone has for me.

Best Regards,

Jason T. Eyerly

Ned Carey · Answer

The report link appears not to work.

If the numbers are correct it could work as a rehab and flip but it is pretty tight.  Frankly I doubt the numbers are correct because I can spend $10K on a "rent ready" property. If it looks like it needs work it probably needs more than $10K

You may not be able to buy with a conventional loan. If the property needs work you will need a construction loan.

I am not following your rental analysis, need more info mainly monthly rent.

It sounds to me like you don't know your market well enough yet. What level of finishes are needed to be worth that $84K?  Will vinyl and carpet work or do you need ceramic tile and hardwood floors?  Will the dated kitchen be acceptable or do you need new cabinets and coutnertops?  Can those countertops be formica or does it need to be granite?

This could be a deal but I think you still have a lot of work to do to be sure.

Ned Carey · Answer

That is my philosophy. I am not smart enough to do tight deals. I make sure all my deals are great so if I am wrong they still make money.

Jason Eyerly · Answer

However, I may still drive to go see the property and at least give it a shot and put in my offer.

Jason Eyerly · Answer

Thank you for the input. Unfortunately, I have no way to look inside of the other rentals for similar properties to determine what kind of interior is acceptable. Thinking about it, and this being my first deal, I do believe that it is too tight for me to make the profit I need with room for a mistake. I think I should wait for something better to come along.