Would you touch this?

Question

Would you touch this? Found an off-market 2 bedroom for $75,000 in a market in which hardly anything is under 100K. In great condition, it would sell for about $110. It is rough and would probably need about $25,000 worth of work, including flooring in most rooms, tub and shower liner, siding and roof. I was thinking about offering $50K but the realtor said she wouldn't pay over 40. We are not local but we do have connections there. I'd love to hear your thoughts.

Joe P. · Answer

@Patricia Steiner all great points, but I vehemently (but respectfully) disagree with "How many bathrooms? One bathroom houses are obsolete..."

Many folks live in a two bedroom/one bath unit. I have family living in a 4 bedroom/1 bath unit. Our home in Philly has 1.5 baths. My duplex in NJ has two 2/1 setups. The focus on those homes is making the most of that space, but saying its obsolete is quite dismissive.

Patricia Steiner · Answer

I have a lot of questions for you...

• Why would you offer more than your realtor recommends?  
• Are you sure on your rehab costs? It sounds like more than $25,000 - and some of the work will require permitting?
• How many bathrooms? One bathroom houses are obsolete...
• How long would it take you to complete the rehab? Will you rent or sale it afterwards?  What is the market demand now?

Now, back to your question:  Would I do it?  Yes - BUT - if I could buy it for $40k and renovate for $25k and sell for $110k within 60 days of having it on the market.

I see a lot of flippers buy in low-demand/transitioning neighborhoods, underestimate the rehab expense, and then get stuck with a property that they can't rent or sell.  Please listen to your realtor on the value and ask he/she if they could sell it in 60 days or less when renovated.  If they say, no - then it's not worth doing.  And, get some real-time quotes on the roof and flooring...those are big ticket items. You'll also run into problems along the way and that will increase your cost.

Wish this was an easy "yes" or "no" answer for you but real estate investing isn't easy, huh?

Thomas S. · Answer

Would I do it, possibly for the right price. Should you do it, NO.

You are not local, this makes managing properly nearly impossible and will result in going way over budget. The very fact that you are asking is a clear indication that you are not experienced enough to succeed long distance. You will lose money in my opinion.

Jim D. · Answer

How far away is the property?

I would never recommend doing your first flip in a different city, especially one with narrow margins like this. It's hard enough managing a flip when you're right down the road.

Joe P. · Answer

I don't think it was disrepectful at all, frankly. Given my neighborhood and upbringing, I'd say it was one of the most respectful disagreements I've ever had. :)

You make further great points and in the Philly market (and a real estate broker/realtor) should weigh in to make sure I'm not lying), an additional half bath won't make or break a sale and its cost to cure is indeed prohibitive. What'll make a difference in this market is the size of the property, its layout, its finishes, and things like parking or outdoor space can literally add $50,000 to the properties final value over others.

Patricia Steiner · Answer

@Joe P.

Joe, in reference to your mention of the "obsolete 1 bath," it's not a judgement but an appraisal designation/valuation of properties known as "functional obsolescence."  Yes, one bath homes exist but adding a half to full bath changes the entire valuation of the property.  Those properties where the cost to "cure" is prohibitive, the property is deemed to have an "Incurable obsolescence."

Thank you for your disrespectful disagreement (the best kind); I gave my professional opinion and I'm glad you gave yours as well.

Jim K. · Answer

@Constancia Russell

I think, from the way you are talking about it, that this would be your first flip, as @James Marshall indicated. You're doing it out of your area, and while you have a property manager, you don't have a rehab team in place to tackle this.

If the above is true, then really, there's a very low probability that is could turn into a very good deal for you. Because it's likely going to be a lot more complicated than you think.

Taylor Chiu · Answer

@Constancia Russell

100k all in for $700-$850/Mo Rent and 10k equity? I would pass on that deal. Numbers aren’t attractive enough

Rob Massopust · Answer

Most people want 3 bedrooms 2 bath - The cost to make this, if even possible, to a 3 bedroom might not be worth it.

2 bedrooms are great, small and easier to fix and buy. Its just a dollar amount.

Rob Massopust · Answer

What will it rent for after fixed up.

Lets say $800 -35% Expenses  = $520x12=$6240/$110,000= 5.6% CAP rate

Is the rent amount the going rate for a 2/1 and is 5.6% CAP rate enough to attract an investor?

Can you fix up long distance, can you resell to retail buyer, or investor. Find out who is buying in that area. Have a couple of different exit strategies.

Its probably going to cost more to fix up then the $25k, I would budget $35-$40 per sq ft just to be safe

Would you touch this?

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