First Investment Property: Total gut rehab or turnkey?

[KB Bjerk]

Hi all! I am going to buy my 1st investment duplex in the next 4 months (BRRRR) and I'm tired of running myself in circles, but am not sure which route is smarter.

I am highly considering buying a foreclosed property from the city I live in for about $1,000 cash. The rehab estimate is 50k-60k for total gut in and out (foundation is good though). Houses in this area at mediocre condition sell for 50k-75k. I am attracted to this route because the property can be mine for $1,000 cash, and the rehab budget would put me at retail price, *AND* I will have the peace of mind of knowing that I have essentially a brand new house. No major costs should pop up anytime within the 5-7 year period I plan to hold it. However, I'm not sure what kind of financing is appropriate for me to do the 50k-60k rehab or if this is even the better option. 

I am afraid to buy an already decent property (I am adamant about this area) for the 50k-60k retail price and then have a disaster of things go wrong while I'm trying to cashflow it/get my footing.

Please offer your thoughts in as much detail as possible. Thank you!!

Kaitlyn

[Jonathan Oh]

@KB Bjerk I am not the type to discourage anyone, but if you're trying to weigh out the risks, I would say trying to do a full rehab is much riskier than buying retail or turnkey. One requires minimal work and the other is going to be a massive project. Also, the risk of "disasters" coming up and eating your cash-flow is there regardless of a full gut rehab or not. Sure, the rehab gives you the comfort of knowing that everything is new. But one bad tenant can still wipe out your cash flow. I think an important thing that a lot of new investors forget is "location, location, location". The fact that you want to invest in a neighborhood where prices max out at 75k, while Milwaukee's median home price is around 130k tells me you may be looking at a low end area that have more problematic tenants. Before you dive in, research what types of tenants you're going to be renting to. And read up on the pros and cons of investing in these areas. You can absolutely make money, but I found that these types of areas are not best for new investors. But if you're confident in what you know, go for it! I don't know too much about your market, so read my comment with a grain of salt.