203k Renovation Too Big For My First Property?

[Liam Tennies]

Hey BP, hoping I can get some clarity on this property and get a push in the right direction for my first deal. I have been qualified for a 300k loan. This is a 203k loan where the renovation cost of the property are just added onto purchase price and included in the loan amount. My lender approved me for a 185k purchase price with a 119k max renovation (roughly). I am set on using this type of FHA loan because of the low 3.5% down payment for owner occupancy, the potential to gain equity by doing renovations on a distressed home, and because the structure and assistance the loan provides the buyer when doing renovations.

Now for the deal. Keep in mind my older sister has been pre-approved for the same amount. We found two side-by-side duplexes in a very nice area of Pittsburgh, PA. They are zoned separately so we would each be buying one side with separate 203k loans. The property needs approximately 150k in work between both sides included reconstruction of a 4-story deck off the back of the house that you can see the entire city from, exterior/interior painting, a new roof, new furnaces, electrical panels, flooring, a few windows, updates to kitchens and bathrooms, etc. This is not a complete gut. It was gutted 30 years ago and has all new drywall throughout the interior of the units. Majority of the renovation is outside and a handful of very expensive items (deck, paint, roof). My sister and I are going to pool our renovation costs on those big ticket items and then individually pick away at each of our duplexes' interiors.

My question mainly is if this would be a project too big to take on as my first purchase. To be clear, I am confident and believe I have the resources in place to get it done despite being a bit nervous (of course). I have walked the property with a 203k consultant who estimated our cost to be about 150k total (75k each) in renovations. He would act as our general contractor throughout the entire deal by inspecting the contractors work and then ordering draws to get them paid in stages. We also have a very experienced lender who individually gave us 300k each so we know that the financing is there for us. My father was also in the contracting business and is a state certified home inspector which will come in handy as well. 

It's quite clear that this is a big project, especially starting out, but the potential is there for us. I believe we can get a 150k purchase price for each side based on what we're heard from the seller's agent. This low of a purchase price should give us plenty of wiggle room to pay the necessary cost of renovation, even it our cost ballooned to 100k per side, we would each only be all in for 250k which would result in a high equity, cash flowing property that my tenants would be paying the mortgage for. 

So BP.... I'm ready for the criticism! Are we being naive and taking on too much work?!

[Jaron Walling]

@Liam Tennies As a newer investor I would walk away from this deal. There's about a million moving parts you need to get right to make this property work. Those BIG TICKET items add up fast and you get deal with draws from a lender, finding reliable contractors, and you can't negotiate on the labor costs. Why not leverage the knowledge your father has and find an easier project?? 

You stated the comps in the neighborhood are $350-450K; you need an accurate number. Investors don't guess on the ARV. They research, talk to agents, and know the ARV. What would the units rent for? What's the cash-flow once you factor in the expenses to hold the property long term? These are questions you should answer before you sign documents and buy property.