Good Deal / Bad Deal ? Orange County SoCal

[Matt Inouye]

Hi BP Community,

So I am pretty new here and I apologize if I haven't quite got my head wrapped around some of the RE metrics and/or correct forum to even start this thread.  

But a potential value-add opportunity came by my wife who is an local RE Agent. We are considering making an offer. The offer is in SoCal - Santa Ana / North Tustin area so I fully understand that my CoC returns and cap rates wont be "great" compared to out of state opportunities. However we are wanting to build some properties that are local. We have 3 properties up in Sacramento which have had their fair share of management challenges for us just starting out even though cash flow is great up there (or at least was when we purchased).

We are looking at this through a BRRRR mindset, but there seems to potentially be a flip exit as well.

Stats:

$464,000 Purchase Price (1450 sq ft 4/2)

$45,000 Estimated Rehab

$570-580K ARV (based on sold comps in area)

$2900-3000/mo rent

$20/mo garbage

$40/mo insurance

$420/mo taxes

$200/mo (estimated for vacancies and low capex/repairs since we are essentially gutting everything minus HVAC)

$2120/mo P&I - Owner financed at 10% down @ 4.5% on a 30/5 balloon.

I plugged these data points into the rental property calculator here on BP and the CoCROI numbers were pretty poor (barely better than risk free 10 year).  But looking for the opinions of investors who might have more experience with the particular area of SoCal.  It barely cashflows, but there's quite a bit of equity.  Again brand new so go gentle.

Big Time Mahalo in advance

[Pratik P.]

Hi Matt, 

I'm not a house flipper but I know that most flippers look for deals that are 

70% ARV - minus repairs - holding costs, etc.

Buying at 80-90% wouldn't make sense from a flipping perspective. 

If you're doing buy and hold, you would need to to a different type of analysis where you would factor in monthly PITI, repairs, vacancy rates, cap ex, etc. I'd say if you're cash flowing $200 after all the expenses, then you probably have a good deal!