To rehab or not to rehab

[Lauren Daly]

My husband and I are almost ready to buy our next buy and hold investment-- we will have enough for the down payment and cash reserves in a month or two. I figure that's good because in Texas the real estate prices tend to be lower in the fall/winter, when we will be ready to buy. I just need one deal-- my husband is risk averse so I promised home just 1 this year, and next year we will buy 2 around the same time frame. We both work full time, I'm salary and he is hourly, we don't mind rehabs but I'm just not sure if the payoff and risk is worth the potential reward. I'm entertaining two schools of thought: 1) Invest in a small direct mail campaign and investing my time in driving for dollars to sniff out some non-advertised FSBO and try to find a great deal, something that might meet the 1.5-2% rule. We find homes in massive disrepair at 50% of their ARV occasionally on the MLS and have been beaten by other investors to a few less massive rehabs that we found off market. These deals come back with about a 10% cash on cash return. The total dollars invested would be higher, so if I only get one deal this year, at least I get more out of it. 2) I can find listings on the MLS that meet the 1% rule all day, every day. These houses are 15-20 years old and really don't need more than the popcorn ceilings scraped in terms of rehab. My math on these properties puts me somewhere in the 7% Cash on cash ROI which, in my mind, is acceptable for something that I literally buy and rent immediately, no renovations required. So the conundrum-- do I go easy mode, or do I buy myself a project?