Help me analyze this flip or brrrr deal in Baltimore

[Lisa S.]

I'm pretty much a newbie at this, and so just playing around with numbers as an exercise. Here's how I approached it:

Searching on CL and Zillow got me to this SFH in the Hampden neighborhood of Baltimore (hipster/very desirable, lots of cute restaurants, shops, Whole Foods, etc.). What's more, it's on the "Miracle on 34th Street". It's listed as 4 bedroom 1.5 bath, 1480 sf, and the pictures show a house that definitely needs paint, floors refinished at least, a full kitchen and bathroom rehab, and I'd assume you'd want to make the half-bath a full bath for value. 

Here's the link on Zillow: http://u.zillow.com/p2T5Pj/

But the price is listed as $145k on Craigslist and on this site: http://realpropertyinvestorsmd.com/baltimore-city-...

However, I don't really believe the numbers that "Real Property Investors MD" cite. They estimate a renovation cost of $45k and say that it has an ARV of $289k.

Here's why I don't believe it:

1) Renos cost a lot. Let's assume kitchen minimum $20k, bathrooms minimum $15k, add at least $10k for walls, floors, miscellaneous, maybe add a parking pad (area doesn't have garages) and that's assuming no major structural issues. I'd assume at least $50-60k to be safe. 

2) Comp on the same street that appears to be under contract for $259.9k- but slightly larger at 1900 sf, 2.5 baths, fully renovated: http://u.zillow.com/p2T5Pn/

3) General Zillow #s for Hampden are more like $220k, not close to $300k. (Note: I know that Zillow isn't the be-all-end-all, but it's what I have easy access to right now). 

Ok - so is this a good deal?

As a flip:

Used the BP calculator assuming an ARV of $250k, wanting a $25k profit and rehab costs of $60k - in that case, maximum allowable offer of $132,900.

As a BRRRR:

Used the BP calculator, not sure if I did this correctly, but the general guidelines were that rents in the area (it's a very desirable area) are around $1500. The calculator tells me that theres no cash flow in Y1 with the same rehab budget as in my flip scenario, but that Y2 and beyond would deliver a 20% cash-on-cash ROI, again assuming I could refinance to 70% of the ARV. In this scenario I assumed I would have to pay $145k.

What does the community think? I'd appreciate any thoughts, especially about my assumptions and process for thinking about this deal. This is really just an exercise for me as I'm exploring neighborhoods and potential strategies in Baltimore. 

[Ray Johnson]

Hi Lisa, I'm a little late to the conversation but wanted to add a few things. I invest in the Baltimore area and have a few suggestions.

There are several avenues to buy properties with better pricing over what you're looking at. Some things to consider;

1) Why Hampden for your first project? This will be a Class A property for Baltimore once completed based on the rehab cost you're projecting, you can have Class B or B- property for far less money generating a much better return on your investment. As a newbie you have to remember you aren't living in this house so choosing financial planning over a product you could see yourself living in is a key mindset for this business as a newbie.

2) The rehab numbers you're quoting sound like retail numbers or a home with higher-end finishes. Keep in mind that you'll want to connect with a good contractor that will not be paying retail pricing and shouldn't be charging you retail pricing for the rehab.

3) Regarding the contractor, contact several and make sure to get a few bids before selecting a contractor to do the work.

4) Try to connect with a good realtor in the area that can give you hard numbers for your analysis, I don't use "Zestimates" for my rental projections, I use prior 12 month rents for trending and current rent listing actuals in the area of my projects. If you can take a Saturday and visit properties on the area you're interested in and see what the interior finishes are like before overspending to compete with current product on the market. 

5) Baltimore can be a good area to build a portfolio, make sure you understand the market within the different neighborhoods, How to use them to obtain your financial goals, and establish relationships within the industry, It'll make investing much easier and cheaper whether you're only doing one property or starting your portfolio.

Hope this helps, Let me know if you have any other questions.