To Buy or Not To Buy

[Faiz Khan]

Hello Members, 

I find myself in a dilemma as I am trying to make this property to work for me. I got a mail from this seller who is trying to sell the property for $323k. I went and saw the house and it looked like it needed some 30K worth of work in it and was built in 1970. So it is a old house whose ARV would be around 270k.

   Now, I want to use this house as an assisted living facility/residential care facility.  In order to get licensed, it would take me up to 6 months.  I was trying to use creative financing if this house is even worth the headache (since it is old, and never know what problems lie underneath).  

    I would appreciate it if you can give me some idea on where to go from here.  

[Gene Guarino]

Hello Faiz,

First of all, it Looks like you should not pay more then the $240,000. 

($270,000 ARV - $30,000 renovation = $240,000) to start. Likely it should be less then $200,000.

Only make an offer IF you are certain the property is in the right location for use as an ALF.  That is the key to this business.  Location and zoning limitations and requirements and the process to make any required changes are all critical to your success and the time line.

It is all about the location.  The real property or the "bricks and sticks" as they say, are inconsequential in the long run.  Its all about the cash flow that the business can produce.  The 6 months is the reality that you will need to consider when you are raising capital to do this project.

One of the BIGGEST MISTAKES that people make is being under capitalized from the start.  Do the calculations and make sure that you know what you need to complete the project before you start.

Gene