2/1..What would YOU do?

Question

Greetings folks. About 4 months ago I identified a property with some potential for flipping or renting while driving for dollars. I pass this property frequently, and get excited every time I see it. Here are a few particulars.

2/1 single family home
Approximately 950 sqf
B-/C+ neighborhood
Great school district (Cobb County)
1 1/2 acre lot
Short distance to shopping areas
Interior down to studs (as seen from the street since the front door is open as well as windows)

I have gone through county records and identified the owner. Taxes on the property are current, but it's definitely uninhabited. I plan to make contact with the owner next week via cold call if I can obtain a number, or mail. As far as I can tell, the ARV is around $99,000. Without having seen the inside up close, I would guess $35-45 per sqf would suffice in a worst case scenario for rehab. I would love to offer a max of $25,000 if the owner is interested in selling. I would likely use hard money for purchase and rehab should I get that far.

Rental estimates in the area for comparable homes range from $900/mo to $1000/mo.

Assuming I can obtain the property, should I attempt to rent it out? Or would it be better to flip?

Something else to consider. My wife and I are currently renting a 3/2 and are eyeballing some homes to purchase in the next 10 months. That time will be used to beef up our savings for a down payment on a home. We're looking to purchase a 4/3.5 single family home of 3,000 sqf or better, seeing as we have 2 kids under 5 years old, and I have a 16 year old from a previous marriage that visits from Florida occasionally. If I could obtain the home descibed above, we would also be open to razing the home and building a home that suits our needs on the lot. The thing that makes this an attractive option is the lot size. Another option is to rehab and rent the home, and then work with the county to divide the lot and build on the back 3/4 to 1 acre of the lot. Anyway, enough dreaming on my part, what type of direction would YOU take if this were your investment? I have a vision for this place, but I'm open to just about anything if I can get my hands on it. All thoughts are welcomed, thx.

Jim Adrian · Answer

@Christopher HutchinsDefine goals. You could both ways as described but you need to run the numbers. I think the numbers will tell you which way to go. If you can stay under 70K then then numbers really work for buy and hold. I have similar unit to what you describe. It may be harder than you think to divide out the land but you would have the room to put 4 - 6 houses on the lot at 1/4 acre lots. Im not a flipper so I don't know where the threshold is but your numbers will tell.

Josh Sohar · Answer

There are multiple strategies one could use here as you described. Depends on what you want to do personally. Does your current job situation allow you to save up enough in 10 months for a down payment on a home for your family? If not, maybe flipping would be a good way to get the capital you need for that. If you can raise the funds for the down payment, then maybe a bit and hold situation would be a better long term plan. However, make sure you want to be a landlord or are willing to pay for a PM. What would this property cash flow per month? Run the numbers in multiple scenarios to see. Good luck! Dividing the lot is potentially a lot of work and money and not sure how easy that is to do I. Your county, but I'm not the expert.

Christopher Hutchins · Answer

I'm running numbers as we speak. It's a really attractive candidate for a flip, even at an offer price of $32k with a $35k rehab and 90 days of holding costs. I could still pull in roughly $20k in profit. I'm going to run some other calculators. There might even be enough meat on the bone to wholesale to a local buyer here in the Atlanta or Cobb County area.

Christopher Hutchins · Answer

I absolutely expext to have a pretty decent down payment in 10 months time. Funny thing is, alot of the homes on this street have similar sized lots or bigger, and I see where some newer homes have gone up on those lots. If I could obtain the property, I'd be really tempted to raze and start over. The back acre or so is overgrown with bushes and a few trees, but could be bushhogged and leveled for a rather nice yard. A lot by itself this size in the area could easily go for $60-80k. Another option I thought of was having it divided and extending the driveway and building a triplex if the county would allow. Lol, I'm all over place, but the possibilities seem infinite to me. In 10 months time we're getting a home either way, but we're willing to wait a bit longer if it means we can have a better down payment or have a prime lot to build on should this deal get done.

Josh Sohar · Answer

Buy and hold**