Looking at my First Deal am I Screwing Up?

[Brad Carrier]

I'm going to look at my first possible deal this week. I've got a veteran agent that I've known for a long time. He did a lot of PM work though the downturn and knows this rental market really well. He suggested a small house two blocks from a hospital that's in the middle of expanding. It's a C+/B- neighborhood near a lot of less optimal areas.

The house is a 3 bed 1 bath single family. It's only 775 sq foot on a city lot. It's listed for $34,000. It's all 1980's on the inside and I'm estimating $20,000 for rehab to do new floors, windows and a kitchen. I'll do the work myself aside from anything I need inspections on. Comps are around the mid 70s but the area has a lot of flux based on neighborhood so I'm not 100%.

I've got the cash to do it as a flip or a BRRRR. It should rent for $550 and hopefully with the new medical jobs coming in I'll be able to attract a great tenant. What am I missing? I feel like I should know 100 more books worth of stuff before putting in an offer but this area has been going up in value for years and I want to try my first RE project.

[Jason D.]

A couple things I see... It shouldn't cost $20k to renovate a 750sqft property, especially if you are doing the work. You should be able to do it for less than $15k. After all, were taking about a $70k house in the end, so you don't need high end materials. As a rental, $550 A month on a $50k total cost doesn't leave much room for cash flow. You also mentioned using the BRRRR strategy, so I would contact some lenders because most have a minimum loan amount of $75-100k. You may have trouble getting a loan for this project.