Is it cheaper to start with a gutted house? (Baltimore)

[Matt Radhe]

Hey everybody, I'm fairly new to BP but have really appreciated all of the helpful feedback from everyone on the forums as I get closer to pulling the trigger on my first REI. My partner and I are looking at purchasing a rowhome in Baltimore close to Johns Hopkins and a major hospital (Charles Village neighborhood), rehabbing it and holding as a rental. Right now the house is a 3 bed/1.5 bath but if we can create a 4th bedroom in the basement and turn the half bath into a full bath I think we could rent the house out to students for at least $2,000 a month and have a nice cash flowing property. Even if we have to keep the existing floor plan I think we could still charge $1400-1600 in rent for the area based on comps, which would still make this a profitable deal.

Here is the unique aspect to this deal that I could use some help with. The house has already been completely gutted and framed and has HVAC ductwork, plumbing and subfloors already installed (it's essentially a shell waiting to be finished). The purchase price is $75K and comparable homes on the block are valued around 150-180K with a newly renovated house across the street listed for $172K.

The plan is to also use a personal loan from family to secure a purchase and reno loan from a hard money lender, then refinance our invested capital back out once the reno is complete and use the rental income to pay off the personal loan with some interest. 

Here is my specific question regarding this deal:

1. This would be our first adventure into house flipping and we like the specific details of the neighborhood and it's potential but are unsure if the house already being gutted is a benefit or not. Is it generally cheaper to start with an already gutted home and install all of the drywall, flooring, bathrooms, kitchen, etc? Or would be be better off going with a finished home that needs to have floors replaced, kitchen gutted, maybe a wall removed, etc.? We originally liked the blank slate idea of the house but I'm wondering if the material cost for bringing in drywall, ceiling, floor, etc. for the entire house might end up being higher than the alternative option.

I would also appreciate any feedback on the BRRR (is that the right amount of R's) strategy we are looking to employ for this venture. Thanks for all of the helpful insights so far, you guys are awesome!

Matt

[Blair Poelman]

Might be a great deal, but might not be. Consider these:

Knowing why it’s an abandoned project is a factor.

What are the permit requirements, if any

What quality level of finish do you need to hit in order to make it match the demographics of the neighborhood

These will all ply a role in determining if you’ve got a winner or a loser.