Comparing Apples to Oranges to Velociraptors

[Alia Ganaposki]

Tl;dr: I don't have enough knowledge or experience to feel confident in my next choice. 

(Side note, I usually consult with my friends on important decisions, but when we first started real estate investing I actually lost a circle of friends over it, in a quite public and spectacular fashion, so now I keep it close to my chest. I'd like to think my ex-friend was projecting, but it was still emotionally devastating so I am posting publicly here as a huge act of faith.)

We invest out of state (Arkansas). Our team on the ground has visited all the houses in our price range (under 100k) and together we've narrowed it down to 6 single family homes my husband will be looking at... tomorrow. 

The last time we did this, we had a very specific goal (2 doors, under $100k, keys in less than 3 weeks) which we met. We know that niche and what they'll pay to rent what we've got. ($650 & $500/month, respectively)

Going in this time, we have more time and more options. Alas, i'm a maximizer and feel compelled to make the perfect decision.

There is the $65k "Ugly But Upside" 3 bdrm. Barring a nasty surprise from the inspector, it needs major cosmetic work but nothing structurally wrong. It is in a perfectly fine school district and would rent easily for $850-900 month. We could (probably) sell it for over 80k if it was less ugly. This became a favorite because not only could we make enough rent easily, if we put in a medium amount of work we were likely to be able to sell it for a profit... eventually. (We're buy and hold, but we're flexible.)

There are 3 houses that are all about $87k, 3 bdrms 1 bath that only need cosmetic/ easy fixes. We could rent them for 1k-$1200. (Our caretaker thinks over 1200, but i'm conservative when I don't have enough data. HUD says the fair market value for a 3 bdrm in our county is about $1010. Not a lot of comps.) However, I don't think we could do much to increase their value beyond inflation.

And then.... there's the foreclosure. (Can't tell if that sound effect is angels singing or devils giggling.) It's just under $90k, 3 bdrm, 3 bath. There are a few structural issues (some missing siding, 2 soft spots on the ground floor) and a lot of cosmetic (oh, the wallpaper) work. Because we haven't had to do anything big on a deadline before, and we don't know what's truly broken, we have no idea how much it would cost to get it up to rentable. I won't pretend otherwise. *jazzhands*

Houses like it nearby are selling for over $180k, and we think it would rent for over $1800/month without changing the counter tops, but- again- there isn't a lot of data to compare it to. (Small town) More importantly, we don't know how long it would take our guy to fix things. He's popular.

There might not even be a rental market for family homes at this price point. We hadn't considered this market until a week ago. Since we don't know the rental market (and that's a lot of money to tie up in one project) the smartest thing would probably be try to sell it. But that wasn't the plan! *flail hands*

Oh, and the 4th option is a flip that a local realtor bought last year for $19k. It is a gut renovation and is perfectly nice but even though it's listed as a 3 bdrm it's actually only a 2 bdrm and they're asking $85k for it. Owner financing is available, $12k down with 5% interest, any term we like up to 30. (We know it's overpriced, don't worry.)

They told our realtor they were about to put a renter in, so I think they need cash. Cough.

I do not want to be in their position in 3 months, trying to unload a property any way I can.

We are self financing through a HELOC. It's an adjustable rate 6% interest only line for the next 8.5 years, then becomes a fixed 15 year mortgage if there's any debt left.

It's a buyer's market; I expect we will be offering much less than asking on all of the properties. (We got our last property for 70k, down from an original asking price of 149k, so i'm comfortable lowballing... but mostly it was luck on our end.)

I'm also ok with walking away from all of these properties now... and checking in with the sellers in November if they still haven't sold. 

(I'm a sahm, but my youngest is starting school this September so I have time and patience.)

With what I know, I don't think there's a wrong decision here. I'm just not sure if there's something else I could know if I asked the right question. 

(Oh, and taxes run between $300 and $500 annually; i think the 50% rule is a little conservative for this market but i'm keeping it in mind when I do my numbers.)

So... what question would you ask?

Cheers!