Would you do this deal?

Question

I would like some input on this potential deal.

3/1

1100 sq. ft.

Purchase price $75k

Renovations $35k (Everything would be new: HVAC, roof, electric, plumbing, concrete patio and sidewalks, vinyl siding, fencing, kitchen cabinets, sink, faucet, new tub and tiled surround, vanity and LVP flooring, it also includes a stove, dishwasher, refrigerator, washer and dryer, so basically a new build).

All in: $110k

ARV: $130k

Refinance with $20k down

Loan amount $90k @ 4.0 % for 30yrs = P.I. $430 + taxes and Insurance $150 = $605/month

5% Vacancy  $90

1% Cap Ex $20 (low because everything is new)

1% Repairs and maintenance $20 (same as above)

Straight rental.....$1,000/mo - $735 expenses/mo = $265 cash flow

Renting to traveling nurses(2 hospitals in a small town).... I could get $1800/mo ( but would incur utilities and cable expenses around $250/month)......total monthly expenses $985. $1800/mo - $985 = $815/mo cash flow.

As a long time flipper, I`m used to MUCH bigger spreads of equity, so I`m vacillating on whether to do this deal or wait for one that has similar monthly numbers but more equity. This small town doesn't appreciate much in the long run, maybe 5% on average.

I would be interested in getting your thoughts.

Ciao

Joel Florian · Answer

@Deano Vulcano

Would you pay $75k cash or use hard money?   Or could you get a rehab loan?   How soon could you cash out refinance (I had to wait 6 months)?  Are you confident on your renovations number?   In many areas, materials and labor have become expensive and scarce (delays cost money too).   Would you self perform some of the rehab?  Based on the limited information given, it seems like a skinny margin for the cost and the risk and I wouldn't chase it myself because I think I can get a better return (with less risk) on my money and time.

Salvatore Lentini · Answer

@Deano Vulcano - that deal's a little skinny.  If you're off on rehab costs, refi rate or if your appraisal comes in lower than expected...not good.  I know there's not a lot of inventory right now but that doesn't mean you should bend on your numbers.

Account Closed · Answer

Outside meaning outside of your local physical investment area. I don't invest in areas I can't hit with my own plane or drive within a days time.

Account Closed · Answer

I did and while that's a much better option no doubt, I would be cautious. If normal rental rates are yielding lower then that's your worst case scenario. Beat case is the nurse gig but I personally never make deals on the best case scenario. The universe slaps me down promptly Everytime I do a deal based on best case scenarios.

That all said....if you aren't comfortable with outside deals (Im not) and that's all that's available then sometimes you have to do what you have to do.

Account Closed · Answer

For that low of cash flow, I wouldn't want it on my personal credit. The only way I'd ever have a deal that has that low of cash flow would be a subject to and I do have a few of those and they do fine and I know they won't affect my potential for bigger loans later on

Account Closed · Answer

At $265 cash flow and 5% appreciation I would not guarantee that debt with a traditional loan. The 20k profit isn't much either but I might consider it if you can sell it quickly.

Salvatore Lentini · Answer

@Deano Vulcano - I wasn't criticizing your number skills.  I meant, even with experience, I'm still hit with surprises (good and bad) on deals.  Some things are just beyond your control.  A skinny deal is not necessarily bad.  I do them just to keep the investing machine in motion.  I keep my crew busy and more often than not that skinny deal leads to connections with neighbors, a new sub, a new lender or private lender.... which then leads to a better deal.  So it's all just a matter of where you're at, how experienced, how many deals you do per year etc.I bought a commercial deal 3 years back that cashflows very little, but I knew the commercial lots next to it were being purchased and changing from old warehouses to new townhouses.  The value of my property increased by 50% within the first year of ownership.  I was able to refi it and now I'm into it for $0.  I haven't had an appraisal recently but my guesstimate puts it at double what I bought it for.  It all depends on the deal and your personal goals/plans.  That's what I teach my online students :)

Ralph Joseph · Answer

@Deano Vulcano is this deal still active ?

Deano Vulcano · Answer

Joel and Salvatore, after 26 years of doing flips my numbers are pretty solid. But I agree with you guys, the deal is still a bit skinny. I think a good question to ask is, "would I do this deal if we weren't at record low inventory numbers"? And I think I would honestly have to answer "No".  Thanks for the feedback everyone.

Deano Vulcano · Answer

@William Neagle

Once again good points. You mentioned "outside deals", are you referring to those that are not "subject to" or owner financing?

Would you do this deal?

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