Rehab Long Distant Vacant Rentals or Buy in Home Market?

Question

Hello,

I have read 4 books from Bigger Pockets and listened to 3 audiobooks along with many other "How To's" in the real estate investing genre. I'm excited, and looking forward to becoming a successful investor and always open to learning more. I've had great success with reaching out to people on the forums so wanted to put this question out there for more experienced investors to weigh in on. (All help is greatly appreciated)

THE SITUATION: About 10 years ago my parents got separated and I ended up inheriting 4 rental houses in the Columbus, Ohio area near The Ohio State University. The idea was that these units would be rehabbed by my father and put up for rent. For many reasons, this never became the case (they are all vacant and need some hefty repairs). Also during this time (in the last 10 years), I had moved to NYC and then LA for work. I have now lived in LA for the last 6 years and have a very stable financial situation. With that being said I'm now looking to get out of the cycle of rent and buy a duplex to house hack. However, because I own my own business and work primarily for 1099's I don't have the income on paper to go the FHA route and would most likely need to take out a non-QM to get the financing.

The Question: Would it be wiser to invest my time energy and money into rehabbing the units in Ohio FIRST, then moving onto a house hack in LA? Or would it be better to make the house hack move and then rehab the units in Ohio? I guess what I'm asking is, would it be harder to get loans or HELOC's for the rehab in Ohio if I have a new mortgage in California for around 650K?

I realize this was a long post, so, again, I appreciate all replies!!

Greg Scully · Answer

@Nick Uhas - Strictly on the financial side of this, the Ohio houses would create cash flow, and the house hack would be debt at least in the short term.

Keep in mind that there are private/hard money lenders that may lend on the Ohio rehab's. The projects could be independent of one another.

Jim Goebel · Answer

@Nick Uhas

Well, here's my observations/advice given what you shared:

Unless your dad was a big fish and had operations that actually justified having 4 houses untouched and vacant that needed work, (I'd guess that to justify this level of stagnation, at any given time he'd need to be turning over 15-20 projects per year) - the takeaway from this fact was that your dad didn't have the understanding of cash flow/ value of money to motivate himself to get the projects done in the proper order (ie: finish one, then move on to the other etc).

I mention this because you need to learn the lesson he did not, which is that you have holding costs on these houses and you need to get them done ASAP.  That doesn't mean that I'd advise to move to complete these before you get your financing picture sorted out, but here are some questions that may help you focus in on answering your question:

• How much in the way of funds do you have available right now?  Why I ask is I wonder how far you can get with regards to the rehabs based on your current position.  If it's none, (ie no houses), one, or two, I'd be asking the question of how much those houses are worth to sell - instead of drawing income from them as cash flow houses / rentals, you might focus on the house that has the greatest potential to produce cash in your pocket to fund the next rehab(s) if you have one you'd place a good bet that you can get through, and have the funds after the work to sell.  Then, you might not have to worry about the access to capital in terms of going to a bank.  If you have the funds to get through the work on all 4, I'd think about doing that.  I'd have a backup plan though, which if nothing else would be phase the projects in such a way as to get 1/2/3 rented ASAP and start producing cash flow that you can then utilize to help fund/finish whichever you don't do first.
• If you house hacked how mobile would you be?  If you'd be reasonably mobile and perhaps even able to rent both sides of your duplex you buy intermittently (get a local manager to do airbnb etc) - or give rent discount to the first tenant to help manage that...  If you can manage this and do it quickly I'd be inclined to at least look at that as an option, especially if that helped you funding /cash flow wise on the Columbus OH houses.
• By the way, a 650k mortgage - yuck.  Does that even cash flow?  Most LA and NYC and other big market numbers I see are not great.  I wonder if that really pencils out.
• Good luck!

Juan B. · Answer

If these apartments are part of your inheritance and the only cost you have is the rehab I  would check  and see what the rents are in the area and if worth it find someone who can give you what the rehab will run you by line items. See how long it will take you to break even, then rent and repeat until all four units are up. A college town usually needs rentals and if its multi rooms you can furnish the apartments, include WIFI  and allow room mates. The great part about college students is that the parents can also sign the lease so you have a little safety net on the rent.

Just my 2 cents.

Bjorn Ahlblad · Answer

@Nick Uhas you seemingly have created a good situation in LA. Should you undertake a series of rehabs three whole time zones away? That sounds too risky unless you see yourself moving to Ohio near term? Yes they would cash flow and MF is crazy hot right now. You might look at liquidating them and perhaps entertain the option of finding something in you current time zone; or maybe look into being a passive investor in a syndication. All the best!

Steve K. · Answer

@Nick Uhas interesting situation. I would want to convert the Ohio properties from liabilities into assets one way or another before taking on any new properties. Whether that means fixing them up and renting them out, fixing and selling or simply liquidating immediately for whatever you can get depends on the condition of each, the cost and scope of repairs needed, ARV and potential rents. I’d start by getting some quotes from local contractors to get those places up and running, consult with local PMs to gauge rentability, potential rent amounts, check rentometer etc. to figure out the numbers on each property to see what makes the most sense. Since you already own them you have to address that situation before buying anything else. Either turn them into income-producing assets if you can at a cost that makes sense, fix them up just enough to sell or get rid of them as they are. If it were me I would probably go to Ohio for a month or two, fix them up just enough to sell for a decent price and offload them while the market is hot then use that money to invest locally such as a duplex in a gentrifying area near where the olympics will be. The Ohio properties would have to rent for $1,500/mo. minimum for it to be worth it for me to keep them personally just based on knowing how expensive it is to keep up a property even locally never mind having to pay others to do everything if you live out of state. My suspicion from the little info you’ve given is that they are not super high-quality properties seeing as they’ve been vacant so long. Chances are there will too much deferred maintenance and not high enough potential rent for them to be viable as rentals unless you live down the block to maintain and manage them personally. Probably best to sell quickly while the market is hot, as there are a lot of over-eager buyers snatching up questionable properties at the moment and this phenomenon is not likely to last forever.

Nick Uhas · Answer

Thank you to EVERYONE who replied to this thread. I really really appreciate it.

I think the general consensus is to at least deal with these vacancies in Ohio before making my next move... and that is exactly what I'm going to do.

Again, I really appreciate all of the time you guys put into the replies!

Rehab Long Distant Vacant Rentals or Buy in Home Market?

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