Should I pursue this?

Question

Hi everyone, I came across a 6 unit MFH. Asking is 54k, my contractor said it would be 80-120k to completely update the property (it is vacant, mostly cosmetic but still run down). The property would gross 3-3500 a month. Would you pursue this deal?

Draw back is this would be my first big project, I’ve helped with flips before, but nothing like on a property this big. Another draw back is I don’t know what the ARV would be, especially since there’s not any properties like this around it.

look forward to hearing your opinion!

Steve Adler · Answer

Yeah we would be funding it ourselves!

David Avery · Answer

No brainer

This is how you become wealthy!                                                                          Get second opinion on  Re Hab!

Even if you fill it with section 8 tenants.

Give contractor $25,000 of labor.

The rest in rent at 125%. Spread out over 6 months.keep you cost down!

Get product over time.

Tie it down and get it done in 120 days.

Maksu Ize · Answer

Dont listen to peter, do it.

3500 on a 200k is a no brainer.

Steve Adler · Answer

I have 200k cash for the deal, my biggest concern was just trying to figure out, how much would make it a deal, and how much would not.

The money part isn’t the problem (honestly not trying to sound arrogant), my only concern is just that it is a big project, and like you said it’s going to cost more because there’s always stuff you can see. My contractor said around 80-120, but I was still budgeting for about 140 in repairs.

Account Closed · Answer

Post all your numbers and lets have a look. If you have to pay the electric, water and gas and collect only $3000 to $3600 then the deal doesn't look so great. But, then...you have to spread out your numbers 1, 5, 10, 20 and 30 years to see how you profit after rent increases, tax depreciation, property value appreciation that resulted from rent increases, etc.

$3600 per month - property taxes - utilities - trash removal - property insurance - rehab costs - vacancy rate - cleaning and maintenance when tenants move - property management costs - accounting costs, etc and if you pay cash for everything you will still probably come out okay, but if you pay $54,000 plus $150k cash for rehab + all other costs the big question is; can you invest your $200k into a more-profitable property vs. spending very good cash on something that almost appears to be a huge dinosaur you will need to clothe, feed and he will eat you out of your own house.

We need to see all the numbers and stretch them out like in the chart below.

The following chart is what I am guessing your numbers will look like.

Account Closed · Answer

Did you say you can purchase the entire 6 units for $54,000? Is is a war zone?

You are only collecting $500 to $600 per unit for rent?

Are any of the units currently rented and what is the current income?

Post all your numbers including your down payment, or will you pay cash.

It sounds like a super great deal for a person who knows how to do the project with the least amount of time and hassle, but the major problem may be the rents are to low to cover future expenses like the cost to clean and make repairs when tenants move, for water heaters, furnaces and repairs, roof repairs, etc.

Drew Sygit · Answer

Your profile doesn't list a city or state and shows you just joined Sept 2.

Why don't you tell us more of your story and the details.

Hiding your details and not sharing is NOT the way to go about asking everyone here for help.

Jon Kelly · Answer

@Steve Adler It's a risk but if you have the cash and can't find other properties to purchase then go for it! I'm assuming you at least ran the numbers in the BP calculator and are comfortable with the COC return and IRR.

Make sure you get an inspection even if you trust your contractor... Usually a run down and completely vacant multi-family building requires more than just cosmetic repairs.

$80-120k is a wide range. Usually when someone gives an estimate like it's their initial "sniff" test. You can assume it will be closer to the high end of the range and don't be surprised if it's $150k+.

Cody Cross · Answer

@Steve Adler I’d say absolutely as long as you understand the area and have a good relationship with your contractor and cash reserves.

Steve Adler · Answer

No there are no war zones in my town. Drug use, but no war zone. This property is not on that side of town, it’s actually in a developing area. Yeah It would gross anywhere from 3-3500. The deal would be paid in cash.

I called the utility companies and for electric water and gas the total average is $624 a month.

Should I pursue this?

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