HELP! Experience w/gutting/rebuilding rentals-is this worth it??

[Diane Linette]

Hi BP!   I'm a new investor and have just found out about the BP-nation AFTER I closed my first deal - DANG!!  I have a lot of questions so here goes: 1) Tell you a bit about the Background / History 2) Property Mgmt 3) Rebuild/Rehab 4) Financing 5) Is this a good deal? 

A little history - I closed my first deal using my own money (turned over 25gs wop) in February which isn't necessarily the most profitable but still coming out with a 5% CAP this year (financial freedoms here I come!! LOL) and have tenants thru to July 2019. The property is immaculate-turnkey. Very conservative, new HVAC, new fridge/washer/dryer, etc. It's a solid start, I think :) I terminated another deal because things were just getting sketchier and sketchier with the seller/HOA/etc, and am actually glad to have backed out of it. I really want another deal, and want it to make sense for my time, energy, effort, and income. Now that I've been enlightened with BP, I've now been more open to the idea of "managed" risks. So here goes.

I'm now looking at a deal that is 65K for 4 separate homes (2 cottages -1000sf-2/1, and 2-2 story homes-2500sf, 5/4).  The 2-2 story homes are next door to each other in the historic district of this city, and 1 has been completely gutted already; the other has been separated into 3 different units, and has 1 tenant still in there upstairs, and the two bottom units have been trashed.   The 2 cottages have both been gutted. All properties are within a mile of each other.  So, the Agents I've talked to don't fully know the story and I've tried hunting down the Listing Agent (should I even do this?) to try and get more information about the properties and why the seller is selling. 

These properties are out of state, so I planned on having a Property Mgmt Company manage and handle the full package - manage the rebuild/contractors, market/lease/evict/etc - and I just collect a check.  My hubs and I are both from this state, so we go there about 2-3x/year to still visit family, and his family is an hr away from this particular city.  The going rent in this area is 600-750 for 2/1 and 700-850 for 3/2s, and all are eligible for Sec8.  Even at 500/unit, I'd still be elated just to keep vacancy as close to nil - and I understand, that may not be the best route either because of the quality of tenant - yet, I've narrowed down a couple of Property Mgmt companies in the area that seem to be reputable, and have been the ones that the real estate agents recommended, too.  

MY QUESTIONS ARE:  

1.  What have your experiences been with hiring out a Property Mgmt company to help with the full package?  I've (voraciously) listened to BP, and how they've been able to use PM to rehab units (total of 6 units, after turning the 2 stories into duplexes), and was hoping to get a good deal.  The two Prop Mgmt companies I've talked to have said they're very familiar with the area, and I see the listings on their website, and they've both given me quotes of 8-10K, and 10-15K for the costs to rebuild/rehab. 

2.  Can you usually tell them a budget you're sticking to and have they been able to stick to it?  I'm aware there are going to be some surprises, but I just want to factor in as many surprises as possible even with the budget, then have a surprise budget on top of that.  Hope that makes sense. 

3.  For the sake of numbers, and to hopefully get as much of your thoughts and suggestions, I was thinking of offering 50K cash (properties have been listed for 6 months at 65K), with a 25k budget to rehab 6 units.  Is this realistic??  2 cottages and 1-2 story are gutted down to the 2x4s. Like, is 25K realistic for materials & labor to get 6 units habitable? 

4. What has your experience been with a HELOC? We have 80K in equity in our home, and the bank can loan up to 85%. Has this been a good route? How often does your rate increase/adjust? Would you recommend using it to finance a deal? This is why I really want to keep these budgets where they are, yet, we also have additional monies for the "surprises", but really don't want to do that if we can avoid it.

5.  What are thoughts on this potential deal?  Would you do it? Or run? 

Sorry for such a long inaugural post. Happy to be here and looking forward to hearing your thoughts!!!  Thank you!!