Contingenet on my 1st out of state BRRR property in WI- help! ;-)

[Kuriakos Mellos]

Hi All! Need some guidance here as I am getting a little out of state first time anxiety buying fears. During covid, I have been doing research, interviewing property mgmt companies, talking to banks, and doing visits to Milwaukee (Great city) to try and find the right first property to invest in. I thought condos was the way I was going to go, but increasingly was sold on the idea of a SFH. To be honest, never thought SFH's were such a good rental property. (Any feedback on how it's been for you would be awesome.)

Neverthless, I found a little  house on a 1/3 of an acre lot in a great area, walking distance to a charter school that has stellar reviews - park around the corner and lots of young families moving in. The area is immediately south of Bay View (For those of you familiar with WI.)   

The house:  about 670 square feet, no garage, no basement - newish roof - great exterior - AWESOME huge yard - but the person who got it to try and flip it did a horrible job (he bought it for $66 K two years ago) and did not finish it.  Seems he ran out of money, is a destressed owner and is using his mom to help him sell it.

I drove up and saw it once, liked it - made an offer. Went a second  time with a contractor who pointed out a few things that could be fixed - gave me a rough estimate as the costs. And going a third time to go with the inspector to make sure structually the sound is good, and going with a friend who is very handy with contractor work to give me his opinion.

Maybe I am being over paranoid for this first time, but I want to get this first one right and Milwaukee is only a 1.5 hour drive from me.

The numbers and where I need help/guidance:

Listed for only $95 K, in contract for $88 K.  Down payment will be $17.6 K, Closing Costs another $4ish K - Rehab costs (which I can put on a card  - gotta get them points!- will be about $12 K ).  Total costs = $33,600  The property mgmt company I have partnered with is convinced I can get $1400 if I add airconditioning - which I am considering - other wise we are looking at about $1100 to $1200.  My monthly P+I+Taxes would fall under 600 plus 300 aside for maintenance, cap ex and vacanty I am just under $900.  Cash flow approximately $300 a month.  Annual cash flow = $3600

If I do my math rate for this my return is about 10.7 %?

My hold up - do I try and rent right away - take the lower rent for now and add air conditioning later?  Is this a first good deal?  Do I invest a little more on the upfront costs to get the higher rent?  Am I over anayzling?

ANY AND ALL FEEDBACK WOULD BE APPRECIATED.  THANKS ALL!

[Marcus Auerbach]

@Kuriakos Mellos we have been buying SFR's now for over 10 years, it's my favorite vehicle. A lot more passive than small MF, as the residents take care of everything. They also tend to stay many years, which cuts down on your biggest expense, which is turn over.

I looked at everything else and dabbled a little in many different startegies from lease options to new construction. I looked into retail and airbnb every now and then, but thank god, never made that move - covid+amazon have hit those hard. Just signed another SFH on Monday for 158k with about 220k ARV. So, I think you are on the right track with SFR!

However, I would not buy that property you discribed. Main reason is size, it is too small with 670 SF. Rent is usually about a buck per SF in Milwaukee - a little over in nice parts of town and with high end finishes, a little lower if dated. But always a function of square footage.

The school proximity is useless if you dont have at lest 3 bedrooms and 1200SF.

Makes me wonder what PM you are working with?? No way $1200 for a tiny house. And even if that is the case, could you imagine to pay $200 more for AC? What are they thinking??

People who rent a SF also want a basement with a rec room and for storage and a garage. Otherwise whats the point? Might as well rent an apartment for much less. Where do you even put the lawn mower and snow blower?

My advice, stay with the SFR, but don't confuse price with value! Buy a little larger property that can hold a small family, at least 1200Sf if its a ranch, at least 1400 if a 2 story. Not sure why you need a PM, if you live within driving distance. If you hire a PM, go with a pro like Welcome Home Milwaukee.