Is it a bad deal to buy a multifamily that is already renovated?

Question

Is it a bad deal to buy a small multifamily ( Triplex or duplex) that has already been fixed up and renovated? I feel like my cash flow will be very small

Thanks

Rick Albert · Answer

Cash flow will be small but there are some major advantages to buying done properties:

1. You can rent right away.  A lot of newer investors don't account for vacancy during the remodel.

2. Less cash out of pocket.  If you really wanted to, in theory the money you would have put towards renovations could now be used towards a larger down payment or even buying the next property.

3. Hopefully less surprises since everything has been renovated.

I have a client who bought a 2 unit that was flipped here in Los Angeles.  That is his highest grossing property to date.  Review the numbers and if they work, they work.

James Wise · Answer

So long as you don't overpay for it, No. Get an appraisal and home inspection to cover your bases and you should be good to go.

Mike D'Arrigo · Answer

@Phil Pat why do you think the cash flow will be very small? Turn key properties can cash flow very well and since you're not paying for renovations with cash, the COC return can be higher. Don't males assumptions about what the cash flow may or may not be. Fully analyze the deal and see for yourself.

Lucia Rushton · Answer

@Phil Pat. Is it a cosmetic renovation or a full renovation including roof , electrical, plumbing HVAC and foundation if needed. These can be high ticket items so look beyond the pretty counter tops and new flooring ( in my opinion). And most of these items would only present during an inspection.

Nicholas Weckstein · Answer

I think that it really depends on your comfort level, strategy, and market. Ive bought plenty of turn key rentals and they cash flow greatly and see COC of just OVER 30%! Sure value add opportunities are the best. Find a diamond in the rough, fix it up, gain equity, rent it out, refinance. However there is nothing wrong with a turn key rental. Lots of people start with turn key and eventually move to buying cash and fixing up.

Cassi Justiz · Answer

I think it depends on the level of rehab and what the actual returns are. I'd take a fully renovated house with 10% cash on cash over something that needs a ton of work for 12%. For me, my time is more valuable than the potential for a small increase of returns. If all of the mechanicals are newer and the house is rent ready, go for it! I would take lower returns *that still make sense* for a totally updated house ALL DAY.  But if they just threw some lipstick on a house that still needs all of the mechanicals updated, then the cashflow is probably going to suck as those mechanicals all start breaking down.

For a newer investor, I'd take an easy base hit to begin with. As long as it cashflows and meets your criteria, then you should be fine! You can get into the heavy rehabs and BRRR type deals once you have a few "easy" deals to stabilize your portfolio.

Aaron Oetting · Answer

@Phil Pat i think this is a little like asking should the cowboys kick a field goal. Context and the specifics are everything when answering the question.  What is the cash on cash, what is the appreciation potential. Is a it a house hack. Ect.

David Lilley · Answer

@Phil Pat the answer to that question is entirely up to you. Are you satisfied with the projected cash flow and overall return on your investment? Would the deal be a needed step in accomplishing your goals?

For me, I would only buy a fully renovated asset if it were under priced with significant in place yield (cash flow), or if the area was phenomenal and I were projecting some aggressive rent growth/appreciation.

Jonathan Greene · Answer

I think it depends on the quality of the renovation and if it was more than cosmetic. If it looks nice, but the boiler and hot water heater and anything else in the basement (electrical, plumbing) are old, you will still have unexpected cap ex on a "new" renovation. If it is a full redo and inspects well, what others said above is spot-on, you will get less cash flow for paying more, but over the next five years your cap ex should be virtually zero and you are able to mortgage the whole boat instead of buying a fixer-upper and either paying the repairs out of pocket or via hard money. Some investors would rather have a good turnkey multi if the intent is to hold for a long time if they are not in the mood to do all the fixes and want a strong asset with a little less cash flow upfront.

Is it a bad deal to buy a multifamily that is already renovated?

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