Under Contract - Help Me Decide

[Sam Barnsley]

Hey Y’all.

So I'm under contract on a potential STR in Michigan and I'm looking for input. We are under contract at $215k but anticipate having to spend $115k+ to fix it up to a high standard for a higher end STR. My issue is deciding if it's worth the investment. Works out around a 7 Cap. (20k-25k/320k all in) this place needs a near total gut with new roof and landscaping.

My worry is that we don’t get the projected occupancy rate and being in a very seasonal city it adds risk. Not wanting to do all this work for very little return.

Purchase: 215k

HELOC: 150k (downpayment and reno over 6months)

Revenue: ~50k per year

Profit: 20-25k

What would you do?

Thanks!

[Dave Stokley]

Well right off the top I can tell you that I wouldn't have made an offer on a property that I hadn't already analyzed and decided I actually wanted to buy. Personally I think that's not cool. But hey that's just me.

As for your actual question, no, I would not buy a $330k property that grosses $50k because there are much better deals than that. Furthermore, I dislike long rehabs because that's a bunch of carrying costs plus time I could be on market piling up $ and reviews (but without an ARV it's hard to evaluate that argument).