Turning a flip into a rental

[Anita Ahuja]

Hi BP members! Happy holidays to you all.

I’d like some advice on a flip I financed in central Phoenix . Basically I’m 127k into the finished flip. The labor partner ( guys who did the flip) are in about 10k, the rest is a hard money loan for about 130k. The labor partners own the home.

Unfortunately, the house has been sitting on the market for 60+ days now and with holding costs being around 1800 a month, we need to do something w the house.

I am considering buying the home from the labor partners. This would basically have me own the home outright and be able to put tenants in it ASAP.

The house is currently asking 310,000. After doing the math w the BP software, I basically need to buy the house at 285,000 to be able to break even, recover my money and carry the loan. This is expecting 1900 rent and accounting for pool fees, maintenance, 5% vacancy, 8% management ( I live out of state), property taxes , closing costs and a 6.5% 30 y loan after putting 25% down.

My questions are

- am I hurting myself in the long run by buying the house for less? Am I bringing down the value of the house?

- what can I offer the ground (labor) partners given that they will have lost a lot of time on the fix?

- any other red flags with this?

The partners are a stellar group of individuals who have integrity.

Thanks in advance!

Anita

[Bob Okenwa]

@Anita Ahuja

I know this property well. I had a showing at this property about two weeks ago. My clients' feedback was they thought the home was very nice and liked the garage/workshop, but they were not too keen on the area. The proximity to McDowell Rd. was their biggest concern since that is kind of a boundary where home values drop and crime increases. For that area, you may have to drop the price. When we were there, the clients' were put off by the condition of the neighboring homes as well. I know there's nothing you can do about the neighbors, but some of them had unkempt yards and shopping carts in their yards.

There is an equally nice home (smaller and without a pool, but has a larger lot) at 3324 E HOLLY St that is listed for 265k. The best comp in that immediate area is probably 3445 E GRANADA RD which sold for 291k. It's a little larger and has a larger lot, but isn't as nice as your interior but is lower in price.

3212 E Granada Rd. sold for 258k and is smaller with a slightly smaller lot, but sold in 2 months. It too is rehabbed. I think you are overpriced for the area and may need to look at a list price of 275k-290k to move the property. Granted, these comps don't have pools or garages, but the fact that your listing has been on the market for 5 months and has only had a 6k price reduction shows that your list price may still be too high for that immediate area. 

Your realtor should be getting feedback from showings to gauge buyer interest and feedback to help guide you on what steps to take next. This is simply my professional opinion based on first hand knowledge of the area and buyer feedback. Please take my opinion with a grain of salt as I could be wrong on this, but just wanted to give you my thoughts.