First Real Estate Investment: Which Route should I take?

Question

Hey Guys,

I’m 25 years old and new to the Real Estate game and was just offered a great way to dive right into a great potential first investment. My grandma is living in a retirement community based condominium, and wanted to leave me a unique ‘inheritance’ persay by selling her home to me for 100k. My fiancé and I have been living rent free in the property (just paying utilities and property tax) for the past year.

The house is appraised for just under 170k, but my fiancé and I determined that it needs about 25k in repairs for a new oven, new flooring for the kitchen and living room, a new tub and toilet, and a dishwasher. It’s a 3 bedroom, 1 bath 1,100 square feet ranch style home that was built in the early 60’s. It’s a solid starter home that is equipped with Central Air, as well as a new roof that was just put on about four years ago and about 3/4’s of an acre of backyard along with two sheds for storage.

My fiancé and I have a household income of just over 120k a year, and I have just under 65k in cash in the bank. As experienced investors, if you were in a 25 year old’s shoes in this situation, would you:

A. Buy it for 100k, make zero repairs, and try to sell it for 130k and turn a very small profit?

B. Rent it out to a tenant until the mortgage is paid off, and then resell it for maybe 180k? (Accounting for appreciation)

C. Live in it for a few years, pay off the mortgage myself, while simultaneously making repairs and resell for about 190k after 4 years (assuming the housing market doesn’t plummet)

D. None of the above (I am open to suggestions!)

FYI: I live in Northern Lancaster County, PA and am about an hour from philly as the turnpike runs about two miles from the house. Also I’m currently reading “The Book On Rental Property Investing” by Brandon Turner so I am beginning to understand the benefits as well as the risks of renting out a single family home. Thanks in advance for your feedback! 😊

Karl McGarvey · Answer

@Brandon Walker

One thing you didn’t talk about is your end goal with all of this. Take your end goal and work backwards with strategy from there. If this is going to be your only property then thats one thing, but if you have a longterm goal with joining the REI community you should think about that and identify it along with your “why” and then work backwards. Different strategies work for different people because they have different goals, so on this post a lot of people will give you different strategies based on their goals and what works for getting to their goals.

Good luck!

Account Closed · Answer

@Brandon Walker what would you get for rent if you rented it out?

Josh Sullivan · Answer

HI Brandon! Here's what my partners and I would do with this property if it was ours at age 25:

• 1. Buy it for 100K with minimum down and live there while fixing whats necessary to get the property to rental market value 
• 2. Once its fixed up, Refinance and take out as much money as you can to still make money on the condo. Take that money (and any additional that you have) and purchase a 4 plex or a duplex and live in one of the units.
• 
• If you purchase the multi family asset and live in it for 3-5 years you will leave yourself with a property that you can leverage to either continue investing in multi family or to help build wealth for retirement with a cash flowing property.
• 
• I hope that helps a little.
• 
•

Gregg Shulenberger · Answer

@Brandon Walker - if you live in it for two years, while doing repairs, you can choose to sell and take profit without paying capital gains taxes. If you keep it at that point, rent it out or stay and leverage the equity through a line of credit. Also, with that size yard and depending on access to the property, is there opportunity to construct some garages on the back of the property and rent those out separately?

Crystal Musser · Answer

@Brandon Walker  You could buy property for 100k and live in it while doing the necessary repairs.  It sounds like you would have instant equity. You could then capture that equity by pulling out a line of credit and buy an investment property with it.

Karl McGarvey · Answer

@Brandon Walker short term leads to things like flips and BRRRR... if the market and numbers work. But keep in mind, people get burned in the apt game too!

Brendan Markle · Answer

Personally, in your shoes I would get it for 100k, do the repairs immediately, sell it for 170 and get a multi family home.  I'm not sure how your grandma would feel about living in it, but you can get a way better investment property for the amount of money you would have on deck after that.  You didn't really mention what your long term goal is so I don't know what to recommend for you though.

Brandon Walker · Answer

@Karl McGarvey that’s a really good point. While I don’t have a definite end goal I’m leaning more towards purchasing and renting out apartment complexes with around 25-50 units. I’ve seen people first hand get burned renting out single family homes when someone moves out. So I guess my goal would be just turning the biggest profit possible in the short term so I can use those profits as a down payment towards financing an apartment complex.

Brandon Walker · Answer

@Jenny Sayavong assuming that the tenant pays for all utilities I’d say about $1,100/month

First Real Estate Investment: Which Route should I take?

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