rehab not flipping - buy and hold worth the cost of fixing??

[Daria B.]

Hello and thanks in advance for reading/commenting,

I posted this here because of the 'rehab' question. I would not look to flip this property since I am looking to add to  my b/h portfolio.

Please see end of post for property info.

On any other clear day I would look past this property. I try to find properties that are already 90% for move in. Lately I've been beaten to the door – just when I found one there was already a contract offer but the listing agent didn't update the MLS so my agent didn't know. K

Anyway, I’ve been through two “remodels” of a kitchen and 2-baths, not yet gotten into a “rehab”, which is what this property looks like.

Definitely needs a roof, hvac and water heater, most would say nix on the windows and just leave them in place along with the floor. The kitchen I couldn’t find any quantifiable reason to keep, and believe me when I say I look to keep everything unless absolutely necessary to replace.

I came up with a “very rough” estimate of $25k for material and am stumped for labor. I asked one GC I’ve never worked with before about looking at the property and he wants $125. I have a GC that has done work in the past for me on 2 other properties and yet another GC that did work on one property. I plan on asking one of the GCs that I’ve had do work for me to look at the property.

My question comes in the form of wondering, as a buy and hold investor, when there seems to be substantial work, where should the line be drawn on the rehab costs?

Is this a good buy for a buy and hold although there is substantial work, and I look at roof, kitchen and hvac as substantial enough?

Do buy and hold investors even go this route considering the ROI will be years relative to the rehab costs? It would be a first for me.

If this were a property that didn’t need all this work, it would rent well, though the PP wouldn’t be $60k it would be around 125-134k from what I’ve seen of sales and comps.

I realize that I don’t know anything of labor costs until I get an ‘estimate’ from the GC but the materials I have priced to the extent of roof, hvac, painting, flooring (if it needs or would be pulled up and new put back down), dry wall patching (minor), garage door, interior doors, 2-exterior doors, kitchen cabinets/counter tops, appliances. And because I’ve had these items done in the past on other properties, I’m confident of my materials numbers and what I see in the store.

The cash flow is for a livable property in this area.

Bedrooms: 4
Bathrooms: 2
Year Built: 1962
Square Footage: 1,733

** Purchase **
Purchase Price: $ 60,000 (owner asking 129k already dropped from 134k)
Purchase Costs: $ 1,200 (closing 2% of PP)
Rehab Costs: $ 40,000 (very rough estimate, material est was 25k, labor ???)

** Cash Flow (Monthly) **
Rent: $ 1,300
Vacancy: 8% (-$ 104)

OI: $1196
Expenses: -$ 561 (all in for taxes-$2100, ins-$1000, PM-12%, r$m $780, capX $780, license $204)
Net Operating Income: $ 635

PI: $243 (based on 60k purchase) 

Cash Flow: $392 (this is based on 60K)

looking to do costs out of pocket strong maybe on rolling into a construction loan (called by many names). if rehab costs are financed it would be $149$ cash flow relative to all other monthly expenses

** Returns **
Cap Rate: 12.7%
Rent to Price: 2.2%
Gross Rent Multiplier: 3.8
COC: 8.8%

** Notes **
Looks to have foundation issues back wall of garage. Section of concrete block appears to have been removed and put back.

Back - closed porch (off kitchen) roof leak.

**Needs**

HVAC
Water heater
Roof
Windows (17 unless the old ones remain until they just have to be replaced)
Garage door
Kitchen (can’t find anything salvageable)
Baths (possible clean-up of shower and bath tile, maybe replace sink and counter and toilet)
Interior/exterior doors (needs all)
Paint (interior, exterior looks good)
Flooring (tiled over terrazzo, some terrazzo exposed. Might due well to fix in some areas)
Appliances (need all refrig, stove)