Some questions in a foreclosure... rehab

[Jason Sterling]

All,

with a quick background, I am new to REI. I promised myself that I would purchase my first investment property in 2017, and have really started to sharpen the axe if you will. With that being said, I really wanted an affordable entry real estate, and was looking at possible rentals in the areas near me that offered a decent price, with a keen eye towards a multi family unit.

With that being said, a foreclosure popped up (multi family) and is set to go to auction in a few days.  I went yesterday to see the property, and brought my uncle who was very handy to see if he noticed things I did not.  Essentially I believe this property could be had for cheap, and I firmly believe there is usually more value in something ugly, as most are turned off to the opportunity bc it could be too much work.   I have looked at comps in the area.. and rents as well in the likely event I want to rent this out.  The rents seem attractive but I can't get a firm handle on the value - #1 it needs work, and #2 the comps are other multi families that have different qualities.  

Does anyone have any recommendations on how to proceed? Work needs to be done, for example the kitchens are small, but I am not sure how to gauge the cost in replacement.  Realtor informed me we can make an offer to the bank prior to auction, which if bank accepts can remove from the auction and secure you the property. But I am not sure how to affirm I am valuing the property correctly, and the replacement cost of some things that need to be fixed, repaired, or just spruced up.  I want to learn, and going right into it is the best way.  I feel overwhelmed, but also excited at this opportunity.   Maybe overwhelmed is a bad thing, but I don't want to pass up an opportunity that could make a heck of a lot of financial success. Any thoughts or insights would be greatly appreciated..  also to add, I have the access to liquidity for the purchase and repairs.

Thanks in advance,

Jason 

[Ed Matson]

I have found that determining ARV for small MF's (2/3 units) in Fairfield and New Haven Counties in CT varies from community to community. For more desirable towns with good school systems, they market values them similarly to SF's. . They might be great primary residences with an income stream to the owner, but I find they generally don't cash flow well. So, as an investor, I generally stay away as they are overpriced. For other communities where rental stock is more abundant, a 3 family can often be found where the numbers make sense. Less so for duplexes. As a buy and hold investor, I want to be reasonably confident that I will get a good return on my investment, so to me that's how I judge ARV. Recently that has meant that gross rents for a building needing little or no work be about 1.2% of the buying price. If the building needs work, I deduct the repair amount from the ARV. This is just a quick and dirty to see if running the property through the BP buy/hold rental property makes sense. For me, its all about cash flow, so that's the only method that has meaning to me.