Is This A Deal? - Rehab for Buy and Hold Property

[Account Closed]

Hi BP Community,

I'm evaluating a buy and hold duplex (3/1, 1/1.5) to house hack with moderate rehab necessary to drive up rents to market value and stay competitive with more modern rentals in the Philly area. My requirements are $100/unit in positive cash flow and to hit the 1% rule. I've done so but...

We originally planned on ~$35k, but received an inspection report that requires an additional ~$13k in structural, electrical, and other work. My girlfriend and I plan to live in the first unit (1/1.5) and rehab the second unit (3/1) first to rent out. We will be funding the deal with an FHA loan (3.5% down), and all rehab costs out of pocket.

My question lies in the calculation of rental income when running numbers in the BP Rental calculator...

Should I input the rehab costs and anticipated post rehab rental income when searching for my "homerun" offer? Or should I use comparable rental income for the duplex in its present pre-rehab state?

Here are the numbers I'm working with:

Asking Price: 270k

Est. Rehab: 48k

Offer: ???

Any and all feeback is much appreciated!

Thank you,

Jesse

[Account Closed]

Thanks, John. For situations like these where a house requires minor rehab to rent, but a more thorough rehab to boost rental income, I'm starting to run the numbers both ways. That way I can cover my bases and insure that the house will still cash flow in both cases.

As an update, for this particular property the house would do well if a low offer (~210k) is accepted. But I'm not willing to risk the large amount of capital that would be required to rehab this property for my first deal, since it would only generate a 6% CoC ROI. On to the next one!

Jesse