Rehab Costs on a 10k house

[Joshua Hollandsworth]

I see more and more investors buying 10k SFR's in low-income areas. They put 5k-7k into rehabbing the house, and renting it to Section 8 for a nice, consistent ROI. I personally know 3 people who do this. They actually never even step foot on the properties they are purchasing, and they are all doing very, very well. A friend of mine let me see the numbers on one of his deals. Here it is. $5000 purchase. $7500 getting the home Sec 8 ready. Gross rent is $800. Property taxes are $100/Mo. Insurance is $60/Mo. Water+Sewer is $80/Mo. Vacancy/Repairs/CapEx $200. Rental Registration $3/Mo. Lawn, trash, snow, are not paid for. Taxes include Trash removal. PM is $75/Mo. Expenses- $518/mo. Cash Flow- $282/Mo. No mortgage, really not losing anything during turnover periods, and I think that CapEx is more than conservative. 3br 1 bath. 1200 sqft. Also I would like to add that he does NOT rehab the houses himself. He has bought and rented 2 houses per month, for the past year. Curious on what your opinions are, and why you do or don't like this strategy.

[Linda S.]

@Joshua Hollandsworth,

This is exactly what my mentor does, and he makes insane amounts of money!  I think that model works A+++ if you have A LOT of units, because there will be some bad apples, so I think he had 100 houses, 1 eviction isn't a big deal, but if you are starting with say 5 houses, 1 could hurt, so I think scale is the most important factor with that business model.

   We do a modified version,  normally buy $15K,  and  instead of $7K in rehab costs, we will do $15K, and make the houses look nice and updated.     Our houses look gorgeous, and we never have a problem renting them out.   You just have to define your business plan, and make it work for you!