Flip or BRRRR - Foreclosure Property

[Daniel Sweet]

I recently purchased a bank owned foreclosure, sight unseen, from an online auction and things got interesting from there.

This property is around the corner from a duplex I own, and the numbers work great for either a BRRRR or flip. My going in strategy was to BRRRR the property for the equity play and subsequent cash flow.

It’s a pretty unique property: 3/4 acre lot with a 3 beds, 2 bath, 2000 sq ft single family house, a 48’ x 56’ five car garage, and a 15’ x 30’ ‘pool house’, which is essentially a converted garage and has heat and electric installed. I initially intended on converting the pool house to a 1BR apt., but I’m not sure if that still makes sense.

During the closing process I learned that the property was still occupied by the previous owner that was foreclosed on and that her and her boyfriend were drug addicts and at least one of them had a warrant out for their arrest. I started an eviction process once I closed, and that took about two months to complete. I got into the house last week and it was disgusting. We filled a 50 yard dumpster over the course of a few days and finally got the house emptied out.

Overall, the property is in good shape but needs a new bathroom, kitchen, floors, and cosmetic repairs throughout. The five car garage needs a new roof.

Property Numbers:

Purchase price and closing costs: $59k

Holding costs (assumes 6mo.): $4k

Main property Rehab (if BRRRR): $18-$22k

Main property Rehab (if flip): $25-$30k

Garage roof: $6k

Pool house to apartment: $15k

ARV: $135 - $140k

Income potential:

Single family: $1350 /mo

Garage space: $200-$600 /mo

1BR apt: $600 /mo

If I flip the property, I wouldn't convert the pool house and if I BRRRR the property, my plan would be to convert the pool house after I've had the main house rented and processed the refi. If I BRRRR, I could also wait to rehab the garage until after the refi and eventually rent out the space.

If I flip the property, I'd likely net about $30k (30% ROI), and I'd try to do a 1031 exchange into a multi family.

If I BRRRR the property, the cash flow won't be great if only the main house is rented, but it could be really good after I achieve full rent potential by converting the pool house and rehabbing the garage. I mentioned that this was my original strategy, but now I'm questioning that because of the history with the previous owners and the sketchy people that used to hang around the house and may try to come back. Part of me wants to flip the house and move on without any excess ‘baggage'.

Looking for some input from the Bigger Pockets community on how to proceed. Appreciate any advice.