Help on deal analysis

[Adam Spencer]

Hey, guys hope everyone is having a good day. I need some help on an off-market deal I got from a bandit sign.

The home is question is about 1mi from EMU in Ypsilanti, MI

The home is a 6bd 2.5ba at about 2000sqft.

Gross rents are $500 per room so $3000.

Overall the home is in good condition and just needs a few grand of work.

The guy bought the home and did a lot of work in '12. It was rehabbed then and the basement was also redone and he added 2 legal bedrooms down there.

So the issues I'm having is how the heck do I comp this type of property? I am looking to wholesale it so would a potential landlord want to rent it out per room? The other issues I can see is the fact that he has just a verbal month to month lease. No background checks or anything.

With a bit of work getting the people leased up and such this thing could cashflow really well! Just need some input.

Thanks, BP peeps

[Joe Villeneuve]

Originally posted by @Adam Spencer:

@Joshua B. Yeah I know it is really crazy how varied the prices are around there.  Do you invest in Ypsi? I was thinking the same thing as far as comps go. It seems like it would be based more on the income that its producing.  

@Joe Villeneuve The asking price was at $190k. I talked him down to $173K and I think the comps support an ARV at about $200k or a little above. The reason he is selling is to cash out so he can purchase a house where he lives now in Farmington Hills. Joe, you have a good point about the basement bedrooms being legal. He says all the work was done by professional GCs and all the permits where pulled. Could I just call the city and find this out?

Google says the home is .7 Miles from EMU.  You are right that I will make a big difference in student rentals.  He currently has all young professionals so I think it just varies in that area.  I live on Ainsworth and have not had many issues renting out my spare rooms.  

Thanks for all the input guys its good to hear other point of views

 I have property north of you and south of EMU.

Now, for the bad news.  I'm looking t the number and I see a negative cash flow as the deal stands.  With a little creativity that could change though.

First, based on a daily rental base, you are looking at a higher vacancy rate than a monthly rental, so the idea that has no vacancies, is a mirage.

2nd, I would have the seller do the rehab and provide a CoO before he hands it over to you.  Your cost to buy would go up, but it would be less out of pocket and there would be noe surprises in cost from the rehab.  This would also validate those "basement bedrooms".

3rd, you need a partner to provide the cash up front.  Then you need to get control of the property using an alternative strategy to a direct buy.  There are a number of them that could work, depending on the numbers and what the required financial exit goals are of the seller.