Should we flip it ourselves or sell for cash?

Question

My dad owns a home in Pittsburgh that is too big for just him and needs a lot of work (roof, water heater, HVAC). He has spoken with a local investor that wants to purchase the property from him for 100k. My dad owes about 30k on it so he would walk away with about 70k and not have to deal with the stress and hassle of hiring contractors to fix the place up himself.

The homes on the street have been selling for 225k - 245k. The exact home next door just sold for 225k all fixed up (without central air)

I'm trying to convince my dad to fix up the property himself with the help of my uncle and with about 20k that I could invest.

The house needs at least 50-70k to get it retail ready and probably 30-40k to get it rental ready.

Ideally my dad would keep it as a rental property. However he does not have the extra money to cover any additional repairs. Would it make sense for him to take out a HELOC on the home to cover the rest of the renovations and then use the BRRRR strategy (minus the B) to pay off the HELOC, pay me back and use as a down payment on another property?

Or should my dad, my uncle and I work out a partnership to just flip the property and sell it retail. We are having a tough time figuring out the terms of this one though. My dad brings the house and money from the HELOC, my uncle does the work and I bring 20k - not sure how we go about splitting the profits?

Sorry for the long post but any advice would be great - even if it is just to sell it the investor for a 70k profit.

Thanks!

Anthony Angotti · Answer

Flip and sell and then invest the profits in a higher cash flow type building.

If you only stand to make 70-90k on it as a flip then it makes sense to sell to the investor, however keep in mind if they are offering you that much then there's still a good bit of meat on the bone for them, meaning there is basically a whole steak for you most likely

Alex Deacon · Answer

@Brendan August as an investor you are always weighing your options. A lot of your decisions will depend on the current market conditions and your current financial status. Ask yourself these questions. Do I need income now to fund my future investments? If you need NOW money then sell now. It may be flipping it or just selling as is and taking that equity and putting it to work on another project. Nobody can answer these questions but you. In most cases the long term strategy will produce a better return but thats not always the case.

Brendan August · Answer

Sorry for the delayed response and thanks everybody for their input on this. I will absolutely share all this information with my dad. I think the best route for him at this point is to take the offer of 100k for the house because it does sound like a really good deal and then he could use that as a down payment on a duplex somewhere if he really does want to start getting into rental properties. I vaguely remember reading somewhere that there aren't many duplexes in Pittsburgh, but I could be wrong about that.

Either way all of this information was extremely helpful and I appreciate the time you all took to post it. I will make sure to keep you all in the loop on this and if the offer falls through I would love to take y'all up on the offers to take a look at the place.

Thanks again!

Chris Policicchio · Answer

Hey @Brendan August!  Just to throw one more opinion at you...I think it really comes down to what your dad wants to do.  If he's never owned a rental property and he's never wanted to, it might not be fair to ask him to do it now.  However, it he's been intrigued by the idea of owning a rental, then now might be the time.  Flipping the property could certainly be challenging, too, but potentially really worth it.  I like @David Lee Hall, III's post.  If your dad can live there while it's rehabbed (fully or partially), that might be your ticket.  But you need to be very sure about your rehab budget, comps in the area and estimated timeline.  Family partnerships always scare me.  If this is everyone's first real estate investment, IMO, this has the potential to get really sticky.  Also, like @David Lee Hall, III, if you need a second (or third) opinion on estimates or need some contacts for roof, hvac, etc., feel free to reach out.  Good luck!  Let us know what you decide!

David Lee Hall, III · Answer

@Brendan August

That is a loaded set of questions for sure! Personally I hate selling stuff (why would I want to sell an asset?!?!) but there are a number of questions you need to ask yourself:

• How accurate are your rehab cost estimates? What are the odds you end up spending 100k?
• Do you know the contractors you can trust to run the job and not cost retail prices? (Or have you ever acted as your own GC)
• Can your father live there during construction?
• Do you want to manage tenants yourself? Have you talked to a property manager to determine ease of renting the area and what you can expect in income? If you are paying $800/mo between HELOC and 1st lien but only getting $900/mo rent - that doesn't leave much to split 3 ways, save for CapEx, OpEx, pay PMs, Insurance, etc.
• Have you talked to a realtor (or 2) to determine if there is any functional obsolescence with your property that may prevent you from getting $225k with a rehab or how long it may take to close? If you spend all of your HELOC and are carrying payments but sales time is 90-180 days in the area, plus the 3-6 months on rehab, you will have thousands in holding costs - can you stomach that?

Overall, if the ARV is $225 and there is $70K of work I wouldn't even consider offering more than $75k on it and would more likely be closer to $60k to allow for overruns/lower sales point, so your other offer is a fair one. If you would like a second opinion you can always feel free to reach out and I could swing by sometime.

Eugene Yu · Answer

It depends on whether your father truly has the stomach to carry out the rehab and then deal with tenants. It can be stressful and much more time consuming than you think.

There is much more work to rehabbing a house. Much much easier said than done.  Finding contractors that are reliable and affordable in Pittsburgh is particularly hard. Dealing with tenants and finding good tenants are also difficult. One bad tenant can be hell.

How much headache does he want to go through with? If you would like, I can come look at the property if it's not too far from the city. I can also throw out a cash offer.

If I were you, try to shop the house around a little and get the best price then weigh your option!

Message me if you would like another offer.

Should we flip it ourselves or sell for cash?

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