Abilene Buy and Hold or Flip?

Question

I have a 3 bed 2 bath under contract in Abilene and the current debate is buy and hold or flip.Here are the deal details:

Purchase: 64,900

Repairs: 16,811

Holding Costs during Repair: 2,500

ARV: 110,000 - conservative numbers as comps from realtor showed support for 120,000

Property Taxes - 2,090 a year and home insurance is roughly 750 a year

Estimated Rent: 1,050 per month

Financing: 80% of purchase price at 5%, 20% down, repairs come out of my pocket and HELOC at 6% if needed

So what do you think? Would I get the best return on my money renting or flipping? I don't have plans to purchase another property soon so would be fine with leaving the equity in the house if that was the better route.

Any feedback is appreciated!

David Light · Answer

Hey Greg, we live in Houston but my wife's family is in Abilene so we're there pretty regularly and have liked the houses we see there. Her dad is handy and does a lot of the repair and her mom collects rent for us. We currently have one on Sugarberry that is renting for 1295 a month and recently found this one at 587 scotland. I didn't really want to be in the flip business. I like buy and hold better so was planning to do that with this one. Given we're farther we also have wanted to get in newer houses that don't need as many repairs after the initial rehab.

I may have to rethink this if you're getting 500 a month on an 18k house....

Greg H. · Answer

Are you in the Abilene area or Houston area ?  I have done a few flips in the outlying areas around Abilene and some rentals as well.  On the rental side ,  most of mine have been no more than $18,000 and renting from $500-700 per month.  Your margins on a flip would be to narrow for me especially if you are not local.  Let me know if I can help

David Light · Answer

I should also say looking at the rental comps they are not updated and renting for those prices.

David Light · Answer

Thanks for the feedback. There's no way the seller is going down in price. Already tried....should I lower my rehab budget or walk away? The above Rehab numbers included updating this place to be pretty darn nice (new interior doors door handles, floors in the whole house, remodel to the kitchet, etc) and wondering if I should just keep it more basic to get it rented and fix things more over time as I want?

Aaron Montague · Answer

It plays as a decent Buy and Hold at $150/month cash flow and 9% ROI. (expenses below, 55k purchase)

As a flip it looks dangerous.

I'd be looking to be into the place for 55k either way.  With a 55k purchase price and decent luck with your renovation, you'll probably make money.  At 65k purchase, it doesn't look awesome.  Write up an offer that says you'll pay the seller 10k when you flip it contingent on it selling for 123k or more.  Put some of the risk on someone else.

Bill Jacobsen · Answer

Using a 50% expense ratio I get a 7.5% cap if renting and your cost of money is 5.2%.    I prefer a 3 percentage point difference but this is not too bad.  It would take a couple of months to get any cash flow.

The numbers do not work for me as a buy and flip.  Even if I thought I could get $120,000 for it I would need to buy at several thousand less.

Good Luck

Bill

David Light · Answer

good point. repairs listed above are for renting. to flip it would be more like 19,500

Josh R. · Answer

Is your repair estimate based on rehab/retail or rehab/rent?

Typically you wouldn't do the same type (price) of rehab for both.