Help deciding whether this is a good deal?

Question

Hi guys,

I am fairly new to RE investing so I still have lots of fears and doubts before I decide to pull the trigger.

The following is a property I found in Jacksonville FL that I am researching as a potential deal for a buy and flip. Either fix it up and sell it to a final buyer or just wholesale, whatever makes more sense. I spoke with the listing agent and my findings are below as well.

http://www.zillow.com/homedetails/11240-Garden-Blv...

- It has been for over 60 days in the market

- Bank lowered the price just yesterday

- Comps from Zillow (similar sold houses) are all above 80K

- Area does not seem great, that's why I'm mostly looking at selling it, not holding to it.

Findings from listing agent:

- It needs AC/heat unit

- No idea of when the roof was replaced but it does not have signs of leaks

- It might need some work inside, seems to have been a day-care before. Not major rehab needed though

- Sales for similar homes in the area go from 20's to 60's

- Rentals possible between 650-750 (she wasn't sure though)

Say I get an offer accepted at 30K or so, plus 5K to replace the AC and do the required work.

Am I looking at something here or is it a reach? I must say I'm located in Miami but I'm willing to travel if I need to for a visual inspection after getting an offer accepted, if I get to present it.

Thank you for your help in advance!

Robert G. · Answer

It is publicly listed, at an affordable price, for over 60 days.  I'd start by asking myself WHY hasn't anyone bought it?

If you can answer that question, and the answer pertains to the property (for instance, the missing AC), then you've got a nice possible deal.  You acquire, fix the issue thereby adding value, properly market, and sell for top dollar (relatively).

But, if your answer is an external factor beyond possible repair (general area, the manufactured/trailer homes a block away, the major highway with retail/industrial vibe a block in the other direction, etc.), then you're probably better off moving on to the next one.  No point rehabbing and trying to sell something that was undesirable for other reasons.

I'm not local to Jacksonville, but I studied it a bit, and that is not one of the areas I'd be looking to invest in.  And, as I mentioned above, even the placement within the geography of the area leaves something to be desired.

Worth investigating, but I wouldn't get my hopes up.

In general, if you're looking at publicly listed properties that have been on the market for 60+ days, you need to find something that needs EXTENSIVE rehab.  If it's a gut job, you'll know why it has been sitting and why you can pick it up cheap.  Properties that need minimal repair (say, under 10k) tend to sell quickly if publicly listed at a bargain price.

Robert G. · Answer

More thoughts:

- The home was built in 1938.  There are many investors that can handle homes of this age/vintage, but I don't recommend it for the inexperienced.  I'd try to find something 1975 or newer, personally.

- The original house was 680 square feet.  This home has FOUR separate additions and an enclosed porch.  I'd pass on that alone.  Chances of those additions being well-done (and not negatively impacting the roofing, plumbing, or electrical systems) is slim to none.  Its likely this house has just grown over the years, getting a room added every 15 or 20 years as ownership changed hands.  I'd expect to find a hodgepodge of materials and techniques, and this is something I wouldnt even consider handling given your rehab budget and expected profit margin.  No thanks.

Sarah Ziehr · Answer

You need a local broker who knows the area well and can pull comps for you on price and rents and give you their perspective.

I am not from the area, but just from looking at google maps/street view I think you may have a hard time finding tenants who will want to live there.

Lastly, this is a homepath property and they don't care for investors- so you may not have any luck getting your offer accepted.

Allende Hernandez · Answer

@Nikia Johnson yes, there is a link in the Zillow page to the county records that shows it.

Nikia Johnson · Answer

Hi Robert how were you able to pin down there had been additions to the property? Was thisfrom county records? Handy information to have.

Allende Hernandez · Answer

In the first place, thank you all very much for have taken the time to look at this for me.

@Robert G. That was the very first question I asked myself when I looked at all the numbers "why if it looks as a great deal, its been sitting there for so long". I asked the listing agent and she mentioned the fact that the property seems to have been a daycare and that there is a room that needed to be redone. She didn't really have an explanation for it.

I also agree that is not the area where I would have like to have a tenant in but I was wondering that if I can get it cheap enough, it might be worth my time. Thoughts?

@Jacob Sampson Yes, I got my comps from Zillow, not looking at the zestimate, but at actual sales. I know it is not the most accurate way to do it but it is the one I have at my hand. The listing agent actually mentioned that those type of houses move between 20K to 60K in that area.

If I end up putting a contract and it is accepted, I would definitely go take a look myself and have some good inspections done within my contingency time. With what I know from what the realtor told me and what I can see from the pics, I would say that the house needs around 5K in repairs, lets say 10K. My ARV if I buy it in 30K would be 40K. That is 80% of the sales price if I target for 50K.

I can always make an offer for less and see what happens to feel even more comfortable with the deal.....thoughts?

Nikia Johnson · Answer

Well you can take it with a grain of salt but at the end of the day it is just a data source. I am an investor here in Jacksonville and I like to also look at the assessed value of the home from the city as well. I have provided a link below to the property. My experience in the past is that the assessed value would run a little low recently I have saw them go a little high because of the need to generate tax revenue. I actually had my value modified a couple years back because it wa significantly higher than the private appraisal I had from a refi.

Good luck!

http://apps.coj.net/pao_propertySearch/Basic/Detail.aspx?RE=0198970000

Jacob Sampson · Answer

It appears as though, correct me if I'm wrong, you are basing the ARV off of Zillow comps?  I'm not a fan of that.  I would recommend more/better research into that area's valuations.

If this is your first deal then if it still looks good to you after you double the remodel cost and drop the ARV by 25% then there is probably a large enough margin to make this a decent first attempt.  I would still recommend, at a minimum, having a realtor provide you comps.

Also, do you have reliable buyers ready to pull the trigger once you rehab it?

Remember, you want deals wherein, if all goes well you do great.  If a couple things go wrong then you make less money than expected.  If there are major issues you can exit break even.  Only a total catastrophe should lose you money.

Help deciding whether this is a good deal?

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