First Real Estate Deal

[Kyle Jansma]

I have the opportunity to buy a single family residence for cash.  The seller bought it for rehab and after gutting and finishing the framing changes/repairs(current state of the house), ran out of cash and needs to sell asap.  Waiting on inspection report that I should get back very soon. I am excited because it is down to the studs and I anticipate no surprises because everything is visible. My dad as well as my father in law are both contractors who can guide me through repairs as needed although I have many summers of experience through high school and college.

House: 3 Bedroom 3 Bath   1596 sq. ft.     Local Rents: $750-$1100 

List Price: $23k 

Estimated Renovations: $30-50k  Have commercial line of credit lined up for repairs @ 6% interest only for 6 mo.

Local Comps: $95,000-$110,000

Bank stated I could do a refinance for 70% of ARV with no seasoning period if I were to keep the property.

I will be doing a majority of the rehab myself and hiring out trades such as HVAC, plumbing and electric.  

Should I pay myself for my labor or rather keep the 'sweat equity'? Does it depend on which exit strategy I use?

Would one recommend use this as a Fix and Flip or use BRRRR strategy as this is my first property purchase(other than my primary residence).

My wife and I are very new to R.E. investing and do not have a lot of people in our lives that are knowledgable about analyzing deals like this.  ANY HELP ON THIS WOULD BE APPRECIATED!!

[Neal Bratton]

Kyle, sounds like your well prepared to jump in and get the rehab done. If you are new to the site they have two calculators. One for BRRR and one for flips. I would definitely plug the numbers in to one or both of those and just make sure you like what you see and don't have any cost jump in that you didn't think of.

As far as paying yourself, I wouldn't make it too complicated. I'm guessing the renovation estimates account for professionals taking care of the work. If can get those lower by doing some of the work, by all means put some more in your pockets. But if you did refi back out and hold, you would be better off because you wouldn't be paying taxes on all the profit. Then if you did decide to sell after a year you would pay less in long term capital gains. 

Those rents are a pretty wide range and you would have to know what you could get for your property specific, but $1,100 on a $100,000 house isn't bad. You shouldn't have any trouble cash flowing on that with a $70,000 mortgage @30 yrs.

Hope it helps a little. I would definitely pull the trigger, if nothing else just for the experience.

Neal