Investment or Gamble?

Question

Good Morning BP.  First off, a little house keeping.  I would like to thank all investors big/small, experienced/novice/newbie and any other term you would like to attach to it, thank you for being part of this community and making it a wealth of knowledge for everyone involved! What a great place for REI's!  OK got that out of the way, now business at hand.

I have a dilemma, I have found a great investment opportunity or so it would seem.  It meets the eye test, distressed, it can be purchased at a huge discount, ( I will disclose the numbers below) all of the numbers make sense and begs me to just do it!  However, here is the dilemma, it is in a small town close to where my farming area is located but this community doesn't really support a strong sales or rental history.  There really isn't a lot in this community to support investing in it.  Even though the property has huge upside (cheap with a good ARV).  So it would seem this is a no brainier right?

Supposedly, there is a company coming in that will bring employment opportunity to the area that might support taking a chance (gamble) on this property.  However, this is speculation at this point.  But I been spending weeks of due diligence on go no go for this company and it sounds like the company is making headway.  Unfortunately, the business coming in will actually be located out of town about 25 miles away.  The community that the business is locating in is even worse off than the above town as there is nothing there to support rental/sales of RE.

As promised the numbers :  The home 2 bed 1 bath 850 sqft.  Huge yard. Complete gut job!

I think I can get it for $20,000 to $27,000 (either # appears to still make for a good ARV)

I plan on putting in at least $30,000 (I have more I can allocate if I run into unforeseen problems) into the property ( both purchase and rehab will be with cash no financing)

I believe that after what I envision for the property, after rehab ( possibly adding another bath) and comps, it can bring conservatively $75,000, I think more but think I will stay conservative.

I personally feel that the numbers make sense to pull the trigger and generally feel RE is a good investment no matter what.  But when a community doesn't support sales/rental of RE it is a waste of investment, time and money to sit on a property hoping something changes.  If I was to do it, I might sit on the prpoerty for awhile to see if the business comes to town but hate to tie up $20kish with no end game.

So I ask you BP to invest or not to invest? Gamble or Investment?

Thanks again and thanks in advance for any and all feedback.  Happy Investing BP members!

John Leavelle · Answer

@Tony Wooldridge

Here my 2 cents.

My primary market area is San Antonio, Tx.  However, I also live and invest in a small town (p. 1200) and in a little bit bigger town (p.20,000).  The only reason I will invest in the smaller communities is they are growing and have a high demand for rental properties.  Otherwise I would stick to S.A.

In your situation I would not gamble $50K on a maybe.  I would keep looking for a good market and a great deal.  Your deal is only great if the housing demand is assured.  And as @Kevin Siedlecki mentioned there is not very much of a margin for a flip.

Hope that helps.  :)

Tony Wooldridge · Answer

@Kevin Siedlecki.  Appreciate your input.  I would have to agree with you that it is a gamble.  Little did I know after talking to another long time investor in this area, the rental market believe it or not is quite good.  That I suppose is why one should take extra time to really figure out their market (farming areas).  I actually believe after giving more thought and reworking the numbers time and time again the ARV has the potential of reaching that 90-100 only based off of what I feel like I can do to the property.  Thanks again for the input always appreciated!  Good luck to you and your future ventures!

@Danny F. I would have to agree with you there.  I know that my current farming area is primed and ready for me to drop money into now and I will reap the rewards.  But as I am sure as you well know when you think you see an apparent deal no matter where it is located you get that instant impulse that you can make it work.  However, no matter how much I think it can work I will more than likely put my money to work where I know it will give me a ROI.  As you so eloquently I could always come back and invest if the company truly commits in the future.  Thanks again for your input and wish you nothing but luck and success in your future ventures!

@John Leavelle.  Yeah, I know just like our colleagues above have pointed out as you have as well it is probably a gamble.  Similarly the town with the deal has a population of approximately 2,500 people. My farming area has an approximate population of 33,000 people.  Like I mentioned above little did I know before talking with the other long time investor in this area the rental side does quite well (who knew?) I guess it pays to do your due diligence huh! I guess I will wait until I have those assurances from the moving in of the company.  Thanks for your addition to the forum I sincerely appreciate your 2 cents and wish you all the luck and success in the future!

@Rick Pozos.  I didn't even think about the wholesaling aspect of this.  I guess that is a way.  Even though I tried and failed miserably at wholesaling 3 years ago (I might add the failing miserably was only due to my not being completely committed to it at the time) .  However, you do make a good point of possible carrying the contract and making the interest and saving the money on the $ I would have put into the rehab.  Great insight thanks for taking the time to indulge into the conversation. Good luck to you Rick in your future ventures!

Thanks again everyone for you input.  Just a brief update.  I spent the better part of the day on the phone talking with community folks close to the topic of the company coming in and it sounds like they are making some serious head way and it is looking more and more like this might happen.  To be continued.  Happy investing to you all!

Rick Pozos · Answer

If you think it is a deal at 27k, try to get it under contract for 20k and wholesale it for 25k or just clean it up a little and owner finance it for 35k to someone who wants to live there. Let them do all the rehab. There would be no hassle, no worries on your part. While you are getting payments at 9.9%interest for the next 20 years you can keep farming your target area.

Danny F. · Answer

It does sound good, however, you could with resources now select a property that would already provide you with positive cash flow and assurances rather than wait for what could happen.  That would be a sure bet & gamble for you.  If the company makes more of a committed decision to enter the community, you would have already developed an income investment generator that could help you invest in this community with better favorable odds.

Kevin Siedlecki · Answer

@Tony Wooldridge. It looks like a gamble to me. Is your plan to sell it at the ARV? There's actually not a lot of room in the numbers for a flip if 30k is the minimum you're putting in. After closing costs and holding costs, especially if you're not sure the population is big enough to support the sale, you're really not going to be able to make much money off it. If population grows a lot and you can push the ARV up to 100k, then you've got a deal. But that's why it's a gamble.

Tony Wooldridge · Answer

Sorry all it was morning when I started the forum but between phone calls and word smithing didn't post until afternoon, so good afternoon BP!

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