Flip, Rent, or BRRRR?

[Joshua Martin]

Hey Gang,

  So with this one I'm basically wondering what you'd do as I'd like to have an exit strategy plotted out before moving on it, and I see several options all with early implications. I plan to send an offer off tomorrow for my girlfriend (she'll be the O/O for a year) at asking price, so we have a good shot and according to listing agent I'm the only one that's seen the property yet.

  Details:

SFR

Asking price: 34,9k

ARV: Conservatively 110k, but depending on type of rehab I think you could push 120k or even list at 125k. (I want my numbers to work at 110k, but there's plenty of margin).

B to B- neighborhood. A mixture of O/O and young adult rentals.

I think it could rent for at least 1,000, but I plan to follow up with some other owners tomorrow to see how well their properties rent at 12 or 13. (I saw old posts on craigslist at these prices).

So, the rehab. If I wanted to make a decent rental property of it I'm looking at 12,5-17,5k. A higher end flip probably around 30k - 35k. These are somewhat ball park, but I'm not normally way off. Going through with a contractor buddy tomorrow to get a better idea.

With respect to possible exits, here's a rental breakdown by month:

GSI: 1,000

Tax: 341

Utility: 75

Vac (@ 8.3%): 83

Maint: 100

Manage: 100

Insurance: 50

NOI: $251 p/m

Debt: 35k @ 4.5% @ 30 yr = 177

Cash Flow p/m = $74 p/m

Needless to say, this is fairly unimpressive. And my research tomorrow with respect to possible rent of $1200 p/m could make a massive difference here.

These numbers don't even mention the rehab cash will also be borrowed at 3%... 

On the other hand, the flip looks quite impressive. All in, w/ holding costs, at let's say for the moment 85k and a sale price of 115k. I guess I'll have to run numbers on cap. gains and additional closing costs, but still.

So, apologies, this is a bit rambling, and I know it's a deal if I get it under contract, but I've been brainstorming all day about what the heck to do with it. My general plan is buy and hold, but an impressive margin on a flip looks appealing.

Other takeaway is that taxes in Milwaukee can kill your cash flow...

Also, BRRRR looks doubtful given unimpressive W2 income and unverifiable income elsewhere. So for the moment, that'll have to hold off, though I love the strategy.

A big part of the question though is about the rehab. Obviously if I want to push the higher comps I'd do something like refinish the bath and put in hard wood floors on the main level. If it's going to be a rental, clean up the bath and maybe floating floors. Several thousands difference between the two...

I guess any input is helpful. Hopefully by tomorrow night I can review some comments and also update with what I learn about SFRs in this neighborhood tomorrow.

Thanks in advance,

Best,

  JTM