Duplex Rehab First Investment

[Andres Castaneda]

Hi everybody!

Back again with another potential first investment purchase! My last condo purchase fell through due to family matters within the estate. 

Here are the details:

Property is a 2 family in Lowell within 3/4 of a mile of campus. Both units are occupied, tenants are paying $1200/month per 2 bedroom unit

I went to UMASS Lowell and am very familiar with the area.

Financials:

Purchase price+ closing costs :183k

Rehab Budget: I estimated 40k, contractors said to give buffer to 75k in case major issues arise

Resale: 320k

183k+75k rehab= 258k total into the property

320k-258k= 62k potential profit

62k profit- commissions, tax stamps, closing costs I'm looking at ball park 50k walk out all said and done.

Here are my thoughts. This will be my first ever home purchase and investment purchase. The fact that they are currently rented means that all major ticket items are in working order, IE heating, plumbing, electric. The home is ugly and will need flooring, kitchen, baths, windows. Vynil siding is already there which is great and roof is in good condition. Window framing will need to be addressed as some have rotted but I see those as minor. Foundation looks sturdy as well. I requested one unit vacant so I could live in the other and do the rehab myself then repeat with the adjacant unit. I have read on many forums that as a first time investor it is good to be hands on with your project so you can grow an appreciation for what you are paying for. Aside from that, I want to do it myself, I want to be hands on while also being cost effective.

My main question to you all here would be, what should I do? If the numbers make sense should I rehab, flip and sell? Given the location of this property I feel like it may be a better long term hold as a rental. Umass campus is expanding and the exchange students pay well for rentals. I am thinking after rehab I could rent both for $1500 fairly quickly. I am 23 and having a home of my own for ~500(after tenants rent) a month is a thought I am seriously considering.

My third and final option would be a cash out refinance(which makes the most sense to me given I want to hold the property and rent it while also using the equity to build a portfolio) and use the cash out to purchase another investment while holding the property as a rental generator.

Please critique me and let me know what I am missing and how I should approach this!

Thank you!

[Nicolas Lam]

Hi Andres,

Firstly, do the numbers make sense as as rental (positive cash flow net expenses, debt servicing, vacancies, capital expenditures)?  If not, sounds like you have the numbers planning for a flip.

Secondly, if so this would work as a cash flow positive rental, I would look at the market cycle to determine what to do. During a Buyer's market I would do a BRRRR (Buy, Rehab, Rent, Refinance, Repeat), unless the market is almost at the top, then would consider just a flip. From your description of the neighborhood, it sounds like there's a consistent market for rentals which would incline me towards a BRRRR.

Thirdly, what do you know about the neighborhood and comps for other student rentals? 

Be Happy Now & Happy Holidays!

Nick