First Investment Property in Northern Virginia

[Phil K.]

Hi All,

I'm looking to buy my first investment property and came across an off market yesterday. It's a distressed property in Northern Virginia (older condo) and I'd like advice on whether or not it's a solid candidate for a BRRRR or Fix and Flip. Here are the numbers:

Market Value: 210K

Purchase Price: 140K

Rehab Estimate: 25K

Cash Invested (Down Payment + Closing Costs): 38K (65K if I cover the rehab)

Gross Rent: $1650

NOI: $300-600

Estimated Cash Return: 19.17%

Here are my questions:

1. 1. Do these numbers make sense from either a BRRRR or Fix and Flip perspective? (I need an ARV estimate).
2. 2. It’s an older condo, which makes me nervous as a new investor, (home inspection is a given). Beyond looking at the condo association’s fees, cash reserves and assessment history, what else do I need to dig into before pulling the trigger? Based on the local market, I know these deals are few and far between so if I don’t jump, other investors will.
3. 3. Seller’s motivation. I need to dig into this. Does getting a deal for 70K below market value with 25K rehab seem too good to be true? (Note: I got the lead through a friend who I trust).
4. 4. I'm planning on buying my first house hack in about 6 mo. How would this purchase affect my ability to get an FHA loan? (I was advised I could always get a REFI on the rental if I need to free up money for the house hack).
5. 5. Is this a good enough deal to buy now even with the uncertainty of future market conditions (deferments, CARES Act, etc?) To quote Ken McElroy, I don't want to catch a falling knife.

I'm inclined to see if I can get a loan to cover the rehab so less of my cash is tied up. I plan on doing my own property management/tenant screening to eliminate that cost. I was also advised we might be able to get the rehab done for 20K (contractors are already vetted through someone I trust and do enough volume with to get a discount). Overall, it appears to be a good cash flowing property for a BRRRR, while also having potential for a Fix and Flip. Appreciate any thoughts or insights more seasoned investors might have.

[Leo Watts]

I would make sure you’re really getting a correct market value. Meaning a different building, different unit layout, more than a few months ago, could all be skewing the calculation of the real market value.

I would also make sure you have an accurate rehab estimate. Have you walked the property with a contractor? Unless you have a signed contract with a scope of work, and even then, the estimate may be coming in low, a common strategy to get a client, underestimating the rehab (oh its labor only, doesn’t include this or that, demo and hauling not included, and or he’s not licensed which can be a problem on a quick flip.)

I suggest really thinking through for the worst case scenario, that the condo doesn’t appraise for what you expect, the rehab is higher than you budgeted, you may struggle to find a tenant (days on market for condo rentals is high right now, lots of price drops).

As a buy and hold, you really need to look at the HOA and how that affects your cash flow and return on investment. Then see if the money you are tying up would be better spent on your house hack.

Also I would talk to a lender and see if you can carry two mortgages based on your DTI.

The uncertainty of the economy etc adds another wrinkle to it all, and everyone has a different outlook. I predict we will see some softening in the next year, but how much and how rapidly is impossible to predict.