Is Buying for Equity, but low cash flow a good idea?

[Justin C Huggins]

So I have found a duplex , which is bank owned, which will cash flow very strong with a little rehab. I am definitely going after the duplex. The bank also has 2 houses right next this duplex, which all have same rustic style, built same year.  Both houses need a little rehab work, but mainly cosmetic.  They could easily appraise for quite a bit more, which could give me roughly 30K per house I can put to other rental properties.  Unfortunately, this is somewhat a rural area and I do not believe I could get much more than $600 a month rent.  So after the refi, I would only net around $100 a month on each and this is before maintenance, vacancy rate, etc.  Would it be a good idea to even go after these homes, or would they be more trouble than they are worth after the refinance?   Any suggestions on this, I am fairly new investor.  

[Troy Zimmerman]

$100 isn't much if you haven't yet included maintenance and vacancy rate.  Just make sure you have reserves if something goes bad!

[Tim Porsche]

Unless you have good reason to expect a lot of appreciation over the new few years, I'd stay far away from those two houses. After you factor in capex, maintenance\repairs, and vacancy, you're likely going to be cash flow negative every month. 

[Mike Dymski]

Buy and hold the duplex and flip the two houses.  Make sure your ARVs are accurate.

[Justin C Huggins]

Thanks everyone! So looks like I should probably stay away from the houses unless I feel pretty confident I can turn around and sell the homes.  Not sure I have enough reserve to take the risk at this time.  I will probably just stick to the duplex for now.  

[Jeff Petsche]

@Justin C Huggins I'm on the same page as @Tim Porsche with regards to passing on the two houses. If you have not factored in R&M/Vacancy/CAPEX and are at $100/month cash flow, these properties are negative cash flow.

I don't know enough about your market for wholesaling or flipping, so I won't comment on if that is a good strategy or not. However, on the surface with only a $30K spread from acquisition and ARV, that's not much to work with if anything goes wrong with REHAB or buyer demand drops. Just my opinion.

My rule of thumb (like many) for flipping is 70% of ARV minus REHAB cost. Example: If ARV is $100K, but I need to put in $15K to get the property to that number, I'd be offering $55K on that property ($100,000 X .7=$70,000-$15,000=$55,000).

It really depends on what your end game is, which sounds like buy/hold. If that's the case, wholesale and flipping is off the table and I'd pass on the two houses.

Are you willing to share the numbers on the duplex?

[Justin C Huggins]

The Duplex is currently renting 1 unit for $500.  The other is vacant.  The duplex mainly just needs the siding cleaned and stained.  I plan to remove worn carpet with vinyl for the vacant unit. It is listed for 64K and pretty sure I can get at 60k, maybe lower.