A Cute Little House... But There's More!

Last week I had the pleasure of being contacted by a wholesaler on Bigger Pockets who had a house for sale. The house intrigued me because the seller and my initial searches on Google Maps and the MLS indicated a small pocket of a nicer older neighborhood in an area that I hadn't considered investing in, close to Gettysburg and Free Pike in the Northern West Side of Dayton. I figured I should take a look. 

The asking price was fairly low, 36k, so I figured I had a chance to be able to finance something like that, even though sometimes it's harder to get lower amounts of money than higher amounts.  I plugged the numbers into my spreadsheet and they came back modest but stable, with positive monthly cash flow of $200. Not bad for a starting investment, I told myself. The only problem was the rehab budget. The seller indicated that it would likely be in the neighborhood of 20k to do the rehab. I decided to take a closer look, hoping that the estimate was off by quite a bit.

I went to the home to take a look with my mentor, and as we looked around I saw a lot of good points. I think the home has potential. Solid brick construction, open floor plan, attached garage, newer roof still in good shape. I liked the neighborhood, quiet looking street with what appear to be mostly occupied houses. But as I started adding up the costs, including rehab of one and a half bathrooms that had been torn out but not put back in, replacing plumbing where someone had stolen the copper, and replacing cabinets and maybe even appliances in the Kitchen, as well as flooring and painting needed throughout the home, it became clear that the estimate of needed repairs was not far off like I had hoped. With possible foundation leaks and mold remediation in the basement, I was spooked. 

As I walked away I looked at my mentor and said, "I don't think this house is worth 50K, and I'm sure I couldn't get a bank to loan me 50k for this house in this condition. And equally doubtful the seller would come down to 10k".

As we drove off, I noticed a very similar house on the same road had a FSBO sign in the yard. I called the number and the guy on the other end said he was selling it for 35K, it was currently rented but the tenants had given notice and were to be out by Apr 1st, and the home would likely only need minor turnover repairs to get it rent ready.

When I got back to the office, I sat down and tweaked my numbers from the other house a bit and I just don't see that one working out either. The margins are too slim. Maybe I'm wrong, maybe I'm expecting too much, but I feel like I should be getting a higher return on my time and my money than that.