I recently closed on a home in Central Phoenix and have analyzed it for a number of different strategies. My goal was to get in at a price where I have options and make sure there was upside in both a buy or hold option. I think I've done a decent job at walking in with equity with additional upside after renovations. Now the question is which strategy to pursue? Here's a bit more about the house and the numbers under each strategy.
The House:
The house is a 3 bedroom, 2 bathroom brick bungalow with 1,312 square feet. It also has a 2-car detached garage that could be converted to a guest house at some point, though that is not part of any of the immediate renovation plans. It is located in the Willo Historic District, which is a very popular area and has always had higher property values. It is walking distance to hospitals, retail, dining, offices and public transportation making it a desirable location for residents or visitors.
Purchase Price: $410,000
Estimated Renovation Costs: $40,000
Renovation Items: All new kitchen, electrical repairs, moving laundry to main house, exterior paint and landscaping, interior paint and light fixtures.
Flip:
When I got the house under contract, I was not intending to flip it. However, based on recent sales in the last month in the area, my realtor thinks it could be a great flip candidate. A very similar renovated comp just went under contract for $550k (a 2 bed/2 bath, same square footage). For a flip, the optimistic numbers could look like...
| Purchase Price | $410,000.00 |
| Down Payment | $41,000.00 |
| Mortgage | $369,000.00 |
| Renovation Cost | $40,000.00 |
| ARV | $550,000.00 |
| Sale Costs | $38,500.00 |
| Sale Earnings | $511,500.00 |
| Earned Equity | $61,500.00 |
| Total Equity | $142,500.00 |
| Total Cash In | $81,000.00 |
Rent:
This was really my fallback strategy for the house if it didn't do well as vacation rental. My monthly carrying costs for mortgage, taxes and insurance is just about $2,000 a month. An almost identical home to this (but renovated) rented for $2,800 a month in April of this year. So I'm estimating a rental rate of $2,500-$2,800. Once you factor in property management and reserves, I expect to break even or cashflow slightly depending on what it rents for.
Airbnb:
This was going to be my primary strategy before flipping was on the table. I'm expecting to spend an additional $25,000 to fully furnish the home for Airbnb. Based on the neighborhood and Phoenix Airbnb stats overall, I expect the house to rent for $150-$200 a night conservatively ($250 a night optimistically), with an average occupancy rate of 68% over the year (bringing in $3,000-$4,000 a month). Of course, there are additional costs with this strategy such as cleaning and management, but those are also offset by the cleaning fees.
So, now I'm faced with a decision... which strategy do I pursue? Curious to hear from anyone who has experience with any of the strategies above and can share any thoughts on things I should consider. This is one of my first deals, so I'm trying to keep options open for the sake of learning or a pivot if needed. Appreciate any considerations or advice you have!
