Good candidate for a quick house flip and rent?
My contractors are all pretty good, so they don’t need me watching over them all day. When I’m not flipping houses, I’m usually looking for the next flip or rental to add to the portfolio. Well, actually I should say when I’m not physically at any of the properties… Of the houses I saw today, this property looks like a decent deal. The asking price was $69,900 and has been reduced to $53,900 in just under a month! The details are as follows:
- Legally zoned for Two Units
- Each unit currently rented for $650/month
- Separate entrances
- Separate meters for Gas and Electric
- Both renters are subsidized by the city
- They are both 2 year tenants
- Needs new roof
- Rat problem
- Possible termite problem
- Needs new flooring
- Needs new deck
- Needs new bathroom fixtures (both units)
- Needs new kitchen sink and fixtures (both units)
- Walls need to be cleaned and painted
From the looks of it, most of the work can be done without the need to move the tenants. The bathroom, kitchen and plumbing will be an inconvenience for them however. Both tenants would like to remain, provided the upgrades are made. Of course, from a landlord’s perspective, that also means a rent increase. I can probably get the work done for 30k, which means I can use a rehab loan with no money down. One advantage is that I will receive rent payments while I’m rehabbing the house.
The comps in the area look to be in the 69 - 120k range. The After Repair Value (ARV) should be close to 100k for a home with new upgrades. Basing my formula on 100k ARV and 30k for improvements, my purchase price cannot exceed 45k. This is also taking closing costs into consideration. The mortgage would be at an 80 percent Loan To Value (LTV) once the work is completed. This would allow me to convert to a conventional mortgage fairly easily. Also at 80k my mortgage payments should not exceed $750/month including taxes, insurance, etc.
In the end I would be clearing close to $550/month on a two unit. This scenario isn’t even taking rent increases into consideration. If I decide to move in this one, I will offer 35k and see if I get a bite. If I get a counter offer, then we are in business.
