Author Topic: Purchase & repair neighboring run-down house?  (Read 388 times)

topshot

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Purchase & repair neighboring run-down house?
« on: October 11, 2017, 02:51:22 PM »
We live in a simple house in a lower end area of town. The neighbor on one side has let his house go down the tubes and would need LOTS of work to repair. We've wanted the lot for years just so we didn't have to look at his house anymore. He asked if we wanted to buy it a month ago but I had no interest knowing that I'd also need to pay to have it torn down, utilities disconnected, etc. and I'd rather the city do that at some point and then I just buy the lot. The neighbor on our other side did just that with the lot on his other side.

Anyway, now I'm wondering if maybe I should fix it up to rent. I have the skills to do that for the most part (gutted and rebuilt our house). We expect to stay here at least another 10 years if not forever. I'm 50 now and we have no debt but not a large stash yet either (maybe 200K in retirement funds).

So I guess the question is a what point should I consider this feasible from a financial standpoint? I could rent for at least $500 (w/o utilities). So for the 1% rule that means I shouldn't spend more than 20K total in buying it and getting it ready, which I think is doable. This would all be done in cash unless there was a reason I should not pay for everything outright.

Blindsquirrel

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Re: Purchase & repair neighboring run-down house?
« Reply #1 on: October 11, 2017, 07:10:15 PM »
  If you can get it at a great price, seems like a good plan. You can control who your neighbor is and ask them to leave if they are jerks. Would run the numbers carefully though. Good luck!
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SwordGuy

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Re: Purchase & repair neighboring run-down house?
« Reply #2 on: October 11, 2017, 08:07:23 PM »
The 1% "rule" isn't a rule.  It's a guideline.   Don't assume that you can make money following the 1% "rule". 

You have to price out the exact property.

$20,000 to purchase and renovate.
$500 per month rent.

What % of the time will it be vacant?  3%  6%   10%?   You won't collect rents then.
What can you hire out property management for?  Even if you plan on doing it yourself you need to budget for it.   Stuff happens.

Property tax?
Any utilities you have to pay for?  Yard work during vacancies?   
Amount to set aside for repairs?   Stuff is wearing out every day, you just don't have the bill yet.
Insurance?

What are the rules for evicting a tenant?   Quick and cheap, or excruciatingly slow and expensive.  In some jurisdictions it's cheaper to pay the deadbeats to leave than it is to evict them!



Dicey

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Re: Purchase & repair neighboring run-down house?
« Reply #3 on: October 11, 2017, 11:03:28 PM »
I'd look at buying it as a personal property, not a rental. Fix it up, move in and make your current home the rental. Sell the first one in two years, pocket the first profit tax free (up to $250k for single, $500k if married). Wait another two or so years, then sell the second one, pocket more tax-free money, then FIRE. Or lather, rinse, repeat until you have enough to FIRE.
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topshot

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Re: Purchase & repair neighboring run-down house?
« Reply #4 on: October 12, 2017, 07:19:10 AM »
I'd assume at least 10% vacant. Prop tax is under our's. Gas, elec, water and sewer. I've been mowing the yard the past 10 years already. I'd have to see how much more ins would be for a rental. Our's is <$600. I know friends that have rentals so I could ask them about eviction rules. I would most likely only advertise to students of my alma mater so vacancy other than summer perhaps and eviction shouldn't be an issue.
I'd look at buying it as a personal property, not a rental. Fix it up, move in and make your current home the rental. Sell the first one in two years, pocket the first profit tax free (up to $250k for single, $500k if married). Wait another two or so years, then sell the second one, pocket more tax-free money, then FIRE. Or lather, rinse, repeat until you have enough to FIRE.
I could likely rent our's for much more since I made it nicer than the neighborhood (won't get out of it what I put in), but I would have no intention of putting that much effort into this one or moving into it since it's 2/1 instead of 4/2 (similar footprint but we have a usable second story). I'm also adverse to moving (did too much as a youth) - we've been in this house 22 years.


Cwadda

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Re: Purchase & repair neighboring run-down house?
« Reply #5 on: October 12, 2017, 07:41:40 AM »
Looking through some of your other forum posts, it sounds like you're definitely capable of the work yourself.

It all comes down to the numbers.  Run them a few times and in different scenarios. Use the attached spreadsheet, it might be useful.