The Money Mustache Community
Learning, Sharing, and Teaching => Real Estate and Landlording => Topic started by: Le Barbu on April 09, 2015, 11:02:59 AM
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I intend to buy a SFH downtown for 202,500$
It's a 4-bedroom 1-1/2-bathroom on 2 floor built circa 1950
We intend to clean, repaint, remodel the kitchen and update plumbing for +/-5,000$
We think that in this area, 3 bedroom is plenty enough and because the actual main bathroom is tinny outdated, it's a no-brainer to expand it over room #4. This would be 10,000$
I put asside 2,500$ for miscelaneous and safety margin
Buying fees (appraisal, inspection, notary, transfer taxes etc) for a total of 5,000$
Grand total spent 225,000$
Cashdown 20% 45,000$
Expected rent 1,300$/month
Expected monthly expenses including taxes, inssurances, maintenance and mortgage 1,235$
Net cashflow is about 65$/month but capital repayment is 460$/month @ 2.20% variable rate with amortization of 25 years
Do you think it's to much assle for few bucks or it could be a good long term investment?
My exit would be to flip and run away with 10,000$ over 6 month...
I hope you can help!
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Quite a bit under the 1% rule, likely cash flow negative (and that's with a super low variable interest rate, very bad news if/when that adjusts up), and with a very small equity spread, not worth flipping, because if something big comes up you lose money. Pass.
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+1 Quick way to lose a lot of money.
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Agreed.
Risk = high.
Reward = low.
Not only that, your rehab budget is is either VERY LOW or it's priced for DIY; are you paying yourself a labor rate or working for free?
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Not sure why I need to pile on, but this is a terrible property assuming your goal is to make money.
-W
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Good to know what you think, it's the goal of my post. Cashflow is low but I was betting on rehab value and long term appreciation. It's a very good spot but seem to be more like speculation then
Yes, renovation budget is DIY
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You seem to be confusing rentals with flips.
If you are investing $45k plus $5k rehab (plus carrying costs, taxes and utilities) for a flip profit of $10,000, you will be working for min. wage most likely.
If you are buying for a rental, look at the cash flow. 1% is a rule of thumb to make the property a "maybe". The real rule is how much return do you want on your $50k plus fix ups?
Most investors I know won't take less than 10%.
Also, your post seems to imply renting it out for 6 months, then flipping.
I would never put the $$ into a flip then rent it out for 6 months.....you might have to rehab all over again.
Either flip. Or rent. Or rent it out long term (5-10 years), rehab again and then flip. But not 6 months.
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That's a good point Bruce. I skipped over that, as the numbers are bad both for a rental and for a flip, so it's a clear pass, but you should be planning one or the other. Having alternate exit strategies is good, of course (i.e. "I'm planning to flip, but if the market goes south, I can rent it out because the numbers are good for both" or "If the market shoots way up and I suddenly need the money I can flip it instead of renting it out, because the numbers are good for both"--obviously not the case here), but you should have a primary goal in mind that you execute 99% of the time.
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Thank you everyone, numbers were bad, I skipped on this one.
Project was to big, cashflow was to thin for the risk and hassle...
Cheers!