Deal #1: 2 bedroom house with 2 stall garage that doesn’t need any repairs.
I’ve been talking to the seller and he said his final offer was $32,500. Rent is $500/month.
Principal and Interest amortized for 15 years is $265.55
Taxes: $68
Ins. approx $40
Total PITI: $373.55
Probably not much of a deal here if I hold it as a rental.
I could sell on contract for $47K (get 3-5K down) and get more cash flow since contract buyer would be responsible for taxes, insurance and maintenance.
Deal #2 One bedroom home needs no work. Same seller said $17,200 was final offer. Rent is $325/month
PITI Total: $207
Again probably not much of a deal here as a rental.
Could sell on contract for 25K (get 3K down).
It sounds like you already know the answer to your question. Get it under contract and flip it. Make it happen and let us know how where you went for your celebratory vacation.
Property No. 1 has negative cash flow using the 50% rule and a 15 year amortization. If you remove 5% for utilities (assuming tenant pays) and lower repairs to 5% (or $300 per year), you are only looking at $26 per month in your pocket. Unless you can flip it for more or $500 is not market rent, I would look elsewhere.
Property No. 2 has much more potential. Assuming no mortgage and 50% towards expenses, vacancy and capital reserves will leave you a $163 per month profit. A typical investors target is $100 per/per unit.
It’s just not in the ballpark of being even remotely interesting.
To buy and hold instead of flipping such a property is just tying up and wasting your resources, which will cause you to miss a great deal waiting for you around the corner. There’s no money in holding it. Can you take a vacation on your best case scenario, which is $26 a month? You can’t quit your day job on that kind of money, can you?
A much better strategy if you want to buy and hold is to flip these small properties and continue to do so several more times and use the proceeds to buy a multi-unit to buy and hold so you have economies of scale and you can make enough to quit your day job.
How does $100-$200 a door x 24 apartments in one building sound? It’s even more when you can deduct from taxes most of your expenses as business expenses. It would also save you a lot of time as apartment buildings are built to a much more durable standard and you aren’t wasting your time driving back and forth from house to house fixing things. Could you quit your day job with that kind of money and be your own boss and have more time to make more money focusing on other deals? Saving up for an apartment building with your proceeds is a much better goal, isn’t it?
Back to those original houses, is the lot wide enough that you can build another house on this property or sever off a section and sell it? Is it on a busy street that you can rezone it as a commercial property? If you can see another way to make a lot more money on it, sure keep it. But, if what you’ve shown is your best case scenario, flip it.
At a purchase price of $17,000, getting a convention mortgage is not an option. To be sold to the secondary mortgage market, the minimum must be $50,000. Of course you could get a personal loan or find a lender that will keep it in house or take a big chance and put it on a zero interest rate credit card. But, if you factor in any loan payments, your profitability will be drastically affected.
My bank will give me a loan for 17K with 10% down and 5.5% interest for 15 years. This is a small local bank that keeps their loans in house. The last loan I did with this bank was for a house I bought for 10K – they lent me 15K (5k for repairs) and I left closing with a check for over 4K – and with no money out of pocket! It might help that I play golf with my banker and I buy him cigars. I have 9 loans with this bank for most of the investment properties we own.
Sweeeeet deal. Keep the golf and the cigars coming because that strategy is working for you. Just make sure that these cheap deals can still cash flow at around $100 per door after all expenses including any mortgage costs.