My DH and I recently purchased an REO Duplex for a only four thousand bucks. Yes, it needs work - a lot, but it was too good a deal to pass up. The bank wanted to dump it off the books in the worst way, and we found it right when the price dropped to next to nothing.
The property is located in a good area of PA; the town is still doing pretty well in spite of the economy, and businesses are holding steady there, too. The least expensive home in the area is approx. $50 thousand and it goes up from there.
Typically my husband and I hold our properties long term, but I was thinking that we could possibly flip this one - even in such a slow market - and still make some decent money. There aren’t many homes on the market in this area.
We could definitely rent it out and make positive cash flow. But seeing as though we spent so little on it, I thought it could be a good flip; we would price it right and make it a win-win for everyone.
Can I get your thoughts? Any advice is appreciated!!! Thanks in advance! :biggrin
Everyone I know who’s flipping 4-plex’s, buys them really cheap, fixes them up, and rents them before they offer them for sale. Unless you have someone in mind already, most investors who buy turn-key properties want to see the cash flow first.
Once you have the place going, you could then decide whether to sell or not. One consideration would be whether you have a good use for the money now. It sounds like you could make a nice return on your investment by holding the property long term.
Thank you both for the replies. It is definitely a tough one for me.
If I were to rent it out, I could most likely get at least $400 a side. Taxes and insurance are both approx. $600 each. Let’s say then - inclduing taxes, insurance, and one month vacancy on each side, is $7600 per year.
If we were to fix it up and sell, I think I could price it at about $70-75,000 being very conservative. That should move the property quickly. I just don’t know if I have the guts to take the chance to flip it right now, and I would hate to get it fixed like brand new and then move in tenants who may or may not care about that.
No, a tough one is owing $150k on an $80k condo, and dropping, and I know several that do. You’re sitting in the catbird seat.
As a property owner, you already know the answer about whether tenants will care about your property. You can mitigate this risk with good screening and property management. Cash flow talks.
You’ve used terms like “I could most likely get…,” and “I think I could price it at.…” I don’t get the sense you are certain about what the market will bear and where it’s headed – with real numbers. Perhaps I’m wrong.
I would talk to a few good realtors knowledgeable about the area and investment property. I’d get an honest idea from them about value as-is, fixed up, and fixed up and cash flowing with tenants. Are property values increasing or decreasing? How fast? You might also talk to a property manager to determine market rents and their direction (up, down, steady) as well as vacancy rates. Investors at a local real estate club can also be helpful (and could even become a customer).
You might also talk to an accountant. Depending upon how fast prices are dropping in your area, and your marginal tax bracket, it might make sense to hold for at least a year to take advantage of our low capital gains rate.
Even though they weren’t desperate, if someone offered me an obviously distressed property requiring a lot of work, I’d expect a deep discount for the work ahead. I don’t know why you think it takes guts to flip, or why you’re in a quandary, but with real numbers in hand your decision will be easier.
Thanks again for your comments. I use terms like “I think” and “I could most likely” because I do not want to appear to be cocky. I am new here, and I really want to get as much advice as I possibly can. I do indeed “know” what I can get… I check rent rates every week.
I have been lucky with the two tenants that we have in our two other properties. They are lovely women, and they have been great to work with these past few years. They pay their rent religiously, and we throw in some extras for them every year.
I am going to contact some realtors again today. I tried to contact a few - left several messages- and no calls back. Go figure!
In my personal experience, those closest to me are not very responsive when it comes to REI. They are either too fearful of the “what if’s” or they are just plain old not interested/think I am crazy. It is a bummer, and their lack of support makes me question my judgement… sometimes.
I know… boo-hoo me, right? Is this common?
Thanks, Equity. I am taking your advice and making some calls today (again )
I’d start rehabbing and stick a big for sale sign in the front yard. If you sell before its done you’ll probably make 3 or 4 times the amount of money or your labor cost than you put iin. The sign is also good advertising for buying more property with a little blurb that say we buy houses.
Good luck,
donrock
We found out that the house sold for $46,500 in 2007. I spoke with a realtor about comps, etc. and she could not believe we snatched this property at $4000. LOL! I am so excited!
I put an ad on Craigslist listing the property at $29,900 - AS IS, and I have had three e-mails already wanting the address. I would be thrilled to just flip it back!
If not, we are going to put about 10-15 into it and put it up for sale at a sweet price. We’ll let it sit on the market for a couple of months, and if we don’t get any takers, we’ll rent it out- hold it for a year - and hopefully cash in at the lesser capital gains rate.
I am fired up!!! Thanks everyone! You’re awesome! :biggrin
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