Hi my name is Steve, I will be attending the three day seminar in Wilmington on the 16th,17th, and 18th. I am going to settlement in two weeks on two properties located in pa. One I will purchase for $26000 the other for $5000. Both homes are in need of repair. I estimate the $26000 property will require approximately $12000 to bring it up to date and in comparable condition to the homes selling for $80,000 to $90000 on that street. This will bring my total investment to $38,000. This estimate is based on me doing all the work ( I’ve been a general contractor for approx. 24 years).
Now I know this sounds great and I should make a killing on the property if I sell it. The only problem is that single family homes sells very slow in the area and appreciation is very low. So To hold or not to hold that is the question.
my question is should I hold the property, refinance and rent the property out for $475.00 month (that is the going rate for the area) and try to generate cash flow or dump and run. Ultimately I would like to hold properties for cash flow but right now I need the capital in this property to continue buying and rehabbing other properties such as my little $5,000 gem in the rough.
If any one on here has any insight on how to best approach this I would be most grateful
Thanks
Steve :
Selling quickly doesn’t take rocket science. Price the property 1-5% below the market rate and you will sell before any others. If you buy a property with the plan to flip it, you should know this up front BEFORE you purchase. Then factor in a selling price that is 5% below market into your numbers for the deal. If the profit is still acceptable to you then do the deal.
Thanks for the reply carlittle,
I’ve figgured on having to sell for 5-10% below market value in my exit strategy already. I guess my worry is the time it will take to sell in the area I’m investing. The end game for me in this is to have propertys that are producing positive cash flow for me every month. Would it be wise for me to hold the property and pull the equity out to use to fix up and rent out other propertys to rent.
EX.
SELL
Perchase price $26,000.00
Repairs $12,000.00
ARMV $80,000.00
Profit $42.000.00
-10% quick sale $4,200.00
-6% reltor fee $4,800.00
-Setelment fees $1000.00
= $36,000
Im perchasing the property and doing all the repair with a line of credit @ 6.25% ARM. If I hold the property and refinance it for a fixed rate of 6.5% how much equity do you think I could safley pull out of the property and still sell it down the road with out fear of taking a loss.
EX:
HOLD
Rent $475.00 month
Ins. $33.00 month
tax $42.00month
5% loss rent $24.00 month
Loan for $55,000 $347.00 month
$29.00 posotive cash flow
$55,000 loan
-$38,000 investment
= $17,000 to reinvest and my line of credit back to a zero balence to work on the next property.
Dose this stradegy hold water???
Thanks for your time
Howdy Steve:
If you want to be a long term holder and can get great rates like you are then buy fix and rent and refinance. Pull out just enough to where they are cash flowing a little and then do another and so on. Take out enough to be worth while but not so much that you have a big negative. Sounds like you are in an area where you can do this 100’s of times. I see investors here often saying they can not get their $400K house to cash flow. I started off exactly like you are doing. My first rental was $37,500 owner finance with $500 down plus my painting and cleaning up the place. It rented for $500 and my mortgage was $350.
Steve,
After checking out your numbers be sure to take into account a few more costs:
holding costs (loan payments, temp water, power, gas, etc…)
Closing costs (you can get these from a local title company)
Oh Sh*t costs( there is always an unknown, some big some small)
You are defiantely on the right track!! And you only learn by experience. It looks like you have more than enough proifit built in that you will be fine even if you way underestimate repairs. But since you said you were a GC for 24 years, I don’t see that happening.
Just my $.02.
Good luck and let us know how it goes!!
Thanks for the great feed back guys I relay appreciate your insight.
steve