what to do ?? (newbie)

My sister is selling her home soon. It is an older home in a nice area but it is in need for cosmetic updates (walls, carpet, flooring, kitchen &bath) in the interior. She plans to sell as is. The home is probably worth $220 as is. But, with the cosmetic updates, it could possibly be $240+ because of the highly desirable location.

I am considering approaching her to buy her home. If I can get proper financing, I want to do either:

  1. Purchase the home outright thru normal closing, remodel(hopefully with limited expenses) and then resell it a few months later.

  2. Purchase the home and rent it for 1-2 years then resell it. The value would increase at least 5-10% each year.

Can you explain in detail the best approach, if at all and why ? I am leaning towards #1 but need some guidance on constructing the contract, any contigency clauses and financing, etc…

Please help,

Josie :-\

Howdy Josie:

If you buy the house for $220,000 and resell for $240,000 you will likely lose money. You need to figure closing costs, rehab costs and carry costs as well as Realtor fees when you sell and other closing costs there too. Even selling the house without a Realtor you may end up just breaking even at best. Check the numbers carefully. If you can net $10,000 after all expenses it may be worth the risk but even that is thin for a $2000 per month carrying costs. Less risk in a hot market but things could cool down fast too.