Which 1st deal is better for 2nd Deal?

Hi all - newbie seeking advice here.
There are 2 deals that I am currently considering - 1. 3Bd townhouse for 100K to hold long term as rental. Comes with renters who want to stay long term and are paying $850/mo. Needs minor repairs. Comps @ $120K
2. Fire damaged rehab for $60K - needs ~$20K of work comps @ $95 - $100K
Would rehab and sell as quick as possible.

The question - either way, I want to make another deal in a few months. I’m interested in 3 - 4 deals per year. So if I go for the long term rental will the extra debt of that mortgage keep me from additional financing - even though it cash flows? Or will the short flip and payoff be a better bet for getting additional financing in only a few months? Or do lenders not like the short payoff?

Other info - using $50K from savings, FICO in mid 700’s

Any thoughts? Thanks!

Hi there-
I wouldn’t do either of these deals… here’s why…

1.) It’s going to be tough to cashflow the townhouse if the tenants are paying 850 and you’re paying 100k plus taxes, insurance, “minor repairs,” and allowing for vacancy and maintenance. I would guess the townhouse also has HOA fees to consider. You’re going to have to put up a considerable amount of cash up front to make the monthly cashflow work, not worth it in my opinion.

2.) If the house retails for 95k and you are going to have 80k invested, there isn’t much room for profit. With financing, taxes, insurance, 6% to agents, and closing costs on both ends, by my estimation you’re looking at under 5k profit, and that’s if you only spend the 20 in repairs. I’d pay no more than $40k for it IF the 20k in repairs and 95k sale price are conservative.

My 2 cents, start with a rehab that will make you at least 20k in profit, VERY conservatively. Don’t waste your time or money on marginal deals.

You will reach a limit on conventionally financing rentals - 8 or so I think, depends on the lender. You’re going to have trouble getting bank financing on fire damaged and other properties in need of repair, but you should be able find some hard money and/or private lenders to work with.

Good luck!

Cool - thanks for the info.
I’m happy that you commented on the townhouse not cash flowing, because it justifies the numbers that I came up with. Basically I would need to put down ~$35K to cash flow even a little. Glad I’m on the right track for crunching numbers!

I got a good look in the fire damaged home today and plan to offer 28K - which I’ll go up to 35K on, then walk away - a little more pad.


Another thing I’d like to mention about townhomes is that they dont appreciate well at all. Only because you can sell it for the price of the townhome next to it. This is because they look alike and the appraiser will only appraise it not much more then other townhomes that have been sold in the area.

Just my two cents :wink: