Rehab To Rent, Early Stages. Please Advise (Beth., MD)
Heres the deal: Got this lead from the sellers coworker:
Little old neighborhood in Bethesda MD, where tear downs have been the rule. Many new huge monster homes within 2 mile radius. I know 2 people that rented homes a few streets away. There is a current rental for about $1700/mo.= 3BR 1.5 BA. Also, nice 3BR 2BA that is located 10 houses away, selling for 360,000.
This house is about 1000 sf, w/basement. I am 90% sure its 3 BR and 2BA, built in 1954. It is a cat haven not "in good shape" on the interior, exterior is ok (can I post a picture of it here?). I did domania's value and its 310k, a little high I think. A very nice version of this house sold for 317,000 a year ago.
Seller: Lady already has boyfriend waiting in another town, she has yet to pay last years prop tax (late fee kicks in on 2/29). She likely has other debt. A teardown homebuilder offered her 250k, a very savvy homebuilder making a very low offer I believe. Seller then claimed she wants around 300k (assuming agents are involved getting their commission).
I plan on doing some paint, appliances, outlets, switches, cat5/coax wiring; and of course making it spotless; then renting it for at least 1700/mo., the area is a rental no-brainer. I currently have a rental condo about a mile from this location, convenient. I got quoted about 4.5 5/1 ARM from my current lender (thinking about shopping around again to find better rates). My investment partner and I are FICO and debt/income/assets top-notch...
When I go to inspect the property, what to look for/calculate?
The AfterRepairRent is pretty accurate, $1700, the issue is getting the mortgage ALAP (as low as possible) once I rehab it.
So now what? If I left stuff out, let me know...
Thanks in advance![ Edited by Cliffrock on Date 02/26/2004 ]
Maybe I'm missing something.... you can get a positive cashflow from this? Or are you just trying to control the property? It seems a small bump in your interest and you would be negative cash flow....
bonnie
I have to agree , there is absolutely NO cash flow in this deal. Always use the 1% rule, if its worth 300k you should get 3k/month in rent. Unless you have huge appreciation it seems like a loser from the start. Additionally I don't see it as a rehab/flip at 300k, no way there is enough wiggle room.
[addsig]
Thanks for the cold water to the face I needed that!
Mubar, I have a few options, considering them all...
Telemon, I would love to use 1% rule, I am going to see if anyone is able to do that in this area. I don't expect huge appreciation, but 5-7% for next 36 months might be reasonable.
I agree, I would not give her 300k, no way!. Her last offer was 250k. I was going to build from there. Pending further info, my max offer would be ~270k.
I also was going to try a 3/1 ARM, and get the APR under 4% on a principle of 200k (cash for the rest). P/I on 200k is about a 1k, plus 400 for hazard and taxes. Best case scenario, $1400 mo. PITI, $1750 rent. (minus maint/vacancy)
Maybe even with a max offer of 280k, the 80k cash would only earn a few percentage points, thats not too good. (4200/yr.=~5% of 80k; + appreciation)
What about controlling the property for 3 years, then maybe teardown, or sell as a tear down (very serious trend around there)? Or tear it down with a partner builder, I know a few, in three years?
Thanks for the input thus far, this is VERY helpful! [ Edited by Cliffrock on Date 02/26/2004 ]