We’ve all seen how much money home flipping can be worth, but is purchasing a run-down home and repairing it for rental purposes profitable? While the answer isn’t as simple as yes or no, we’ve put together this article for Redmond property managers to use as a reference to decide whether or not to make a purchase on old, run-down, or poor condition homes.
Assess the Value vs. Price
The most important deciding factor for the purchase of the Redmond home is how much is being asked for. If the home is in very poor condition but is only twenty percent below market value, it might be a terrible decision to purchase. Repairs and remodeling can cost literally thousands which can take you years to get back under a traditional rental. On the other hand if the property is 30 to 50 percent below market value, you might want to snap it up.
How Much Will Repairs Cost
Before you make the purchase, you should do an estimate on how much it will cost to make the house or condo look like a beautiful, well cared for, modern Redmond home. If the rate is going to be $10,000 and you’re getting it at a cut rate, it might still be a bargain. However, you should always add in the total cost of repairs, construction, materials, time where the house cannot be rented, and then compare it to the cost of a home in good condition. If the house is still more than 10% less than the cost of the good repair home, you might have a good purchase on your hands.
How Much Can You Rent it For?
Any Redmond property manager should ask this question before any other. How much will the property rent out for and how quickly will it rent? The higher the rent fee, the better an investment. A home that rents for $2,000 to $3,000 or more per month could break even fairly quickly and start making profits within six years($3,000 per month is $36,000 in net rental fees per year). On the other hand if the rental price is going to be below $2,000, it might take ten years or more to pay for the cost of the rent. This is an important factor for deciding on an investment, so choose wisely.
An easy way to decide whether or not the home is worth the investment is to add up all of the negative values and then compare them to the cost of a standard home. Your expenses chart should look something like this.
- Cost of Property
- Cost of Materials
- Any Applicable Fees
- Cost of Construction Labor
- Cost of Inspections
- Time of Repairs
On the other hand, you can also add in a few positives when you are comparing. For example, construction labor, fees, materials, and inspections are most likely tax deductible if you are managing Redmond property as your business. This means that you can likely deduct thousands from your taxes, meaning you might save money. Make sure you check to ensure you are eligible for these deductions before factoring them in.
So is it worthwhile to invest in a run-down Redmond home? It actually depends on how much you spend on the home and repairs and how much you would pay for the same home in good condition. If you aren’t good at math, then consider having a Redmond property management company help you out.