From the archives of my video series, Real Estate Deal Talk, Episode 19 focuses on a home near Glenwood Park, a really nice neighborhood with a really nice park.

The property in question is an 800-square-foot, two-bedroom/one-bathroom rental, currently occupied that we are looking at purchasing and expanding. It looks like there is still enough room in the backyard to expand it back and to maybe even go up.  Assuming we are able to build it out the way we want to, we are looking at comps of $450,000-$460,000 for four-bedroom, two-and-a-half-bath homes in this area.

Right now, it is being listed for $140,000. We could probably negotiate that down to $130,000 to $135,000.  Then we are going to add on, so we will build the additional bedrooms and bathrooms, and add the necessary square footage we need to force the appreciation on this to get a $470,000 sales price.  

We don’t want to build homes too similar to what’s in the neighborhood. We are going to go a little bit edgier, a little bit bolder. So we are probably going to do a modern renovation and that will always fetch a little bit more of a premium on price.  

We are pretty excited about this one.  We already have capital ready.  Right now we just need to put it under contract and hit go.

Now a newbie investor would probably think to himself or herself, “Well, I can’t really do much with a two/one, so let’s pass on this deal and maybe wholesale it.” But I urge you to think again; I feel like you are losing a lot of value there, you are losing a deal.  

I’ll give an example. If I were to purchase this, I would look at some bigger comps in the neighborhood and see what type of a bigger game I could play.

If you are playing a little bit of a smaller game, there is something else you can use. You can use the house right next door that’s currently listed on the market. It’s a three-bedroom/two-bathroom home and is listed right around the low $300,000s. So if you are so inclined, you could purchase the two/one for $130,000. You could expand it out a little bit, so instead of putting $170,000 in it, you could probably put $110,000 to $120,000, and you could sell it for mid-$300,000s as a recently renovated home and maybe charge a little bit of a premium for the modern build.  

But if you want to play a bigger game—taking that two/one and turning it into a four/three—you probably will be able to command a $470,000 sales price. That is something that is kind of interesting.  

Now, the rent on this right now is about $900 a month. Even if all you did was purchase it for $130,000, added to it and spruced it up a little bit, you could charge a little bit more rent. Generally, we look at rent being 10 percent of the overall sales price. So in this case, if you bought it for $130,000 you could increase the rent and get $1,300 to $1,400 a month for that—not too shabby.  

So you have several options:

  1. You can wholesale it, and make a couple thousand bucks on that, and sell it to someone like me. We’ll take it, turn it around and do a rehab.
  2. You can do a smaller rehab.  
  3. You can do a big rehab, where you are doing four bedrooms and three bathrooms.  
  4. You can just spruce it up and rent it out for a higher monthly rent.  

So as long as you do your due diligence, as long as you understand the area and what the area is commanding for rent and overall values, you should be OK. I feel like there are many people—particularly new investors—who will pass on deals because they seem too big or they seem too complicated and, oh my gosh, you have to work with the city. It’s really not that bad.  

Just get in the groove of things and you will be fine.

You can view Episode 19 here:

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  • Abhi Golhar

    Abhi Golhar is a real estate investor, entrepreneur, 3x nationally syndicated radio show host on the Wall Street Business Radio Network, and media figure, whose experience encompasses print, podcasting, radio, and television appearances.

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