Closed on my first houses today

Today was a big day - I closed on 2 houses in my first ever transactions. The first was a condo I sold in a 1031 exchange with and looking for replacement property. The second was a 2 BR/2 BA 1920's house I was watching on a foreclosure site, valued as-is at $60k, sold for $40k but then the deal fell thru and it came back on the auction site again a few weeks later with no reserve. I closed today for $30,400 all in for cash in a transaction that took place entirely by email.  I am aiming at a budget of $30k to bring this house back to life which will come from my home equity line. I would like to do the repairs that will create a house that will be pretty maintenance free for the next 10 years - kind of my expected hold period.  I am paying a licensed home inspector so I know exactly what contractors I need. It has a new breaker box, at least some new wiring, newer furnace and water heater, and some unique features. The former owner used a wheelchair and built a well constructed pressure treated wood wheel chair ramp which comes out the side door - at a glance from the road you have the impression of a side deck so its not obvious. They created an open first floor bathroom and shower in what was probably a parlor. There is a nice side yard I'd like to fence and the property has a bus stop out front for transportation to university a mile away, etc. I have a LOT of questions - maybe I can get some answers and thoughts here!

1. Financing and ROI . The comps on the street range from $70 to $140k in the last few mos. The property is in a university town that is good for rentals and I thought it would appeal to a young family or maybe older, quieter students. My insurance agent valued it at $125k based on rental cash flow but will only insure it for $75k because I paid so little for it - until it's rehabbed and appraised. Because I will have put my available cash into this by the time its done, I was thinking I would aim for a market/appraised value of $110k after putting a total of $60k into it.  Then do a cash out refinancing for the cash I have in it with a 30 yr fixed mort. - which I have checked out with multiple lenders. My lender says I have to own the property a minimum of 6 mos before I can take cash back out of it and I can mortgage up to 75% LTV.  I will need the cash to go buy the next property and pay back my HELOC. My assumption is that I can get $1000 a month rent which will net me about $365 a month using a 75k mortgage, but in any case I will be cash flow positive.  My question is how do I think about my return or calculate my ROI on this scenario? In a way I have nothing in it because I will take back all the cash I put in - plus more. On the other hand I will have created a liability for the mortgage. . I am not sure how much leverage I feel comfortable with. My husband wanted to keep it debt free but I would like to pay back our HELOC and if I'm paying closing costs I think I should take as much possible to make those fees work.

2. Rental or Flip? How do I decide ? I bought this house with the intention of renting it out but maybe I should flip it to someone who wants a house with a wheelchair ramp already built. I know a bit about the Universal Design movement and am thinking of putting in a Universal Design bath on the first floor which could be equally attractive to someone in a wheelchair, someone with young kids that like to get dirty, or washing dogs. I would have killed for a UD designed bath when my kids were younger. I have not been able to find an agency or person who can tell me anything about demand. The university offers on campus housing for students who have physical limitations so it would probably be someone with a family member in a wheelchair who doesn't want to go to assisted living.With our aging population it seems like there would be someone who would be thrilled to have accessible features unobtrusively built into a home. On the other hand, if I flip it I incur short term capital gains tax rates don't I?

3. How do I decide what I should spend on finishes? I know it depends on what I'm doing with the property but for $1200 a month, renters in town are getting new looking kitchens with granite counters and those apartments are full. People have watched so much HGTV they seem to have increased their base expectations. How can I figure the point where I'm not outspending the neighborhood but making it nice enough to keep it rented at its max rent? Is granite really it, or can I get by with granite-look laminate or composite counters? I doubt many of the neighbors have granite, etc.

Yeah.. that's enough for one post. I'll come back about the 1031 Exchange later.


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