Sell it or rent it?

Question

We are new to the community and need some feedback. On the skinny, we brought a cash home in Prentiss, MS 39474 for $20k in July 2023 (3 bd, 1.5 ba, 1 acre). We used the “homeboy remodeling company” and the house still is not completed (almost ~10 months). We are now all in $57k cash. Someone has asked to buy the house “as is” now. They are asking for a sell price??  We had the house appraised last month. The appraisal was lower than anticipated ($93k) because the “homeboy remodeling company” did not make the property presentable. We believe the property could have been appraised for ~$115k (new medal roof, new HVAC, floors, fixtures, new sheet rock throughout). Prentiss is very rural with no industry. The 2-closet towns are 45 minutes away. Should we keep the house and add $15k to make the home rentable?  We would be all in $72k. We are working on section 8 which would give us $1200/mo. With the $15k upgrades, the home would be NOI $9,208/ 12.88% CoC ROI and a cash flow of $767 month. If we cannot get a section 8 tenant, the rent could go as low as $800 with a cash flow of $404. The local laws are loose, and we could dd 2-3 mobile homes on the lot. Should we sell, we would be starting all over again with some good experience and cash in hand for another down payment or cash purchase in another market. Cons: we live 7 hours away from the property and would have to find a property manager. Sell it or rent it?

Michael Smythe · Answer

@Darrcelle McGinnis why did you buy this property to begin with?

What has changed since you bought it that's driving this question?

Since you're new, going to guess you haven't been watching your rehab project closely - out of sight, out of mind!

It happens.

Recommend doing a thorough review of the area for actual tenant potential.
- Build a profile of available tenant pool to be sure you understand their expected performance.
- You don't want to rehab your property to Class A standards, but only have Class B & C tenants to choose from:(
- How many rentals are in the area, where do the tenants come from?

You mention you could put 2-3 mobile homes on the property. Is this realistic with city zoning and building codes?

Going to also guess that you've probably paid more to your contractor then work they've performed. So, you feel you have to stick with them to "break even". Give them a deadline to complete the project or cut your losses and find someone else that can complete the project ASAP.

Lots of hard choices, but that comes with being an actual investor and not all the rainbows & unicorns that many on this site promote.

Michael Smythe · Answer

@Darrcelle McGinnis wow, I should play the lottery today:)

Couple of thoughts:

1) Don't burn a bridge with the contractor friend. Since your OOS, you may need him to do some maintenance and check up on the place.

2) ALL contractors will drag projects out if you let them:( You have to stay on them constantly! You do have to walk a fine line though, between consistent pressure and nagging:)

3) A 4 year S8 waiting list doesn't really tell you HOW MANY voucher holders are in the area of your rental. Suggest you call the Housing Commission and speak with someone their - hopefully they answer/return your call. Many are too busy.

4) "There are several properties in the area that have multiple homes on small acres" does NOT answer my previous question. You NEED to call the city to confirm. Zoning laws change over time and what you see may not be allowed any longer.

Please take this the right way, but you are still ASSuming things instead of verifying. You will make more money-losing mistakes this way.

Darrcelle McGinnis · Answer

@Michael Smythe - you nailed everything. We trusted the "homeboy remodeling company." He and his sister are very close friends. We ASSumed he was on top of things. He opted to do things his way and not doing what we requested for him to do in a certain order. He has "hook-ups" which caused us to wait on their time table and in the end none of his "hook ups" worked and we end up paying companies to the do the work. The work should have only taken 2 o 3 months because there was no major construction work done to the home except the metal roof and an HVAC.

We brought the property because these friends have several section 8 properties in the area. They brought them for cash (<$20k) and the brother did all the renovations. He did an excellent job on their properties! We really like the area. It's rural and has a down home feel to it. We really want to keep it honestly. We are having a difficult time finding a property manager in the area so we are trying to work on a contingency plan should we have to manage it from afar. The work that has been done shouldn't require any services calls for a some years.

We haven't put any top end items to the home. The last thing the home needs to qualify for section 8 is new windows and a fire alarm. My husband has decided he will install he windows because he has done it before. He has contacted a FL contractor to assist him. We will have to fly him to MS but he is willing to assist. Unfortunately, my husband will have to come off the road for a week and go to MS. The pool of tenets for section 8 is huge. There is a 4 year waiting list in the county where the home is located. The county has very loose permitting/planning governance. There are several properties in the area that have multiple homes on small acres.

We actually want to be done with our friend doing anymore work. He didn't show the same type of integrity he did with his property and the properties he owns with his sister. It is very disappointing. She has urged us to speak to him about it and make corrections. We will talk with him on our last day of vacation next week. We don't want to create an uncomfortable situation on our trip.

No, this experience is not what we thought it would be. We have lost time and money at this point. However, it has taught us a great deal that will NOT be repeated again (prayerfully). Thank you so much for your insight.

Darrcelle McGinnis · Answer

@Greg Scott we live in metro Atlanta. The housing market is insane. We have looked at all the areas which are between an hour to an hour and a half and the housing cost are insane. We are from Florida which is where all of our connections and supports are. The hurricane insurance is also insane. We thought by going to Mississippi where housing cost is low and such a need for section 8 that it would be a good place to start. Our friend has rental property in the area and is killing it paying cash for homes and the "homeboy remodeling company" doing to work because it is her brother. Section 8 is a big cash cow in the area.

Sell it or rent it?

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