Needing help with this house

[Connor Thomas]

I recently bought my first BRRRR and am trying to figure out what I should do next as I feel like I am a bit in a bind. Part of it is a learning process and I have learned a lot for future deals. Another part may be me getting a little nervous. I was thinking the house would rent for 1200-1350 but it seems now the range is 1000-1200 with 1200 being the highest for the area so may be hard to get. I was estimating the ARV at 160-165k which I don't know what it will be for sure but I'm a little worried it might be less which throws a wrench in things as well.

I bought a two bedroom one bath house in Indy for 70k which was 10k under asking. Renovation is 46k and is being done now and roughly 4 weeks from being done. I purchased it with a HELOC so higher interest debt until I can cash out refi. Plus any miscellaneous payments such as interest, inspections, etc.

At this point I think I need to finish the renovations regardless. It’s looking like this will cash flow neg just with est mortgage payments plus insurance and taxes of $1100ish (after renovation), property management of $120.

The house is a simple two bed one bath with a garage and a fenced in backyard. The renovations are going to be higher end and the house is pretty simple with a detached garage but no closets in the house.

I feel like I wanted to really start growing my portfolio but feel like I may have jumped the gun. What recommendations might I consider? Let me know if you have any questions

[Chris Seveney]

@Connor Thomas

If it’s going to cash flow negative have you considered just selling it even if you don’t make anything and you just bought yourself some free education?

That’s the first thing that comes to my mind - sell it and walk away.

[Connor Thomas]

I’ve considered that and thought about it for the same reasons that you mentioned 

[Benjamin Aaker]

Agreed with @Chris Seveney. Best to start the process to sell.

If you decide to keep it, you should talk with the contractors - you don't need to do high-end renovations for a rental. You do need to add closets, if possible. Once you get that refi, you will buy yourself a little time to consider. 

[Nathan Gesner]

I agree with Chris. I expect a change in the White House and a better economy by summer 2025. You can sell the property and hopefully break even, chalk this up as an educational experience, and try again.

Next time, look for property with more wiggle room. For your property to perform well, I would want it to rent for around $1800 a month to cover expenses and provide some cash flow.

[Jonathan Greene]

Who was helping you with your numbers on rehab costs and ARV? They should not have been this off and you should always use the worst-case scenario as your target number when you are doing a flip or BRRRR.

If I were you and a sale wouldn't net enough, I would do mid-term rental there instead of long-term rental so you can earn more, but still not have a ton of tenancies. They work in every area and a 2 bed, 1 bath does not take a lot to furnish. You don't need amenities like short-term and the people looking for MTR has expanded from travel nurses to displaced homeowners, future buyers, just sold sellers, relatives coming into town, insurance companies, etc.

[Scott Allen]

@Connor Thomas if it is possible to build small closets in each room, do it. A room without a closet can come off weird to a prospective tenant and home buyer. Without actual closets it comes off more as a 1bd house with the other room being used as a large closet. Little bit of framing and some drywall work to make a closet in a room if it has the size to do it. 

If you can get an ARV/appraisal at $160-165k, that's good but you might need to leave a little bit of money in the deal. It might not cashflow well as a rental/because it's a single family but if you can make it break even for the time being with a tenant, not a bad option as well. Look at what similar homes are selling for that are rentals as well and what they're renting for in the neighborhood. Also look at what similar turnkey homes are up for sale for and if they are either sitting or in contract/what they are selling at. Compare your options.

Sell and breakeven is not a bad option.

Rent and cashflow negative temporarily but only if you can manage doing that. 

Time in the market beats timing the market. Single family homes typically sell faster during spring/summer months whereas they can sit longer during the winter months. 

[Connor Thomas]

I believe that the ARV I originally thought was correct of 160-165k which after a cash out refi will get me my money back and then be about break even. Is it worth keeping then?

@Nathan Gesner:

[Connor Thomas]

@Scott Allen: I am in the process of getting some closets put in currently.  I believe that I can get the ARV between 160-165k and am confident in that. The only issue is that it will be slightly cash flow negative.  If that is the case would it still be worth holding onto if I have no money into the deal? 

I have learned a lot regardless for future deals.

[Sarah Brown]

Congrats on your first purchase!  I'm sorry that the lessons are starting already!  You could simply sell it, or have you considered doing a mid term or short term rental?  It will be more money out of pocket to furnish it, but if your area supports it, might be a good way to keep from losing money until you can long term it.  I'm personally a fan of the mid-term. 

[Julia Lyrberg]

Selling could definitely be an option, especially if you’re feeling uneasy about the numbers working out. Once the renovations are complete, the property might appeal to owner-occupants or investors, and you could potentially recoup your costs and free up capital for a more profitable deal. Before deciding, run the numbers to see how much you’d net after closing costs and fees, and compare that to holding the property with the current rental projections. If selling puts you in a better position to move forward confidently, it might be the right call.