Should I cut my losses and start over?

Question

I bought a 1960s 355k duplex with an owner occupied loan. 7.5% interest, about 2800 mortgage payment. Since living here I’ve put in a new HVAC in both units and kitchen into one unit, I’ve max out my credit card, and have had my parents help me. I can likely get about 1500 per side. I’ve had to evict the original tenants, got rid of a roach infestation, and the electrical seems iffy. I’m only 24 and no one has really helped me (in terms of guidance) so I’m trying to figure everything out on my own. I feel like I’ve put so much money into the house and I haven’t even gotten to rent it out yet. I’ve had the house for 6 month and I feel like there’s so much deferred maintenance that I can’t keep up, should I cut my losses and sell the house? Or how do I know when I put to much in?  I could sell, repay parents and credit card, save money for a year and try again. I will say the house is in a good location, close to downtown which is being renovated. If I should give more info on the house or situation please let me know

Jonathan Greene · Answer

You are getting a lot of advice because that's what you asked for, but the real issue is that you went into this knowing nothing, with no help, and not enough money to do the job so it makes sense you are thinking of quitting. Without knowing more, just based on what you said, you are in WAY over your head and will keep digging a bigger hole doing what you are doing. It's possible what you have done on your own isn't even to code or done correctly so you could be losing value if you haven't been careful.

It's great that you took action. Some people never do. But you sound stressed (you should be) and without a way out. I do think some of the advice about getting some consults with agents so you know where you are at might help, but you sound half-renovated right now.

Think back and really answer, why did you buy this when you did?

Tim Ryan · Answer

@Theresa Harris. I think you are smart to see your real estate investments as long term. And having the tenants pay off your mortgage! ;)

Theresa Harris · Answer

My investments are all long term, so I have no plans to sell (or buy) in the next couple of years.  In a year, I know my rentals should be in the same or better position as one of the mortgages should be paid off!

Tim Ryan · Answer

@Theresa HarrisThen hang on and ride this out. Of course I am talking about the coming economy, not what it's been.  You must know business as usual is now gone!

I had a conversation with one of my investors yesterday and he was asking where is all the positive cash flow and the equity appreciation on our deals?

I told him that if we can hang on and break even right now, then that's a win.  We had Covid, high interest rates, inflation, bad politics...

Businesses, even good ones, have some bad years during their lifetime.  Oh, by they way, owning investment real estate is a business.

Here's my not meant to be a political statement, statement:  We are entering a new Golden Age of Opportunity for Business.  Get excited!  Of course, the only way to prove this (for or against) is reply to this post in a years time.

Joe Villeneuve · Answer

If you're playing Poker, and you have put a lot of chips in the pot, but your hand hasn't improved enough from all the draws, what do you do?

Aaron Breckenridge · Answer

Go "all in", right?

Allan C. · Answer

@Whitney Bivins if you exit this situation what makes you think you won’t end up in a similar spot a year from now? Since you’re learning on the fly, there are many more unexpected items that you have still yet to encounter. Selling your property now will incur commission fees, so you’ll take additional losses on the transaction.

One of the most important things for you to know is that REI is very capital intensive. It’s guaranteed that you will need to replace roofs, HVACs, appliances and many other components. When you purchased the current property you should have expected many of your repairs if you performed an inspection. It’s why you’ll often hear about keeping adequate reserves. Alternatively, you could potentially have negotiated a lower purchase price… or just walk from the deal if it doesn’t meet your underwriting criteria.

Ultimately, given the limited info I think it’ll be best for you to stick it out and keep learning.

Tim Ryan · Answer

The economy hasn't been great (the past 4 years), now we expect it to get better.  If you can hang on into next spring/summer I bet you'll get better rents or be able to sell.

How about asking your lender to push a monthly payment to the end of your term for the purpose of fixing the asset? I have done this successfully in the past.

Ryan Konen · Answer

It sounds like you've done a lot to improve the property already, and with a good location near a growing downtown, it has strong rental potential. Given that you're already in it for 6 months and close to getting it rent-ready, it might be worth holding onto it and renting both units out, which could help offset your mortgage costs. If you’re feeling overwhelmed, consider consulting a local property manager who can help you plan for the deferred maintenance and set up rental operations smoothly.

Theresa Harris · Answer

Not sure about the economy.  Inflation is getting better, but prices have still gone up especially housing (same everywhere).  I hope it gets better, but I doubt it will in the near future.

Should I cut my losses and start over?

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