Bad deal - what should I do next?

[Alex Mitt]

Hi, community!

I'm down to my 4th single-family deal, I am an out-of-state long-term investor and I'm still learning a lot. My last one is not turning out great. I take all this as a learning lesson on how to not do things in the future and I'm still very optimistic. My other 3 deals are cash-flowing nicely over $700/month, even though one took a while to stabilize to get there.

Here's some information about the deal:

- Purchase Price with closing costs: $138,000 

- Expected Rehab: $30,000

- Expected ARV: $210,000

- Expected rental: $1,900

- The Rehab turned out to be $55,000 --> a lot of unexpected problems, broken pipes, mold, roof, city requirements and overall bad due diligence on my side. I still would need to put in another $10k to pass the inspections (the city is asking for a lot, like changing the garage door). 

- The Appraised value came back at $175,000  --> we got delayed on the rehab and the latest comps didn't help, and pushed the appraisal down

I paid with a Heloc, so holding costs are interest-only for ~$1,000/month for 5 months. So now I need to decide:

- I listed the home on sale for $195,000, and in just a few days I got an offer at asking. Now the buyer is of course asking for $5,000 in credits. My total expense right now is over $205k, so selling for $195k, plus all the fees and credits, I will lose ~$20k on this deal. I think I can offset this from my w2 income, so at least there's that.

- The other option is to refinance. I locked a rate for $6.8%, and I would be getting $145k back. So I would have a lot more of my own cash in the deal than I would have liked it. Then I could rent for $1,900. Mortgage + Insurance + Property tax is at $1,450. Now add capex, vacancy, etc...the real cash flow is very low.

I would like to see what the community suggests in this situation. Would you sell for a loss, or rent leaving a lot of your own money in the deal and playing the very long-term game? 

Thank you all

[Travis Biziorek]

Hey Alex, sorry to hear this one hasn't gone as planned.

What was the original intent with the home? It sounds like you wanted to keep it as a rental, yeah?

If so, I'd stick to the plan. Real estate has a way of bailing out bad outcomes over time. I've been there and almost threw the towel in on one but fast forward a couple years and all my cash is out and it has been headache free.