Should I sell my fixer-upper or rent it out?

Question

Hello folks!  I hope this is the right forum for this question.

I am looking for a little advice.   I bit off more than I could chew with the fixer-upper I bought 2 years ago.  We have been living with the house as-is, and a found a number of additional problems with it.  So, if we were to sell it as-is we would lose about $15K on it, since the price we paid didn't reflect those additional problems.  That idea puts a sour taste in my mouth.

Or, we could rent it out and fix it slooowly with the cashflow.  This is pretty much a holding tactic until inflation catches up to our purchase price and we can break even by selling.

I would not have bought this to be a rental property, since the numbers don't make sense.

The risk of renting it out is that the house condition continues to worsen faster than we can afford to fix it, or yet more problems are found.  This house needs a new septic system, foundation, siding, roof, and there are mice in the walls despite all the poison I've put out, etc. etc.  I should have run away screaming when I saw this house!  But we bought it for the property, a rare 2 acre parcel close to town.

What would you do?

Some numbers for your perusal:

Purchase price: 70k

Land value plus shop 35k

Money this house could easily eat before all is said and done in fixing it $70K

Value if we poured $70K into this house  $120-130K today

Value as-is  $55K

Rent the house could fetch if we dropped $5K into it  $800/mo

Existing mortgage $622/month piti

Could refinance to a piti of $500/month

I ran a scenario where, if I dropped $10k to stabilize the condition of the house and $25k to convert the garage to a studio apartment (rent for $300), it would be around 10 years before I could break even.

Thanks for any advice or insight you can offer as you play the what-if game with me.

Judy Parker · Answer

@Mikila Foster  You got a "rare 2 acre parcel close to town" for $70k?  Here in New Jersey I would kill for a deal like that (just kidding)!  Anyway, have you thought of demolishing the existing house, subdividing the property into two one-acre lots and building TWO houses? I wouldn't sell that property at all.  When life gives you lemons, make lemonade!

Mateusz Prawdzik · Answer

Okay, so I am not too experienced in the Real Estate Investing scene but I am quite knowledgeable when it comes to market investing. Lets look at it this way, ready? Okay so, 10 years to break even if you drop an extra $10k, or potentially sell it now (if anyone would want to buy it) for a -$15k net lose. Now these are the options lets paint a little picture... when it comes to market investing, holding for a long time no matter the risk/reward of the stock, usually equalizes the return because over a longer holding period the ROE usually ends up in the positive. Now we don't know this time frame in the stock (might it be 10 years or 100 years.) But the best thing to do is sell your losers and obtain another winner even if you lost money on your losers.

What I'm basically saying is, that instead of throwing more money into a property that is going down and potentially going to keep going down, and if held would BREAK EVEN at 10 years. For me, that time horizon is really long, 10 years is a very long time, in that time you could have sold this crappy property and bought 5 better ones that would be better to rent out.

For future prospects, do more in depth valuation on your investment. Never go off on a limb because you will a lot of money REALLY fast. Like Warren Buffett said.. "risk comes from not knowing what you're doing."

Always do your research first.

Account Closed · Answer

If you have money to make the property cash flow now with an acceptable rate of return, go for it. Otherwise cut your losses and sell. Appreciation will not save you over the long haul, look at the situation in the present.

Mikila Foster · Answer

Thanks, guys

Some good thoughts here.  I made a phone call to this County Office since the property is outside of city limits. Zoning and other restrictions are really loose here. I was told I simply needed to get it resurveyed and redeeded, which would probably cost around $1,500. I am going to do a little more research into that since that would be time well spent.  The back half of the property already has a well and power pole from a mobile that was previously there so selling that separately would net us an additional 5-10k.  The wild card there is access easement. I have to find out more about that since it is some distance off the road with a shared driveway. Of course if I subdivide it I would be able to take 20 feet of the edge of this land and set it aside for an easement for that piece of property.

I don't want to keep this property anyway so hearing sell sell sell is music to my ears. We bought this place not as an investment but to live our dream of the country life. Sometimes when you get what you want you realize the Allure was not in it itself, but in the dream.

Thanks again

Vishal Patel · Answer

i love the idea @Judy P. has if its financially possible for you and if zoning allows it!....it can became a moster of a deal! :)

Thomas S. · Answer

Cut your losses and sell now. There is never any up side to continually spending on a money pit. Your losses will not stop by throwing more money into the pit.

Patrick Liska · Answer

Couple of things, you may not be able to convert the garage into a studio apartment, that depends on your zoning, and that goes for @Judy P. idea about splitting the property into two lots, it all depends on zoning and what you are allowed to put there, but if the typical lot is an acre or less, i think she has a good idea, i wouldn't sell just yet until you did some research. what town do you have the property in ?

Charles Morgan · Answer

If you convert the garage and continue living in the house would it make sense then?

Figure your cost of living elsewhere into it.

$500 mortgage would make your cost of living there $200, would it be possible to refi to get some of the money for the garage conversion?

Should I sell my fixer-upper or rent it out?

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