Should I Rehab for an ARV of 2.5M or Should I sell AS-IS for 1.4M

Question

I have a 2 family townhouse in a prime Brooklyn New York area BedStuy. All rehabbed comparable properties sell for around 2.5M. I am conflicted with partner as to whether it makes sense to Renovate this property for 270k to get the 2.4M plus or sell @ 1.4M AS-IS. We currently have a mortgage on the property of 590k, after fees & taxes as the deal stands we'd net about 300k selling as is.

Frank Wong · Answer

Gotta factor in time + effort + risk + screwing this up. Sometimes it's best to just take the guarantee profit. Tough to say in this case you gotta know everything down to the dollar and also assess both your skill levels of executing the rehab and then deal with the sale. Gotta forecast the completion date and what the market maybe in that time frame.

Ahmed Saad · Answer

Is this a 4 story property with an owner's triplex and 1 floor-through rental? If it's only 3 stories the ARV would be less. I'm sure you know the renovation would need to be very high-end and, perhaps most importantly, it would only be feasible for an end user to pay; not an investor. Given that point, and that we are entering the slow sales season, I think you should seriously evaluate your hold period. You will be waiting for the right person to buy it and that person who wants it also needs to be qualified to buy it. Often times they do not go hand-in-hand. Can financially hold the property, partner buyout, operating expenses, loan expenses, and paying construction costs simultaneously? Possibly for up to a year? All funs stuff to think about and analyze. I hope everything goes well.

Melvin Galloway · Answer

@Shaun Weekes I thought I did answer the question in that I only expressed an interest in selling. it could rent for 7500/8000, however a refi with P&I plus taxes and insurance would cost 8/9k monthly. Not an option. @Tchaka Owen based on the essay lol. Sorry, No there is actually 1.3 on the table now. We listed the place at 1.4M... the truth of the matter is, although I want to do the Reno the stress of the position I'll be in while doing it & selling is my only reservation. I'm leaning this way Thanks...

Scott Passman · Answer

@Melvin Galloway I don't know the New York market, but if you trust those numbers then it seems like a no-brainer to add the value. You have a highly valuable asset with potential to add $1 million of value for a fraction of the cost. As far as REI goes, you have the hardest part done, acquiring a highly sought after property. I would renovate to maximize the gain.

Brandon Cohen · Answer

@Melvin Galloway $2.4m seems advantageous for Bed Stuy 2 fam. In this current sales market in NYC I say your safest strategy would be to sell as is and let the buyer take the risk.

Jason Lee · Answer

2.5M is considered luxury in Brooklyn and here's some YOY 2Q data for luxury in Brooklyn: average sale -1.5%, median sale -2.7%, number of sales -.4%, days on market 10.9%, inventory 7.4%, months of supply 6.7%. What do you think the market will look like in early 2020. If you haven't done a reno this big then I'd guess you don't know what you don't know and there will be tuition. Bird in hand...

Shaun Weekes · Answer

Understood. I would sell

Mario Am · Answer

@Melvin Galloway renovate it.Make it look nice and someone will buy it for more, the big profits of multi unit is repositioning.This is a no brainer I mean come on if someone wouldve told you that he will give you 1mil$ if you gave him 290k hell yeah!New york market is really good, worst case scenario you can try to sell it for 2.3/2.2 for a quick sell!GO FOR IT GO FOR IT GO FOR IT dont listen to your partner, millionaires never made easy decisions

Tchaka Owen · Answer

@Melvin Galloway - based on your essay above, take the money and move on to the next project. $300k is a lot and it will enable you to tackle the next large project. Right now you don't have all the funding you need and you're skeptical of the situation you'd be in if you did move forward. No need for that stress, there will be other deals. And do you really want your home coming on the market in January? Btw, you wrote $1.3m this time and $1.4m earlier. Make sure it's the latter. @Shaun Weekes - rents are high in NY, however it is highly UNLIKELY that rents will cover mortgage et al.

Shaun Weekes · Answer

You didn't answer my question but here is why I'm asking. If rents will cover your mortgage payments and all other factors then move forward with the reno. This way if you can't sell you can at least refinance ( If you qualify ) to get cash out and still be cash flowing. If the rents don't make sense at that high loan amount then sell right now.