Does my current rental need rehabed to sell and maximize profit

Question

I have a single family house in Ann Arbor, MI that I used to live in but renting it out since around 2011. It's been an easy rental with just two families renting it since I moved out. This house was built in 1964 and has had only minor updates as needed like a new bathtub when it was leaking. The kitchen is still original and outdated.
The zillow/trulia value is about $348,000 and homes in my area are selling at about $200 per square foot but depends on finishes. I'm receiving $2050 in rent. The taxes and insurance cost about 600 per month. My equity is high since I've been paying it off for many years and with appreciation over the years.

My current tenants are great but they have a few cats and a dog so the house smells like the animals. I've considered approaching my current tenants about possibly buying it but not confident on what appraisal will be with current finishes.The carpet is in bad shape, the wood floors are very worn and the kitchen is out dated. I believe 35K could give it a new kitchen, new carpet and redo the wood floors.

I'm trying to decide between 3 options.

1. Keep it and continue renting it

2. Do I need to rehab it in order to maximize the value and get an good appraisal

3. Sell it as is but my concern is the appraisal will come in lowAny advice or insight is appreciated

Thanks

Jason Koehl · Answer

Thanks everyone for your valuable insight and tips. Its great to get advice from local investors and brokers.  I don't have a mortgage on the property and if decide to hold long-term I've considered pulling some equity out since interest rates are so low.  When I look at the value around 350K the 2K worth of rent isn't great considering my 7k annual expenses of taxes and insurance.  My cash on cash return is only about 5%.  I could make the COC return more attractive if pulled equity out and put that additional money to work.

I love Ann Arbor as city but also see better value in other areas.  I'm skeptical if the appreciation in Ann Arbor will continue compared to other markets.

Patrick Britton · Answer

@Jason Koehl use an ozone generator to get rid of the animal odor.

As well, what "type" of house is it?  Mid-century modern is in crazy high demand and i've seen some sell for well above list price without any updating at all.  There had been some issues with appraisals, but we were able to convince the lender to get another opinion.

You can always try to sell it for whatever amount and even if the appraisal comes in low, most buyers will pony up the difference.

Alex Khan · Answer

Ann Arbor is a solid market, I’d go with option number 1.

Once the existing tenants move out you will have to do some repairs, cleanup and painting anyways due to the pets. ( or get lowballed on an as is price from guys like me)

Your best bet is to wait until lease expires then fix it up and sell or do like a lease option or something. Keep in mind you have a Gem in Ann Arbor and the demand is there. I would get full value if I were you.

Andrew Alson · Answer

Is the property paid off? If not, did you leave out your mortgage payment on purpose? What's your total PITI?

I agree with @Sarah Lorenz above me. If the numbers continue to work why get rid of it? Do you have other opportunities? Can that money work for you better than it is now? What are your thoughts on the area and the property in general? Help us understand the motivation behind the decision.

Side note, that Zestimate figure is most likely pretty inflated as of course they don't know what you do about the inside of the home.

I'm also an agent in the area, feel free to message me and I'd be happy to help you determine the ARV (or the value now, if all you're going off are the Zillow-like estimates). Once we nail down the numbers you'll be able to determine which repairs would maximize your profit on the potential sale.

Sarah Lorenz · Answer

@Jason Koehl

I am an investor and agent and flipper in the area. I could probably give you an idea of the value after rehab. I don’t think appraisal will be a problem with either route, since housing values are so strong here. But why not just keep it?