1st potential BRRRR...advice and recommendations needed!

[Gus Muller]

Hello BP community. I am a fix and flip investor and am looking for some help in figuring out if I should keep my latest rehab for a long term hold. I don't have any rental property currently, but would like to start this side of my investing.

We are considering keeping our rehab at 1583 Wellesley Avenue, St. Paul, MN 55105 as a rental and I wanted to run the scenario by you for your opinion. Here is a link to the listing: https://matrix.northstarmls.com/DE.asp?ID=22424405419

I've been thinking that we should probably start hanging onto some of our rehabs for long term equity growth, and cash flow monthly.

We are into the Wellesley house for about $280,000 plus $20,000 in rehab, for a total of $300,000 (purchase price, rehab, financing costs, holding costs, etc). It is currently on the market at $350,000 and we would realize around a $40K profit if we sell it at asking price with minimal negotiations. A good profit for sure. We had a full priced offer last weekend, but it was contingent on the sale of buyer's property, so we didn't accept it.

I had renters warehouse come out on Monday and they thought it should fetch between $2,500-$2,700/month in rent.

We purchased the property 11/8/19 and there is a 6 month "seasoning" requirement for refinancing and taking cash back at closing. Once we hit the 6 month mark around May 8th, 2020, we can refinance out to a traditional mortgage and take some of the cash we put into it back out at closing. I think it should appraise for $400,000 at that time. We may have shot ourselves in the foot by listing it at $350,000 as I assume an appraiser will see that. Could take it off the market for a week and relist at $400K if this is going to be a problem.

Assuming a $400,000 appraisal, we would take out a mortgage for $300,000 (banks will give us 75% Loan To Value, LTV) and pay off the private money lender (he is owed $280,000). The $20,000 difference would come back to us, roughly what we have into it on the rehab. The mortgage would be around $1,800/month so there is some decent cash flow if we rent for $2,500-$2,700/month. And, we would have an established $100,000 in equity which can be borrowed against (I think?), or at a minimum, look great on a balance sheet of assets and liabilities.

It will tie up some funds in the meantime, which will hinder our ability to purchase more property should the right deals come our way, but this is a long term play.

The location 3 blocks to Macalester College is ideal. It will always be in demand as there are not many large 4 bedroom houses for rent with that location. It is also near St. Thomas and St. Kates. And that area seems to increase in value over time faster than other areas.

A few other things to consider. If it does not appraise for $400,000 it could appraise for more, or for less. Then we wouldn't get the $20K back at closing. Or, we could get more than $20K back at closing. That is a gamble. We can always put the house back on the market at peak summer selling time with renters in place to another investor if we think we made the wrong move. Kind of a parachute as we can always just sell it. 

The basement on the house is huge, clean, and dry. There is a side entrance door, and establishing another unit in the basement with 2 bedrooms, bathroom, living room, small kitchen is easily possible, and would skyrocket the rent amount. We could consider this after a few years of owning it.

There is just something about that house that is screaming, "don't sell me, rent me!".

Comments? Recommendations? Is there anything I seem to be missing? Should we just sell it, or should we rent it and refinance?

Thanks in advance!!!