What would you do if you were in my shoes

[Fabian Marrufo]

I recently bought a property at discount to fix and keep as a rental, a week later the realtor calls me and tells me she has a buyer and I can double my money
I paid $20k for it I had 1 contractor give me a $30k bid and I’m having another one looking at it and it would rent for $950 when is fixed. Location is Dalhart Tx

what would you do?

[JD Martin]

Originally posted by @Fabian Marrufo:

Jeannette, I know right, and I'm getting my numbers from other investors who have properties in Dalhart and also love there as well. Which I had them look at it and they both estimated it between 900 and 1000. And btw is not on the north side 

 So if I'm reading your numbers right, this is what I see:

You paid $20k. You need to put $30k into it to rehab it to rent it for $950. Someone is willing to give you $40k for it. 

Now it's just an easy numbers game. 

If you paid $20k for it, your closing costs (assuming cash) are probably somewhere in the $1-2k range, depending on what is necessary for where you are - title costs, inspection, prepaid taxes, recording fees. I'm assuming no appraisal. So you probably got $21-22k in it. When you sell it for $40k you will clear about $15k (since I assume the realtor wants their fee). You will pay short-term capital gains on that profit so you will end up with about $10k out of the deal.

Rehab it = spend $50k, rent it for $950, let's say your costs are 1/2 of that ($450 so numbers are easy). That's $500 profit per month.

$10,000/$500 = 20 months to break even. 

I don't know what your models are, but I don't sell anything that I can break even on in less than 5 years. If I was closer to the graveyard, or thought there was some imminent doom model coming, I might alter that somewhat. If you plan on being around 20 months from now, unless you have some superstar replacement in mind, it probably would not be financially savvy to sell. You have a property that (according to you) is going to gross you about 2% monthly of your purchase price. That is a grand slam in today's market. The guy/gal that wants to buy it wants to buy it because they'll gross 1.5% when they take it from you, while you struggle to find something else that you can gross 1%.