Buy or Sell Cash-Flowing Property That Needs $30k Repair

[Allison Ault]

This is my first time posting to Bigger Pockets! So excited to use this resource. I read a book by Bigger Pockets 3 years ago on out-of-state investing and bought my first out-of-state investment property halfway through the book. I bought a house only a mother could love in a downtown neighborhood of Oklahoma City. 5 blocks away there is a "district" with clothing boutiques, trendy restaurants, breweries, and wine bars. But the neighborhood itself is still run-down, but less rough than it was 15 years ago and there have been 4 fix and flips on the block since I purchased it. It overlooks a park where there will never be any development in front of it. I put $62k into the rehab plus a $25k downpayment into the 2bd/2ba with a 1ba/1ba unit in back (separate entrance). I officially licensed the back unit as a short-term rental and rent it out on Airbnb and it has at 4.9 rating.

My question is regarding whether or not to keep it based on a major repair that needs to happen. The roof needs to be reframed and redone and the entire job will cost me $30k. I've had multiple contractors come out to look at it. There is a mold issue occurring in the main house utility room do to a shoddy roof job where the second unit was added. I slapped on some gaco roofing stuff where I think there might be a leak and cleaned up the mold in October, but the addition is such a patchwork job that I don't know if it's going to be much of a fix. My current tenant has complained about an allergy - I have mold allergies too - and I do want to make sure I have a healthy place for tenants to live.

Do I sell or do I keep it? Here are the numbers: Main 2bd/2ba - $1200/mo. Airbhb unit 1ba/1bd - $2200/mo ave throughout the year. Total ave revenue $3400/mo. Mortgage payment plus airbnb utilities $950/mo. Profit before what I set aside for 25% running a rental (15% vacancy for the neighborhood, estimated maintenance, etc.) = $1837/mo. The roof/reframing job won't add value, just mitigate to mold and future issues. And, from, what I've read, I only get a 50% return on the roof investment it when selling. The property is already in the top 75 percentile of rent in the neighborhood, so I don't think I can raise it much more. 

What are your thoughts?

[Doug Spence]

@Allison Ault That's quite a difficult situation to be in. Sorry to hear about it. When you had the home inspected before you purchased it, what comments did the inspector have on the roof? Just curious if it's something they should have caught or if it has become a problem since the inspection. 

I agree with @Forrest Faulconer. I would probably keep the property based on the information you provided. Its cash flowing really well, there is long-term growth potential for that neighborhood, and OKC as a whole is growing. Do you have the cash to repair? If not, I think it would still be worth it - perhaps you could take out a low-interest loan and pay it down over time using those healthy profits. Best of luck with whatever you decide, and please keep us updated!