Should I sell it or rehab then rent it out?

Question

Hello Everyone,I'm looking for the suggestion, I have a duplex in st louis with one unit vacant that previous tenant move out at end of July 2022. They left it in a very bad condition, our property manager has estimated it need at least $9k+ for the repair to make it rent ready, we also has a contractor went out to see this property and he got back to us with repair estimate of more than $12k+. Now, I'm debating whether or not we should keep this property in our portfolio or we should sell it? If we decide to do the renovation, where should we finance this repair cost? Is it worth to spend the money to repair? Does anyone have the similar experience and what suggestion do you have for me?Any comment/suggestion is greatly appreciated!Thank you!

Eliott Elias · Answer

Hold on to your real estate! We are in this for the long game, your kids and their kids will make passive income off of this property. Keep building wealth

Bjorn Ahlblad · Answer

I had an inherited tenant move out in the dark of night a few years ago. This is a duplex-3 bed 2.5 bath each side. There was a lot of damage from out of control people and dogs. At the time we had a PM who was not inspecting-but said she was. The tenant's teen age son had serious anger issues and broke back into the unit, got drunk and they set off fireworks in the unit and got arrested. Damages exceeded 20k and the unit was off line for about 3 months. This is all in the rear view mirror, the PM is no more, and the tenants are great. Did this event make me think about selling? That would make no sense at all.

Sebastian Hernandez · Answer

Hi Tony, the way I would look at this scenario is as follows. First, think about your long term goals and why you bought the property in the first place. Second, I would get estimate on the property value as is price vs the price after the home is renovated. Again, you should make the decision based on your long term goals. Lastly, if you decide to renovate the unit, you could do a Heloc, bank loan, zero percent promotional credit card or contractor financing. Hope this helps.

Dave Foster · Answer

@Tony Zhang As @Richard F. mentioned a 1031 might be one of your best options in this situation. You could sell your duplex and defer all tax and depreciation recapture on the half used for investment. This would allow you to move into an investment property that might be a better fit for you. This would avoid potential capital expense and allow you to possibly move to a better demographic.

Tommy Parker · Answer

I would hold on to the property and kind of question why the repairs are so high just for it to be rent-ready.

Craig Janet · Answer

If you could tell us what work is being proposed that would help. PM's usually want things perfect because it's not their money and it makes their jobs easier.

Richard F. · Answer

Aloha,Correct...it makes it much easier to find a Quality Tenant (the kind that pays their rent timely and takes reasonable care of the place, and will likely stay for at least three to five years) when the paint is fresh and all the windows and doors operate properly, and the carpets don't stink. Also, we want to attract Quality Tenants so our "investor" owners won't be calling to micromanage when we have to fix most of what the sub-par tenant (that moves in site unseen), is requesting because the 7 year old refer quit working, and the toilet runs, and there's no place to hang a towel in the bathroom....

Bud Gaffney · Answer

@Tony Zhang hold and rent !

Drew Sygit · Answer

@Tony Zhang why did you buy this property in the first place? Short term cashflow or long term wealth?There's also a lot of unknowns about your situation:1) How long have you owned it?2) How long has the PMC managed it?3) Who placed the tenants that did the damage?4) What condition was the unit in before these tenants moved in?5) To what level of "maintain to the neighborhood" are the repair bids? Have you been supplied pics (or better yet a video) to fully understand the scope of the damages, so you can fully understand the bids?6) When did you contact your insurance company to find out if they will cover any of the damages?

Theresa Harris · Answer

It can be hard when a tenant leaves it in bad condition. Hopefully you kept the full deposit. If you sold it as is, what would you get? If you did the repairs and sold it, what would you get? Then the next question is what would you do with the money?I had a place where we got rid of the tenant for non-payment just before covid and then one who moved in a few months after covid it. Both times, there was a lot of stuff left behind and we had to haul away a lot of junk, repaint, etc. I think it cost about $4K each time not including lost rent and vacancy. The first time, we were able to rent it for more ($400/month extra) and the second, we rented it for a bit more than that. With the turnover, I was able to get my money back through the increased rent. It was frustrating, but I had to focus on the big picture. It is in an area with rent control, so the increases are limited when it is tenanted.