What would YOU do??

Question

I had my first snafu this past year when a tenet broke their lease and just up and left. The home was a mess and needed all new carpet, professional cleaning, and a new tenet. This was all happening in February of 2022 so the interest rates hadn't gone up quite yet and the market was still WHITE HOT!

If you were in that situation and needed to make a decision to sell or fix and re-rent what would you have done and why???

Extra, relevant, info:

REPAIR OPTION-

- Repair totaled a little under 10K

- Re rented on a MTR platform and now cashflow ~$1,500+

SELL OPTION-

- Fix the home for ~10K and sell for close to $130K in profit.

- be able to 1031 into a larger project/ investment?

Thanks for your thoughts! :-)

Nathan Gesner · Answer

You probably have a low mortgage rate, lots of equity, and lots of cash flow. What's your motivation for selling?

I would hold onto it, save up the cash flow along with everything else I could scrape together, and buy another property. Don't get caught up in the grass-is-greener-on-the-other-side game. Buy and hold builds wealth. Only sell when there is a high likelihood of moving that cash to a much better-peforming property that accelarates moving you closer to your goals.

Bjorn Ahlblad · Answer

I was in exactly that position a few years back. Fixed up the property 20k and re rented. It is a 1031 property and I could have sold it and doubled my money. Why would I do that? Selling cash flowing properties is not my goal. Continuing the income stream is what I want. All the best!

Konstantin Ginzburg · Answer

Since any seller would likely ask you to make those repairs anyway, I would do the repairs and place an ideal tenant and list the property afterwards. This way you will have a stronger selling point for buyers in a ready-made rental property that is fully occupied. If an offer comes along that you think is too good to pass up, then sell the property then. Since you are cash flowing, you won't need to be in a rush which should increase your negotiating leverage. At the same time, begin looking around for a property to 1031 exchange into. Since there is a time-limit on how long you have to roll a 1031 exchange into a new property, you could hold off on a sale until you find a property you actually want to move on. This way you increase your options effectively allowing you to choose between holding the property, selling, or exchanging depending on what the market presents to you.

Brandon Elliott-Pandey · Answer

Well said Chris! I like what you mentioned about not letting the market make your decisions. Be flexible and move with the markets! :-)

Brandon Elliott-Pandey · Answer

Well said Nathan! The grass is greener where you water it! For sure! :-)

Tom Fontoura-Sutliff · Answer

I'm curious why you are asking this question - whats the context?

$1,500 monthly cashflow for a $10k repair seems obvious to keep renting. Is there more to the story?

Bonnie Low · Answer

as others have pointed out, if you have a super low interest rate, I'd hold onto it but we're in the long term buy and hold space so your plan could be completely different. It's awful that you're having to invest so much to repair damages but the cash flow you're talking about is signficant. Could you find that same cash flow elsewhere if you pulled out the cash and invested it in another property? Does cash flow matter to you or are you an appreciation guy? Too many variables to be able to give a qualified answer.

Chris Davidson · Answer

All would depend on the property. Did it also have capx items that would need to be addressed soon, or in a area didn't like. How have tenants been in that property is it harder or easier to turn? I had a similar situation with a duplex with one side going vacant I dumped as it had capx items coming, always head ache tenants and on a street  I didn't want to be on anymore. Market was hot sold as is and did a 1031. Flip side I had one turn on a property I like and wanted to keep and put money into upgrades and added value, pushed cashflow higher while getting to write off the upgrades.Don't let the market dictate what you do, move with the market and stick to your plan. You may have to pivot, but if it was a good property and one you wanted long term it might be wise to hold. However if you were wanting to change property class maybe that was good timing to make the change.Way to take action and have problems that will result in a better life either way for you!

Konstantin Ginzburg · Answer

I am still fairly new with my real estate investing business so I haven't held a property long enough yet to cross over into wanting to attempt a 1031 exchange but for any property I have purchased so far; I always come up with multiple exit strategies as well best use strategies for how to maximize a specific property's value. One example is with a recent property I have purchased that I was planning on using as an STR. At the same time I knew that the STR market continually face more regulation as well as market saturation potential. Because of this, I made sure that the property I was purchasing would also cash flow as a long term rental. In addition, I had also renovated the property enough to add a fair amount of equity into the property that would allow me to flip it if I chose to do so. Market conditions change quickly, so having multiple plans is the best way to minimize your downside for each investment.

Brandon Elliott-Pandey · Answer

For sure! Hind sight is always 20:20! When I was renting it before as a LTR and not MTR it was cash flowing ~$200/m...Much different outlook. I was just fortunate in my opinion that it worked out that way after I fixed it up.

Just reflecting and wondering what others would have thought to do if they were in a similar spot.

What would YOU do??

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