Level of Finish Out on a Fix and Hold?

[Jason Merchey]

I have been participating as the capital partner is a major renovation (90% new) in historic Charleston. The area is likely to appreciate, and so even though I can make $25,000 if I flip it in a month, I am also in the market for a new buy and hold, so I was thinking of maybe holding this one and perhaps cash-out refinancing. The cash flow isn't great because it is a house that is worth well above the median price. But as I said, the appreciation potential is good. I could possibly see $10,000 in appreciation per year and sell it for 4% using my real estate license in 10 years. I also saw the build like twice a week, and had a reputable architect and GC involved. So it is no cracker box, which is fully 1/3 of the reason I would want to keep it. Also, I bought the thing for a decent price, and although it cost fully $100 per square foot to rehab and add square footage (from 950' to 1600'), the contractor is taking 10%, there is the feeling that I got some instant equity by having decent/modest numbers and not having to spend $25,000 on the costs of sale if I don't sell through two agents and the attorney and all that.

So my question is, are there any thoughts on holding vs. loosing this property?

I am also curious how you would finish it out. Things such as stone counters and stainless appliances are obligatory. With things like lights and hardware and moulding I was going to go about medium. Windows and roof are what they are. Hardiplank is what it is. But I could make a few decisions with flooring and such that might be somewhat different if I were going to keep it. I think there might be something to this idea: nice carpet in the down master (I myself prefer nice carpet to wood in bedrooms), solid bamboo floors on the first floor (sandable 3-4 times and completely waterproof and fairly hard and sustainably made) and up the stairs, vinyl tile in the laundry room and HVAC closet, and standard carpets in the two smaller rooms upstairs. I am thinking this because a) kids probably prefer carpet, b) parents probably prefer carpet under most conditions for their kids and c) if it's three college kids then they won't much care. Also, d) carpet can be pulled out and replaced fairly inexpensively if tenants screw it up - more so than the wood. On the other hand, solid wood floors would probably pay for themselves if I didn't have to swap out carpet maybe twice or three times, and they are pretty impervious to dog smell and urine.

Are there any thoughts on what kind of finish out to do if i plan on holding the place for 20 years and if the rest of the build is probably above average in quality? I need to get someone to pay $2,000 a month in rent, so this is not a simple matter of "go as cheap as you can to save money and not offend the tenant." These tenants are beyond the "Wow, this stuff is all new!" when in fact it's new but low grade stuff. This crowd is less particular than if they were purchasers, that is for sure, but still I don't want to have folks be like "I'll rent this for $1800 but not a penny more." And then there is the maximum durability question.