I’m in desperate need of experienced investor advice!

[Kyle Johnson]

I bought a home in Norfolk VA in September 2021. I lived there for 3 weeks and then had to move back to Fredericksburg VA for a multitude of family issues. Since December of 2021, it's been rented out consistently. The home was bought from a flipper who did a horrible job. He essentially put lipstick on a pig. I've already put a few thousand into repairs and today I got an email from my PM with a quote of 16k because the entire roof needs repaired. If I sell the house. I don't have the money to fix the roof. I'm looking at selling the house and using the proceeds to fix the roof. I'll pretty much break even at that point. My investing goals are to have a nest egg for retirement. I'm 25 currently and I'm in serious need of expert advice. Thank you.

Kyle Johnson 

[Jon K.]

Regardless of how good of a job the flipper may have done, periodic repairs and capital expenses like a new roof every X years are part of owning a rental.

Whether or not this property is a "good" rental is subjective and is based on your own criteria. What I would encourage you to do is to compare how much cash you currently have invested out of pocket in the deal and also calculate what the cash flow is for that property.

Cash flow is the income (rent) minus all expenses: mortgage payment (including principal, interest, taxes and insurance), average maintenance costs, capital expenses (new roof, hvac, water heater. Average this out to the best of your ability to a monthly amount), vacancies (you don't collect rent when the unit is empty, and also there's a cost to prepare the property for the next tenant), and property management.

Then, calculate your cash on cash return. That is, how much cash flow are you receiving per year, divided by how much cash you have in the deal. That number will give you something to compare to other investment vehicles that will tell you if this capital is better put somewhere else (if there is actually capital to deploy after a sale). You also have to take into account things like depreciation which will offset some of your gains come tax time, appreciation (the natural appreciation of real estate tends to track inflation), and debt paydown (over time your tenants will buy this property for you because part of their rent pays your mortgage).

Rental properties CAN be an excellent vehicle to build long term wealth. If you're 25 and have a 30 year mortgage and the cash flow is acceptable to you, just remember that you'll own this property free and clear by age 55 unless you pull equity out or refinance the loan.

If you sell the property now but don't have the money to fix the roof you could either sell it "as is", or give the buyer a concession off the price to replace the roof. If you choose to go this route, talk to an agent and they will be able to better advise you as to what to do.