Sell as-is to stop the bleeding, or pay a bunch more money and rent out?

Question

Hi all, I'm in a pickle with my first home. In 2021, I bought a 3br 2ba house built in 1940, with an attached 1 br 1 ba apartment addition. I knew it needed a full rewire (still had knob & tube) but did *not* know what a big deal that was going to turn out to be. It also had a number of other issues I wasn't aware of, despite having had it inspected. All told, I've spent $105k on repairs so far, which is $85k more than I had anticipated.

There's still a slew of work to be done to make either unit rentable. The estimates I have for everything remaining is $30k for the main house and $45k for the apartment.

I currently live in the house but plan to move out of state as soon as I can. If I rented out both the house and the apartment I'd probably only get $2800-3000/mo combined, and would have to pay a property manager as well since I'd be out of state.

So here's where I'm stuck: If I sell the house now, I think I'll be lucky if I can sell it for what I paid ($300k), so I may as well have just lit that $105k (and closing costs) on fire. If I dump another $75k into getting it fixed up, I'll have to hang onto it for a looooong time to even get close to breaking even. The house is "in the loop" and near UH, so finding renters shouldn't be hard, and I anticipate that the land will increase in value over time... but I worry it will somehow continue to present me with a new $20k problem every quarter or so. I will have addressed pretty much all the systems so in theory it should stabilize, but my experience with this place so far doesn't inspire confidence.

SO: Just get out and accept my losses? Or get deeper and hope it one day sortof almost pays off? How do you all make these decisions?

Kevin Sobilo · Answer

@Diane McDonald, maybe get someone experienced to go through what you have done in great detail and discuss where you went wrong. I suspect there were MANY things that caused you to be where you are at this point.

For example rewiring a house the size you describe might be a $10-20k issue including installing a brand new service from the street and new electrical panel, so I have trouble imagining how you spent over $100k on a rehab for a rental even with an issue like that. To spend that much I would need to gut the whole house, tear off the roof, and do everything brand new and modern. That type of rehab would make no sense for a rental in 95% of markets.

If you haven't identified what you didn't do well getting to this point, how can you expect to turn things around going forward. So, look back before moving forward!

Carlos Ptriawan · Answer

You simply just to talk to more local repair folks, with that kind of spending you can buy new home. Not sure what kind upgrade is so far. Don't make a move unless you have collect all the data. Move slowly.

Jaron Walling · Answer

Did you not get anyone's advice before buying this property? How on earth did you find and buy this dumpster fire without knowing this issues? How many quotes for this work are you getting?

@Kevin Sobilo said it first! You need more people in your camp! Odds are you're aiming for the wrong strategy, exit, or ARV. So many issues with this situation including you moving but that's outside of your control sometimes. I won't advice you to stick it out or sell. The numbers need to tell you. Houston has tail winds helping you and it's a strong market.

Chris Seveney · Answer

@Diane McDonald

Since your original estimate is off by 5x how accurate are you with your latest estimate?

My recommendation is sell and move on and this is a very expensive lesson about getting into real estate.

Diane McDonald · Answer

Thanks all - yes, I definitely am in over my head with this place. Stanley Ezeadi nailed it: I hired the wrong people at least three times right at the very beginning, which accounts for about half of the expenditure. Had my option period estimates been accurate and my hydrostatic test done correctly, I would never have bought the place, but it's too late to change that.

Kevin Sobilo, I never meant this to be an investment property per se; my intention was to live in the house at least 4-5 years and maybe rent the apartment to a student to help keep my living costs down. Staying that long myself isn't working out for personal reasons, which is why I was debating whether or not it would make any sense to hang onto it and rent the whole thing out.

I do have a few people coming to take a look and give their advice regarding the best path forward from here, and I'm grateful for that!

Stanley Ezeadi · Answer

Been there done that! If you’re buying a 1920s-1950s build expect a 60k rehab if you plan on gutting it minimum. If you get the wrong contractor though 60k turns into 150k rather quickly.

As for your options if you’re by the University. I would try to keep it since you’re already this deep in. There may be some value even renting it short term.

As for the rehab remaining. 45k sounds like a lot. You may need to do some cuts and not make the property as nice as you’d like.

I bought my first full gut property by UH 2  years ago and estimated 45k for the rehab. We finished at 101k after all the change orders tagged on. At the end I ended up firing them cause they just stopped coming to work. Hired my own crew/subbed it out. And even had to get my hands dirty to drag the property to the finish line. In the end it appraised for 30k more than I expected it to due to the market riding up (definitely got a little lucky) and I brought 10k to closing to keep the property. It was a tough 9 months! But we ended up liquidating an underperforming rental a few months later and that more than covered the expensive lesson learned. In the short term it may look like a loss. But if you can hold the grass may be greener on the other side…long term.

Matthew Rolf · Answer

@Diane McDonald sounds like a tough situation.  I'm a realtor and investor here in Houston.  I'm going to send you a PM to see if I can help in anyway.

David M. · Answer

@Diane McDonald

Wow..  Yeah, just stop the bleed and move on.

You'd have to have a strong business case to say you can dig yourself out of this.  But, it sounds like you are in over your head.  Get out and "start again."

Sell as-is to stop the bleeding, or pay a bunch more money and rent out?

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