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Updated over 1 year ago on . Most recent reply

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30
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Ann Mclean
16
Votes |
30
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Flip with no profits or hold and rent for no cashflow.. what is a better strategy?

Ann Mclean
Posted

I have a property that I have remodeled that is ready to hit the market, unfortunately after crunching the numbers, I will not be making any profit or only just $5000 on a cash investment of about $190K. I bought this property in June.  In this market and with the interest rates rising, does it make sense to hold unto this property and rent it out instead of selling it and walking away with no profit?, For the experts out there, what will you suggest? Should I refinance and rent it out (hard loan balance is about 400K and possible rent in the area is $3000 - $3500. or should i just sell it and recoup my investment without any profits..... please weigh in on this and let me know what you guys will do if faced with a situation like this.  Comments will be greatly appreciated.

  • Ann Mclean
  • Most Popular Reply

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    477
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    Andy Sabisch
    • Investor
    • Wilkes-Barre, PA
    399
    Votes |
    477
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    Andy Sabisch
    • Investor
    • Wilkes-Barre, PA
    Replied

    Not the optimum position to be in on a property . . . . did things change in the project that have your numbers where they are; i.e., did the market drop in terms of ARV or did your reno budget go over estimates? Remember, you make your money when you buy not when you sell so hopefully you are looking back over the entire process from analyzing the purchase to the reno phase to see where your profit went. With that, the interest rates have totally changed the landscape when it comes to selling, buying and renos. HML costs can eat up profit in a heartbeat when you have a delay in getting material or labor is hard to get on the job. More people are opting to stay where they are and fix up their place rather than sell and buy at the higher interest rates which then tightens the trades availability even for us with a history with them.

    As far as your current situation, refinancing a non-owner occupied property with the balances you have will be about a break even proposition and that is excluding the $190K you have into the project.  With interest rates staying up there for probably the next 12 months at least, do you see the market turning and the property increasing in value in that period?  If not, I would treat this as a lesson, sell and move on to the next project incorporating the lessons learned on this one.  Flips are about profits (which you do not have) and rentals should be about cash flow and invested capital (which in this case will be far less than what you could make on a CD today).  As the saying goes - "Damned if you do, Damned if you don't" - so with neither option being where you want to be, getting out from the project and learning from it would be our recommendation.

  • Andy Sabisch
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