Fully Renovated SFH in Buffalo, NY... Do I sell it or add it to the portfolio?

Question

Hey All,

Question for the masses here. I bought a house that I intended to flip. During the project, a bunch of things came up that were addressed that made me go over budget and over my timeline. The house, however, is pretty much brand new and the work/craftsmanship was well above average. Its an EXTREMELY solid home (not your typical renovated home/"flip") that will need absolutely nothing done to it for the next 15-20 years (besides new concrete). I am wondering if I should just add this to my portfolio and rent it out long term (I have 6 units right now: a Quad and 2 SFH) or bite the bullet for the next few months and toss it back on the market when it picks back up here in the summer (located in Buffalo, NY and the market is BARREN during the winter). The house is in a nice, quiet working class suburb (solid B) and is conveniently located to everything.

https://www.zillow.com/homedetails/44-Birkdale-Rd-Cheektowag...

The home features:

New roof, siding, gutters, facia, windows, electrical (including upgrading to 150 amp service with a sub ran to the garage), plumbing (from the main), sump pump, furnace, AC, glass block windows, garage door and man door, fully gutted kitchen with beautiful cabinets/quartz countertops, lifeproof flooring, fully gutted bathroom, paint, landscaping, etc etc. The house is literally brand new outside of the concrete and swapping out the old concrete stationary tub in the basement.

What are your thoughts? Here are the numbers:

PURCHASE PRICE:

$120,000

RENO:

$75,000

ARV:

$235,000 (could be 250-260 during summer/if rates drop)

TOTAL COSTS:

$220,245

GROSS PROFIT:

$14,755

TAXES:

24%

NET PROFIT:

$9,309

CAP RATE:

9.90%

CASH ON CASH:

6.09%

GRM:

10.0308642

Jose Jacob · Answer

I believe you need to crunch some number to make a better decision. I will refinance and rent it out if rent can cover all expenses.  Again you did a great job on renovating it.  Do you think the tenant will keep it like that if you do an LTR.  If you are near the hospital, try to do MTR.  The question to ask yourself is that "Am I going to do more fix and flips using the proceeds ?"  Or "Am I building up my net worth ?"  Your decision will depends on the answers to those two questions

Timothy Smith · Answer

@Paul Zackey for some reason, nothing is displaying under your last line “here are the numbers:” so I can’t see what you actually have in the deal compared to your asking price of $220k. I’m not as familiar with the Cheektowaga rental market, but a quick look at 3/1 SFH comps available right now shows maybe $2K/mo on the high end. Can you cash flow or at least cover the cost of your capital invested?

Another thought is STR, though that will take another ~$15-20K in furnishing (and I don’t know  Cheektowaga’s STR laws) or Airbnb arbitrage. Or look into demand for MTR in that neighborhood. Being close to the airport, you might be able to get some regular stays from airline crews, but most of them have hotel contracts (this came up in a recent local MTR round table hosted by Town Real Estate).

Anyway, just some thoughts. I’d honestly try to hold the asset if you can, as once you sell, it’s gone. And with everything updated, your maintenance and CapEx should be minimal for many years.

UPDATE:

I looked at your post again from my computer instead of my phone and could see all of your numbers. What is the cost of the money you've already invested? Is it tied to a HELOC, PML, or another source that is charging interest? If it was purely cash, I'd refi and hold on long-term, as you'll do much better than realizing a $9000 profit by holding. If you are paying interest on your invested money, that gets a bit trickier as you have to cancel out that expense with your income. Just my $.02

Bill J Fay · Answer

The power of choice is in your hands. Do you need the liquid $9k in your pocket now? Reach out to some DSCR lenders to get an idea of how your refinance would look so you can compare the two.

Timothy Smith · Answer

@Paul Zackey I think the hold is wise. The asset will grow in value, even if it takes a dip in the short term. Your invested capital doesn’t come at an expense (ie 9.5% HELOC) so hold on even if it means slowing your growth with regard to buying the next one. Watch. Research. Learn. Network. I struggle not being constantly active myself, so I acknowledge the discipline this takes.

Good luck! Hope to meet in person around town.

Paul Zackey · Answer

Great question. I don’t see myself doing too many more flips beside live ins. I’m more looking to grow my portfolio and focus on cash flow/forced appreciation at this point in my life. There is more long term value add in buy and holds than fixes and flips for me going forward.

If I do decide to sell this, it would be to roll the gains into another multi family or a larger project but having a house as solid as this is in my portfolio is incredibly appealing.

Paul Zackey · Answer

Good points. I am also thinking I will have minimal if any real maintenance outside of normal and I would hope I could find a very good mid to long term tenant at the $1800 price point.

I had an offer slightly above asking that I considered but ended up turning it down and pulling the listing until rates come down and I can actually time the market.

The thought of adding this to my portfolio has grown on me especially if I can find a solid tenant. I am also going to explore a mid term rental as it’s conveniently located.

Paul Zackey · Answer

I appreciate the reply. Fortunately this was cash I used from my last live in flip.

I agree. I have decided to keep the house and rent it out. I figure if I do need capital for my next project, I will utilize a HELOC or some other means. I put too much time and care into this house to let it go for $10-12k - it’s going to be super solid for the next 20+ years with little to no maintenance.

Matthew Irish-Jones · Answer

I don't think you are going to get 250K+ for this home, even next summer.  The market is starting to soften and price bidding has slowed down.

If you can rent it out and cover expenses and save for maintenance and CapEx that is a good option, but that is going to be tough being 220K all in.  Just running some really quick numbers it looks like $1800 is market rent.

When you run your numbers on the rental you can bring your variable costs down for CapEx and maintenance because you front loaded all the risk.  You may also have lower vacancy and turnover because its a single family.  Basically, your variable expenses could be low enough that it is worth keeping if you are getting debt paydown and appreciation.

Lisa Graesser · Answer

You did a nice job on the house, it looks great. The house is conveniently located near many hospitals that do employ travelers and you may do well as a midterm rental if you want to manage it and spend the money to furnish it.

Bob Stevens · Answer

Just run the numbers, if it will pull in 10% + net cap keep it. If not sell

Fully Renovated SFH in Buffalo, NY... Do I sell it or add it to the portfolio?

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