Fix and Flip - Need advice keep or sell

Lender · Santa Monica, CA · Member since 2023 · 63 posts · 26 votes

2y

3. I like the DSCR loan route the best if you truly think the neighborhood will improve. 3-5 years is quite awhile but a DSCR loan for 30 years may be helpful in this instance.

If you would like to discuss more options in general please feel to reach out

0 Reply

Erik EstradaBusiness Member

Lender · Member since 2022 · 6k+ posts · 1k+ votes

2y

Quote from @Scott Russell:

Purchased the house with cash (3bd/2bth). The renovation cost was half personal money other half HELOC from other rental. The carry over cost with utilities and HELOC interest payments is about 1k a month. I still have a pretty good amount of reserved cash in the HELOC.

House located in transitional neighborhood. It's a growing area with lots of potential within 3-5 years. Its the first house in the neighborhood to be fixed up by far. We've had a lot of interest in purchasing but people can't get over the neighborhood. They see the potential but not willing to move into a neighborhood with the current status. I have dropped the price over the past few months by 8% and standing still now. I've owned the property for about 7 months.

1) I can drop the price another 13% and break even.

2) Drop the price 1-2% thought-out the next few months and hold until it sells? I can pay carry cost for a few months...

3) I considered renting and Pulling 100% of my cash out and paying off the HELOC... the rental income would not cover the mortgage payment. I could leave some cash in it? DSCR Loan?

4) Risk short term rental... Some of the houses do great in the area and some do not.

5) Any other advice?

A lot of investors aren't able to debt cover with higher interest rates nowadays. If the long term goal is to keep the property for future appreciation it could make sense to refi. But if your goal is to build cash reserves, continue to grow your liquidity to eventually buy rental properties in the future, then it may make sense to break even, and keep hunting for deals.

[email protected]818-269-7983

LuxePrivate Investments LLC 572 Reviews

Website View Page

0 Reply

Mike Klarman

Specialist · NJ · Member since 2022 · 1k+ posts · 649 votes

2y

1. Not time to be in this headspace yet

2. This is the short term path

3) Actively pursue this option while number 2 is in place

4) If you struggle with 3, then try this. But if you're willing to do a partial cash out, may 60%, and keep your mortgage lower and cashflow higher, then you have a cash flowing asset with equity left on the bone for a down the line refi plus you are liquid again.

1 Reply

Matthew CrivelliBusiness Member

Lender · MA · Member since 2021 · 1k+ posts · 1k+ votes

2y

@Scott Russell

If you do go the DSCR route be prepared for the possibility of getting a low valuation on the appraisal. The appraiser may have similar sentiment to the potential buyers that are walking after they look at the property. Your estimated ARV off the mark.

I've had many appraisals come in low when the property is in an area where flippers are attempting to gentrify.

[email protected]413-348-8346

Freedom Capital Funding, LLC523 Reviews

Website View Page

0 Reply

Mike Klarman

Specialist · NJ · Member since 2022 · 1k+ posts · 649 votes

2y

In the last 6 months most appraisals everywhere were missing the mark. I had borrowers telling me they were gonna get 250k on it when done and the appraisal would come in 200k. Messes up the whole loan.

1 Reply

Scott Russell

OP

Member since 2019 · 6 posts · 3 votes

2y

I already have a renter willing to pay rent. I was gonna pull enough cash out to where the rent will cover the mortgage amount? (do a cash out refi for my cost and leave profit in the house)

I haven't dropped the price again. Does it look bad to repeatedly drop the price on a house? I have dropped it 3 times in the past three months. If I do a big drop will a buyer think something is wrong? I have about 35k of wiggle room until I break even.

0 Reply

Erik EstradaBusiness Member

Lender · Member since 2022 · 6k+ posts · 1k+ votes

2y

Quote from @Scott Russell:

I already have a renter willing to pay rent. I was gonna pull enough cash out to where the rent will cover the mortgage amount? (do a cash out refi for my cost and leave profit in the house)

I haven't dropped the price again. Does it look bad to repeatedly drop the price on a house? I have dropped it 3 times in the past three months. If I do a big drop will a buyer think something is wrong? I have about 35k of wiggle room until I break even.

If you can keep it and ride out the storm, and sell at a later date this could be a sound strategy. Just be mindful of any PPP if you are planning to refinance with a DSCR based loan.

[email protected]818-269-7983

LuxePrivate Investments LLC 572 Reviews

Website View Page

0 Reply

Steven Goldman

Lender · PA · Member since 2019 · 533 posts · 461 votes

2y

Quote from @Scott Russell:

I already have a renter willing to pay rent. I was gonna pull enough cash out to where the rent will cover the mortgage amount? (do a cash out refi for my cost and leave profit in the house)

I haven't dropped the price again. Does it look bad to repeatedly drop the price on a house? I have dropped it 3 times in the past three months. If I do a big drop will a buyer think something is wrong? I have about 35k of wiggle room until I break even.

I would rent the property out and refinance it. If you slowly drop the price only the bottom feeders will show up to buy it. If as you say the neighborhood will start maturing in 2-3 years than cash out and let a tenant carry the property until it reaches a higher value. Keep in mind you may need to invest some money in the property to get it ready for market in a few years. Good luck!

0 Reply

Brad S.

Investor · Pasadena, CA · Member since 2017 · 612 posts · 523 votes

2y

This is why there is the saying "location, location, location." Based generally on what you are saying, the location has a good potential, coming relatively soon. So, that's a positive and it sounds like you can benefit from that by figuring out a way to hang on until then.

So, my suggestion is to go back to the good 'ol forgotten CRE (creative real estate) roots. I would think about doing a lease-option sale. Pull some of your money out with a loan (figure out what # works), and offer the house as a lease-option, where a current unqualified tenant/buyer may be interested in the potential opportunity to purchase the house at some point in the near future (12-24 months).

Typically, they may be more willing to overlook some issues, like current transitional neighborhood, etc, they sometimes have enough cash and other non-descript income to afford a non-refundable option consideration payment, along with somewhat higher than market rent, which would hopefully cover your holding costs. Since they are a tenant/buyer, they may take better care of the home, since they feel an ownership interest in, you can agree that they take care of most of the maintenance issues, and you can agree to sell at the future market value at the end of the option period and not below a specified #. Actually, you can craft the deal anyway you want and alter it as needed depending on the feedback or lack thereof, you get. Another benefit is you open up to tenants that never thought they would be able to qualify to purchase a home and you could help them do it and they are happy to pay you more.

Anyway, an option to consider. There are lots of details on lease-options around, you could do an inter-webs search if that is of interest. I also may have some older stuff to share if you are interested.

0 Reply

Jacob Sherman

12 Penns Trail Suite 138 Newtown, PA 18940 · Member since 2023 · 1k+ posts · 319 votes

2y

If it was me I would do a cashout refinance to free up the line of credit and get back some of your cash invested and then rent it to a long term tenant and wait it out . Can also sell it as an investment opportunity when its rented and cash flowing

1 Reply

Shawn Parsh

Real Estate Investor · TN · Member since 2010 · 294 posts · 160 votes

2y

Quote from @Brad S.:

This is why there is the saying "location, location, location." Based generally on what you are saying, the location has a good potential, coming relatively soon. So, that's a positive and it sounds like you can benefit from that by figuring out a way to hang on until then.

So, my suggestion is to go back to the good 'ol forgotten CRE (creative real estate) roots. I would think about doing a lease-option sale. Pull some of your money out with a loan (figure out what # works), and offer the house as a lease-option, where a current unqualified tenant/buyer may be interested in the potential opportunity to purchase the house at some point in the near future (12-24 months).

Typically, they may be more willing to overlook some issues, like current transitional neighborhood, etc, they sometimes have enough cash and other non-descript income to afford a non-refundable option consideration payment, along with somewhat higher than market rent, which would hopefully cover your holding costs. Since they are a tenant/buyer, they may take better care of the home, since they feel an ownership interest in, you can agree that they take care of most of the maintenance issues, and you can agree to sell at the future market value at the end of the option period and not below a specified #. Actually, you can craft the deal anyway you want and alter it as needed depending on the feedback or lack thereof, you get. Another benefit is you open up to tenants that never thought they would be able to qualify to purchase a home and you could help them do it and they are happy to pay you more.

Anyway, an option to consider. There are lots of details on lease-options around, you could do an inter-webs search if that is of interest. I also may have some older stuff to share if you are interested.

Scott,

If I were you I would do what Brad suggested with a lease option. I have used them many times. He list several advantages in doing so, but I will add a couple thoughts. First make sure you take a non refundable option payment. If you advertise the place as a rent to own you will likely get some interest. I would then show the property to all potential parties at the same time. I would have each interested party tell me how much they can afford to put down and how much they can afford to pay a month. Make sure you collect all interested parties contact information. I would use a three year option period allowing the potential buyer to fix their credit, established time on their job, and demonstrate a good payment history.

The great thing about your timing is that a lot of people are getting ready to get a decent tax return that they could utilize as their option payment. Once you do your background checks you then select the interested party that has the largest option payment and can afford the highest monthly rent. I would also, as suggested, put in the lease that the tenant is responsible for all minor repairs.

Once you select the party that will get to lease option your home you then find properties that meet the needs of the other interested parties that were not selected. You will already have their contact information, know what they are looking for, know what option payment they can afford, and what monthly rent they can pay. It is always nice when you have the buyer or in this case potential buyer before you even buy the property. Good luck.

0 Reply

Scott Russell

OP

Member since 2019 · 6 posts · 3 votes

2y

Update:
While I was in the process of doing a cash out refi on the property to rent it I lowered the price by another 5%. Within 24hrs hours I had 4 offers??? The house went into a bidding war and went for 14k above asking price! Maybe I read the area wrong when listening it? Overall I had to drop the price by 50k to get it noticed...

I'm still learning a lot with fix and flips and using your own cash reserves. Maybe ill take a look at "fix and flip" loans or other means of getting the funds to buy a property.

2 Reply

John McDonald

Member since 2023 · 158 posts · 96 votes

2y

I would research doing a lease option for the person willing to rent.

0 Reply

Fix and Flip - Need advice keep or sell

Fix and Flip - Need advice keep or sell

Most Popular Reply

13 Replies