Rehab and Rent, or Sell?

Question

Had an inherited tenant move out after living in a property i purchased a few years back. They just moved out and the house needs some cleaning up. I'm considering selling the property to have cash to look for a 2-4 unit on-hand. Do I list the property as-is or renovate and then list? I could keep it and rent it, rents are good and in high demand but just looking for a different property type.

Theresa Harris · Answer

If it is worth $120K with clean up and $140-150K with $15-18K in renos, I'm not sure I'd do renos.  You risk going over and then you are no further ahead if you sell.

If you do renos and rent it for $300-400 a month more, it will take you more than 5 years to get the reno money back.

Sofia Komrskova · Answer

Yeah 20k over the past four years is not great. But honestly 40-45k back in your pocket doesn't do you much good in this market, especially with interest rates the way they are. I'm going to assume your PITI is somewhere in the $700-$800 range. If you really can get it rent-ready for 15-18k then market rent at $1400 isn't terrible. I doubt you'll find a MF that you can get into for 40-45k that will give a similar return that isn't in a terrible neighborhood. Renovate it, put a new tenant in there and then if you still aren't feeling it throw it on the market and see if anyone bites.

Sofia Komrskova · Answer

Happy to help. Yeah that sounds like a nice little cash cow =). Hold a little longer and see how you feel. Again, if you feel like selling it you'll be in a good position to do so in the upcoming months(Spring-Summer season). Don't forget interest rates are trending down, so you might be able to move it quickly.

Michael Mulroy · Answer

thanks for the quick reply! PITI is currently $600, so decent margin. Agree on not finding a multi with $40k, will need to put more cash in but it's a decent chunk

Michael Mulroy · Answer

@Sofia Komrskova

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Michael Mulroy · Answer

Thanks for all the great feedback and discussion! A little more details, to help paint the picture. I bought the property about 4 years ago, for $100k. I feel as-is, I can get around $120k after cleanup and some minor repairs. I don't think that's too crazy of appreciation, given the market the past few years.

That said, the house does need some work. The previous tenant was a slob and definitely didn't take care of the property. That's on me, my other properties are in good shape, this one was always out of mind. I'm estimating around $15-18k in renovations and would probably sell around $140-150k. Ideally, my goal would be to get $40-45k equity back out. A cash-out refi isn't really appealing with the rates and I'm locked in at 30 yr, 4.7% currently.

In it's current state, I was getting $1100/mo, I feel I could get $1400-1500 after reno. So I figure, if it makes $400 more per month, I'm looking at 4 year payback on the renovations with the risk of some other repairs down the road, such as furnace.

Sofia Komrskova · Answer

If it's in an area with high appreciation I would try to extract the equity via a HELOC or cash out first. If it's a headache property with little appreciation then definitely sell it, take the cash and move on to the next deal. How confident are you that you'll be able to pick up something good in the 2-4 unit space?

Pete Krusinski · Answer

When thinking about selling or holding a property, ask yourself a few things: How much do you need to invest? What can you rent it for? What's the cash flow look like with your current mortgage? Do you think the area will increase in value? On the flip side, what could you sell it for right now, and how much cash would you walk away with?

Answer these, and then see if there's a better deal out there that fits your investment goals better—like more equity, better cash flow, or more potential for growth. If you find something better, it might be time to sell. If not, holding onto it could be smarter.

Justin Landesman · Answer

Great question! This decision often comes down to a simple numbers game. First, estimate what the renovation would cost, how long it would take, and how much extra you could potentially sell the property for once it’s fixed up. Then compare that to what you’d net by listing it as-is—factoring in the time you save and the carrying costs you avoid by not renovating.

It might seem straightforward, but once you dive into the numbers, the difference between renovating versus selling as-is can be surprising. Our mortgage brokerage works with real estate investors all across the country who face these same decisions regularly. It’s never as simple as it first appears, which is why we always advise our clients to let the math guide the choice. If you need any help running those numbers or figuring out your options, don’t hesitate to reach out!

Jack Krusinski · Answer

How much would you have to put in it, what would it rent for, with your current mortgage (if you have one) what would the cash flow be, and is it in a good appreciating area that you believe in? Then on the opposite side, what could you sell it for and how much cash would you get at closing? I would have answer to the questions then with those answer, I would ask, can you find a better deal (equity, cash flow, appreciation potential etc.) that better fits your portfolio and is it worth the extra time? If the answer is yes, I would sell. If it is no, I would not sell.

Rehab and Rent, or Sell?

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