flip won't sell - backup strategies

[Rick Fowler]

I'm looking for advice on what to do with my flip that won't sell. It's 1375 Locust St, Denver. Because of extra rehab and holding, I'm getting close to my breakeven, so I'm looking for my best options. Here's what I've thought so far

- drop the price faster until I sell it and take a loss (but at least get some of my money back to invest elsewhere)

- refi and rent it (rents 2500-3200/mo); maybe a renter will care less about the busy street? Still have the selling problem eventually
- refi and sell with lease option; maybe a tenant/buyer is having a tougher time buying in this market because most sellers don't have to fiddle with buyers who aren't ready? This strategy looks like the best numbers to me.

- work harder to find the ideal buyer who wouldn't care about the busy street; who might this be at this price point?
Two questions: 1. If lease/option is a good strategy, then I'd like to discuss with someone who's done them since this would be my first 2. What other strategies should I consider?

Some facts
- 4 bed, 2 bath, 1 car detached garage, alley access - it's on the corner of 14th and Locust; 14th is busy, not like Colorado or Monaco - 80+ showings since week before Thanksgiving - Original list: 474,950, lowered to 459,900 early January - consistent feedback: love the rehab; hate that 14th St is busy and gas station behind the alley; priced about right or slightly high
- the flip next door sold for 432k in January but is not as big or as nice a rehab; gave a concession for landscaping to accommodate for gas station behind the alley (my listing includes this concession as well)

I am grateful for any insights. Thanks!

Rick Fowler

[Matt M.]

Not only is it on a busy street, but it backs to a gas station. The price is not low enough for someone to consider overlooking those facts. Can you refi out of the HML with Merchants to get a lower rate for a rental? Do you want to tie up your money with this property?

If I was shopping in this price point, I wouldn't want to live there. I wouldn't let my clients buy a house there either. Personally I'd chalk this one up as a good lesson about location, cut my losses, and move on. 

[Anson Young]

I'm going to cite a few things:

I liked the design finishes and choices until I got to the huge bathroom in the basement, why a 5 piece in the basement?  Basement masters are pretty much undesirable.  If I moved in to that house I'd never use the basement bathroom on a daily or weekly basis, as nice as it is.  Buyers who see themselves living there will ask themselves the same question: in order to use this huge bathroom I'd probably have to live in the basement...

Gas station, does not help the upper bathroom pic basically envisions you stepping out of the shower and exposing yourself to people filling up their cars in the morning.  Sure, you have the landscape credit, but you could have solved that problem for them by putting up the trees yourself.  Less basement bathroom money and more trees blocking the gas station would have gone a long way.

The flip next door I feel did a better job of choosing finishes and pricing according to the factors of the 14th street being so busy and backing to the commercial spaces (gas station, papa murphys, etc).  I would have comped this, immediately saw that around $432k was the high end of what remodeled homes have sold for with the same exact circumstances.

I'm with @Matt M. - I wouldnt live here, and if showing clients I wouldnt advise them buying.

I know the wholesaler you bought it from, and they do good work. I cant find this email that had this property to see what they said ARV was...

Hope that helps, I'd drop price and move on.  

[Brian Gibbons]

Houses with Lease Options are nice quiet street, good schools, 4-5 B 2B.

Id lower the price, sell fast, take the hit, move on, or just rent it out.

@Rick Fowler

Ask yourself,

Would you live on that location?

People buy the neighborhood as much as the house.

[Jeff B.]

Renting at any price is better than holding at ZERO income.  Calculate your fixed cash outlay for holding as-is . . . mortgage, insurance,taxes . . . and rent month/month for that amount and tenant pays all utilities.  Now you can hold for "free" until you can sell it as a break even adventure.

[Donald Capwell]

A thought about that bathroom window that might help... Get some of that "frosted" look window treatment from the local home improvement place - not a heavy pattern, but enough to to allow the light to still come in, but blur or remove the view of that gas station.  Hide it in plain sight, so to speak.  It's gotta be better than what you have now, which only hurts you... Maybe a simple window treatment, too??? 

The remodel looks nice, but I can't comment about the area or offer anything beyond what the other posters offered...

Good luck!

[Travis Sperr]

Price fixes everything, even gas stations. As you know our market is red hot, especially in this price point. I would either drop it until it sells and move on. Or rent it until you can sell it, but what will really change? I don't like renting it because it will never show as well as it does now, but eases the pain.

lease option is a decent idea, because someone might get a decent "deal" if prices continue to increase in Denver. But it is my guess the lease option buyer, finds that they don't like living by a gas station and busy road.

Hard part about a refi is that it will not appraise for more than your last listed price, so how much more cash into the deal to get it refinanced?

[Dorothy Ma]

I agree with the previous posts - best option is to sell and cut your losses.  Renting will cause wear and tear to your brand new flip, so unless you're planning on living in it or renting it for a long time, it doesn't make sense to dirty it up before you have to sell it soon anyway.  It looks like you may have out priced yourself, and may need to drop the price significantly - the one next door that sold for 432K while is not bigger, still has same number of bdrms and baths.. I think that's a pretty solid comp for this property.  

I also agree with @Anson Young, while basement master baths are not desirable, I've definitely done a few in my flips in the past just because configuration made the most sense without having to re-structure everything.  And a master suite in the basement is always better than no master at all, as long as the numbers make sense.  However, that bathroom looks huge! I think you could have easily configured it to be a walk in and a master bath or added another room out of that extra sq footage.  Also, from an architect/designer and female perspective, always put a double sink with lots of counter space in the master.  I understand these are after the fact comments, but it may help with your future flips.

[Rick Fowler]

Thank you all for the insight. I am leaning toward dropping the price to sell it faster mainly because I don't want to kick the can down the road. A couple of clarifications:

- The large master bath in the basement was already there - I didn't spend a dime on it. 

- The wholesaler estimated ARV of 445k last April, which I originally thought was high. There were many solds of similar size in this area much higher than that, but the key was to figure how much the busy street and nearby commercial mattered. Those of you investing in Denver know the market is insane and that 3-6 months adds still more appreciation, and the insanely low inventory has led to bidding wars, cash offers over list, etc. That happened on my other investments last year. I ran my numbers on ARV of 445k but set the list price 7 months later based on my listing agent's analysis. Note: I got it under contract with wholesaler in early May and closed early July and listed mid November.

- I definitely missed that the gas station would be visible from the house (a walk up to the main floor) because I bought it in the summer, and the trees blocked it mostly. Leaves fell in the fall/winter when I listed it. Adding more of a barrier to the fence or adding more trees I don't believe will help much because the main level is above the ground 3-4 feet, and the sight line to the gas station awning is upward.

- The flip next door started at 475k and dropped price twice and sold in early January, so the sold price was not available when I listed mine. They were about a month ahead of me. I viewed it after all finished, and the work and materials were not as high quality, basement ceilings are less than 7 feet. Really, it's not as nice. But I understand the location is going to trump on this one. The neighborhood is desirable, but my lot is not.

Expensive lessons, but good ones nonetheless. Thank you all again for the feedback.

Rick

[Bill S.]

@Rick Fowler another vote for price drop to move it. I agree with @Dorothy Ma that renting really hurts you because now you are selling a "used" house vs one that is essentially "new". That is probably worth what you would gain in appreciation and you have the time value of money.

Another consideration with the rental approach. Your rent price is in a very competitive segment of the market. There are lots of options for renters with that kind of money. It will be hard to rent and I would figure on the low side of your price point.

As for a lease option. Statistics tell us that most lease options don't ever get sold. In most cases it's simply a strategy to generate additional revenue for the owner. Don't count on that as a means to move the property although it might work to generate more income if you decide to keep it.