BRRRR or Sell that is the question - Deal analysis help

[Jason Hill]

You can read all the blogs and listen to all the podcasts but, until the rubber meets the road you'll never have all those theories tested.  That's where I am now and I have no clue what to do.  I think I'm stuck in analysis paralysis.  Keep in mind, this is a rental I own currently and I don't know whether to fix it up or sell it.

Details:

Mortgage: $81,000 left, $550/mo (PITI @ 4.5%)

Rent: Currently $800 (slightly below market because renters are amazing) $1000 after rehab (will move renters into another unit)

Rehab costs: $21000 (immediate HVAC replace/deferred maintenance/new roof in 2-5 years)

ARV: $125k

I've also played around with the idea of a self-managed Airbnb.  Airdna (don't know how reliable their data) says it's a $1800/mo gross unit.

[Steve Olivier C.]

@Jason Hill

Hi Jason,

With a strategy of type BRRRR, you could get cash to recoup the rehab costs while keeping your current property, if you take your existing mortgage to a bank or lender to do a refinancing of type Cash-Out: up to $35k, corresponding to standard market practice for such refinancing type where you get up to 80% of the difference between what you said you have left to pay on your existing mortgage ($81k) and the current property valuation ($125k it seems). The terms of the refinanced mortgage should be similar to or better than your current mortgage terms, because the rates in general now are historically amongst the lowest. Therefore you would be able to increase rent as you said to $1,000 after rehab, without cash outflow from you overall (net) after cash-out refinancing.

Rental of your current property would then give monthly net cash flow of $1,000 income you estimated, less your mentioned monthly cost of $550 (assuming the mortgage after refinancing is going to be at similar or better cost for the reason discussed above) less other expenses you are already paying. So, you should get net cash flow improved by at least $200 per month, without net cash out of your pocket after cash-out refinancing. Hopefully it's profitable for you already there.

Selling your property would get you about $41k net, assuming you deduce broker costs of 6% from the proceeds after paying the $81k left on the mortgage and receiving the $125k value you estimate from a sale. Compared to the cash-out refinancing approach: selling would provide about $6k additional cash and you won't be getting anymore net cash flow from renting it (of course if rental is not profitable you might not mind about not having to deal with its operation net cash flow).

Good luck with everything. I'm looking forward to hearing how things go or to further talk directly if you want.

All the best with your deal!