Distressed Property in Baltimore - Hold or Sell ?

Question

Hey BP,

One of my family members owns a 2br/1ba distressed property in Baltimore City free and clear and is considering transferring it to me (she has gotten older and can no longer care for the property). The property is located in the 21216 area east of Hilton Pkwy and if I chose to keep as a rental, it would require a full gut renovation. The three GC renovation bids exceed $50k - more than the ARV (based on comps in the 21216 neighborhood - the highest comp is about $60k). The area also is not the best.

I've been thinking about how I best leverage this property and these are the possible options I have come up with:

1. Save my own cash and fund the repairs myself

2. Sell it and use the funds to 1031 exchange into another property

3. Hold the property and use as collateral to secure LOC or loan - use those funds to acquire other rentals (an appraisal in its current condition probably would not allow for this to work)

4. Use a HML to fund the repairs and refinance into a conventional mortgage later (I'm thinking I would have trouble with this, as many of the refi lenders I have spoken with have minimum loan limits that this property would not fit into)

I'm curious what other investors would do in this position. Any constructive feedback regarding these options or additional ones is welcome.

Thanks,

Keenan

Matt Schelberg · Answer

Do not rehab it if the cost is truly $50k. You could buy a 2/1 rental for that amount in 21216, and save yourself a lot of time and trouble.

Sell it as-is and reinvest the proceeds. Pick your battles, don't just take this one because it fell in your lap. There are lots of Baltimore properties for sale that don't require a full rehab. Look for properties with nasty photos online but that actually have good HVAC, plumbing, electric, and roof. There are some solid values there.

To prep for the as-is sale: Spend a weekend cleaning up the place so potential buyers can at least see the walls/floor. Your goal is to reduce buyer uncertainty. If BGE can turn on the power, turn that on so there is some lighting. Seal it up tight for security and put an alarm inside to protect it until closing.

Melanie Hartmann · Answer

May depend on the area but I'd highly recommend unloading that onto someone else who actively invests in that zip code and can get the rehab done on the cheap. Either sell it via auction or do a flat fee listing on the MLS. I know a few realtors who would be happy to list it for a flat fee as well for about the same price as doing it yourself but will keep all those "we can list it for you" calls from agents seeking out FSBOs. We also wholesale Baltimore properties so I could help you with that as well. Let me know!

Ben Guttman · Answer

@Keenan Rusk a buddy of mine just did #3 really successfully. Look him up on here @Cassidy Burns he made a video on it

Joe Norman · Answer

Your strategy will depend heavily on whether or not you want to manage the property as a rental.  If you are up for managing it then use your cash to BRRRR (there aren't a lot of lenders out there for this type of property, but there are a few if you look hard enough).  If you don't want to manage then either sell it as a shell or renovate and sell as a turn-key rental (just be really honest with yourself about the ARV so you don't over improve).

Good luck!

Alan C. · Answer

It would depend on the current condition. You could sell it for cash,but if that cash wouldn't help much with your other investment ideas,  I'd sell it with owner financing. That's assuming it could be repaired to pass rental inspection for a relatively modest sum. I'd first verify that the buyer already had the repair funds available.

Offering seller financing will allow you to get a price that is higher than the market price. Also, if structured properly and then seasoned, you can always sell the note for cash if you need a lump sum.

Feel free to contact me for more ideas.

Sebastian E. · Answer

Hi @Keenan Rusk I own some properties in that zip. Your best bet it is to dump the property and use the proceeds (however small) as a downpayment on a better asset. A 1031 would be fine but it honestly isn't going to make much of a difference because the sums are small so the taxes you would pay would be fairly marginal. None of your scenarios around lending would work because it will neither appraise nor will a bank or lender want to have an asset like that as collateral. Happy to help in any way I can.Sebastian

Account Closed · Answer

glad to give you some ideas, we are auctioneers and just sold two on Hilton.

Justin Lanciault · Answer

@Raphael Turner

21216 is quite diverse, depends what areas you are looking in.

Justin Lanciault · Answer

What’s the rent? One of my rentals in 21216 gets 1000 a month, the other gets 1700.

If you hold long enough, it could be worth it, but the question is, do you want to hold it long enough?

Raphael Turner · Answer

Thanks @Justin Lanciault I'm looking at Norfolk Avenue for some BRRRR investing focused on Section 8 tenants.

Distressed Property in Baltimore - Hold or Sell ?

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