Need help with Rent or Flip Dilemma in Los Angeles

[Ben Taft]

Hi all,

First time posting here. I'm 34, own a business, and am very entrepreneurial. Not scared of rehabs or dealing with tenants and am happy to deal with both. RE is a passion of mine and I love it but it's not a full time job for me.. yet! I had my RE license in CA and MA back in college so I have a short background in sales and rentals. I'm trying to solve a problem here and was hoping the community can help. In the last 1.5 yrs I've purchased 2 SFR's in West Hollywood, CA. SFR #1 I rehabbed and live in - will be putting a tenant in here shortly and REFI. BRRR will work well here because it's a corner lot with a good yard and can make decent cashflow after pulling my money out.

My issue and question is on SFR#2. Purchased for high 6's as owner occupied w/ 10% down @ 2.8% on a 30yr (plan was to move in but changed), got a seller assist to cover closing costs, did light rehab and it's on the market now for 1.05M. Comps out w/ recent sales on a $/pf basis so this price is not a stretch at all and is inline w SFR in the area. I wanted to flip it to trade up and take down a bigger project that I had in the works(recently fell through) but I haven't had any offers because there is a vacant lot next door - feedback from 20+ showings. In short, it's on the market for 45 days w/ 0 offers.

Here is my conundrum ... should I drop the price, and assuming a sale occurs, take the cash (approx.150k) or BRRRR and make a few hundred bucks a month (+mortgage paydown) and just leave it forever. If I do leave it as a rental do I rent long or short term. Assuming I BRRRR, and take the initial equity + rehab $'s out, the 150k in gains won't really change my life but may come in handy for bigger projects if they come. I have other money so it's not make or break either. I also like the idea of a free house in West Hollywood giving me a few hundred bucks a month. What I'm suffering from here is a major case of analysis paralysis!

Also, here are some thoughts/ assumptions in no particular order:

~ Monthly carry is $3,550 .. includes $150 PMI

~ Monthly principal paydown is ~1k

~ No other deals in pipeline and love idea of BRRRR and having a back up plan for X years down the road

~ Don't especially like ST rentals and people trashing the house

~ Concerned over eviction moratorium and having someone move in and stop paying rent

~ Assuming I drop the price by 50k to 1M and someone buys it

~Assuming ADR + vacancy on rentals based on AirDNA

~ Not including maintenance costs on rental I know it will come up but for this exercise I want to keep it simple

~ Taxes are a +- estimate

Flip:

Sell	$ 1,000,000
Mortgage	$ (610,000)
Closing Costs	$ (70,000)	7%
Proceeds	$ 320,000
Initial Equity + Rehab	$ 85,000
Net	$ 235,000
Taxes	$ 82,250	35%
Net Income	$ 152,750

Rent:

SFR 2
Short Term Analysis
Occupancy (%)		70.0%
ADR		$ 225
Days		365
Short Term Rental Revenue		$ 57,488
Monthly Short Term Revenue		$ 4,791
Management Fee	10.0%	$ 5,749
Net Short Term Revenue		$ 51,739
Net Monthly Short Term Revenue	$ 4,312
Long Term Rental Revenue		$ 46,800
LT Monthly Rent		$ 3,900

I'm sure many of you were in a similar situation so any input/ help/ advice etc. would be appreciated! 

Best,

Ben

P.S. If anyone is in LA wants to meet up and have a coffee to chat about projects I'd love to get together. I'm always looking to get involved and work on interesting deals.

[Will Barnard]

Originally posted by @Ben Taft:

@Darius Ogloza Thanks for the response! I did but I think you have to own the property for 1 - 2 yrs min. before 1031. 

 Flips do not qualify for 1031 exchanges and your intent plays a large role. In cases of changes of circumstance, an intent to hold that had to turn into a flip could be 1031 exchanged. 12 month minimum hold period is also one of many criteria.