Evaluating Alternate Strategies Mid-Deal

[Nick Coons]

I purchased a property about three months ago as a flx-and-flip, and I have about three months remaining on the project. It's a full gut and rehab. My long-term goal is to buy and hold rentals. However, I know the infinite BRRRR is uncommon (especially in markets like Phoenix, where my property is), so I know I'll probably have to leave cash in each deal. That's the reason for the fix-and-flip(s), buying those in between rentals to raise additional cash so that I can leave cash in a rental without running out (preventing me from continuing on to the next, or depleting my cushion).

My plan with this property was to net about $40k after absolutely everything. With the softening of the market, I'm anticipating a lower ARV was when I originally analyzed this property, and now I'm thinking it's realistic that I'll net $10k-$15k. That's much lower than what I'm really wanting from this deal, so now I'm considering alternate strategies. Namely, keeping it as a rental for a couple of years for the market go rebound, then selling for what I wanted (or, just keeping it as if I had intended to hold it as a rental).

In doing so, I'm looking at the pros of each. If I keep with my original plan and sell it once completed:

- I get all of my original cash back out, plus about $10k in profit. In this scenario, I have the most cash available for the next deal.

If I hold onto it:

- Best case, I can cash-out refinance it at 75% LTV and get back a little less than half my cash. That would still allow me to move forward with another deal, but with far more restrictions on what I can do because I have less cash.

- When I do sell it, the profits are LTCG instead of ordinary income.

- There are some exterior repairs that need to be done on the property before selling, but if I'm keeping it as a rental, some of these could be deferred (these items could be worked on and completed while I have a tenant in the property). However, not completing these things might affect my refinance appraisal.

- If I were in the market to buy a rental property on purpose, this would be a property that I'd want. It's a growing area, and rents are strong (and likely to remain that way).

- Since this is a full gut and rebuild, I shouldn't have much in the way of cap-ex, once completed, for quite some time.

So my questions are as follows:

- Are there pros (or cons) in the above strategies that I'm not considering that might help me make my decision? If I could somehow find a magical 85%+ LTV cash-out refinance on a rental property, that would pretty much solidify the decision for me, but I don't see that being realistic (also, with the associated monthly payment, it could cash-flow negative.. fine by me, but that would make it difficult to qualify).

- Are there other strategies that I should consider? This property would not make for a good STR, so I'm intentionally not considering that.