** Please Help!! Property Analysis/Decision **

[Paul Nagy]

Hello and thank you in advance for your ideas/guidance and help. It is honestly much appreciated!!

I purchased my first rental property 11 years ago with zero knowledge of what I was doing and today things are only worse...The house address is 5120 NE Ash Grove Drive, Lees Summit, MO 64064 in the Lakewood area. It was built in 1987.

The house is 3600 sq ft, 5 bedrooms (4 above grade, 1 below) 4 bathrooms (3 above, 1 below). Above grade square footage is 2100 and below grade walk out basement is 1500. Also in the walk out basement is a full kitchen, living room, etc. 2 car garage.

I paid $262,000 in 2006 and purchased it with a $0 down payment, no income, no verification interest only loan for the first 10 years. The current balances are:

1st loan $208,000 at 6.75 Monthly payment is $2,152.56 PITI with 29 years remaining.

2nd loan $47,326 at 9.75 Monthly payment is $456.48 with 29 years remaining. 

The tenants have been there for 10 years and pay $2,150. The interior of the property is very bad (appraiser told me most foreclosures are nicer!) and i'm guesstimating it would need approx $75,000 to bring it to selling condition. Earlier this year I put on a stone coated steel roof for $28,000 and had it repainted/wood rot siding repaired for $3,600

With the $75k repairs it would be worth approx $300k on the low end and $325 on the high end. 

I have no idea what to do with this property, I'm 40 years old and really don't want a foreclosure on my credit report and I also don't have the $75,000 needed for the repairs (although I could put together $50k during 2018)

Thank you, Paul~

[Joe Villeneuve]

Originally posted by @Jeffrey Taylor:

If you are married to the idea of selling the house ignore this post.

I would recommend raising that $50k in 2018 and using it to bring the property up to rentable condition. This is a bit cheaper than sellable condition because you don’t have to deal with a home inspection. You can delay repairs that are necessary but not urgent and focus on cosmetic issues. That way you get it rented and buy time to raise capital. You are already losing money monthly, but you clearly not going to find another renter as it is, so let them stay while you raise the cash to do repairs. Just as soon as you can, kick them out and keep the security deposit, because it sounds like they were awful. Then do the repairs quick and re-rent it for at least what you pay monthly. Once you have the house rented and you aren’t losing money you can look into refinancing if that is an option for you or else save up to finish the repairs and sell it from a position of power rather than desperation.

 There are a few problems with this solution:

1 - If you let the renters stay while you are making the repairs, and thus far they've shown they are not taking care of the house already, what are the odds of the repairs being trashed as well?

2 - Based on the numbers, after the rehab is done, the rent would need to be raised at least $500/month just to break even.  Not likely.

3 - Rehab + current payoffs = +$300k.  After Repair Value = $290k.  This would NOT be from a position of power.  Plus, add the $2100/month loss of income (tenants gone during rehab) due to vacancy while rehab is being done (I'm guessing at least 3 months).