Success, but did I do the right thing?

Question

We bought this property as a buy and hold. 3/1 hot neighborhood- basically a gut rehab. My sister and I found the deal off market, and paid $160k, cash. After a brutal 4 month rehab, with a couple of all nighters near the end, we had our C.O. and were ready for renters. By then we were into it for $206k, plus my considerable labor. We rented the place for $1550 month, which was low for our area, but we were thinking we might split the lot and the tenants would have to endure the construction nuisance. Anyway, short story long, we did nothing for a year, no new construction, and when the lease came due the tenants put an offer on the property. After 16 months we closed at $326k, having collected one year of rent. Our bank account now sits at $333k. Taxes to come, of course.

I know it is terrific we made money. My question for the community is should we have stuck to our buy and hold plan? We gave up the possibility of: 1) raising the rent 2) Maximizing the property with an additional rental unit, all for a short term gain @$100k?

-Yes the newlyweds and their 2 cute boys really wanted it.

-Yes, we are worried that we are at the top of the housing bubble.

-Yes, $100k is a lot of mullah for us.

-Yes, being a landlord is real work and some worry.

What would you have done?

Alexander Felice · Answer

CongratsI can't recall another thread where someone was so down on themselves for making 100K. ;) ;)you'll look back on this deal and think of things you did well, and things you should never do again. Also consider that you did this in the best economic market you could possibly have. It might not be repeatable, especially when you held it for so long. Next time plan your exit strategies better. I wouldn't have kept that house as a buy and hold AT ALL, I think selling it was quite a good idea. Now you can use that capital to buy a better rental ;)

Alicia Spence · Answer

@Derek E. Yes it was a learning experience. I know I did too much work on it by myself, for all the usual reasons, plus I was treating the reno as some sort of long, dirty meditation on real estate investment. The idea of finding a true multi is great advice and we are pursuing it as we think it is a pretty great way to secure passive income, and more doors makes moving toward hiring property management (I truly dislike that part). All the words of encouragement are really gracious, and helpful. Already I feel better about 'losing' the passive income and remembering there are more deals out there. PS- I just figured out the mention feature, so thanks again Joe Marshall, Alexander Felice and Peter Moser

Peter M. · Answer

Well congratulations. Sounds like a great learning experience and a very positive outcome. Only in hindsight will you be able to know if it was the right thing. I am struggling with this same scenario now. I have a house I am renting that I plan on being a buy and hold. Its a cash cow but I could clear a good amount of cash to buy more properties. It's tough but if you think you are at the top of a bubble then you sold at exactly the right time. Ultimately you did it, made money, and now you can take that profit at do it again. Maybe the next one you will keep for 30 years or maybe it will be a flip. It didn't go according to your plan but in any business you have to stay fluid and adjust. Sounds to me like you did that so in my opinion you did the right thing because it was the right thing for you at that time. Congrats again and good luck with the next one. Don't spend too much time wondering what if...

Thomas S. · Answer

Realistically the property was not suitable as a buy and hold rental. Unless you could get $3K in rent you would lose money. Flipping is the fastest way to financial growth. Buy and hold is a life time slow climb to wealth growth. Many investors will do both, hold the best cash flow properties for rentals and flip the high profit properties.Your first step is to learn what makes a good buy and hold investment. The one you just sold was not a good investment as a rental and needed to be sold.

Josh C. · Answer

I think you made the right call. Something worth 330k that only rents for $1500 or even $2000 is not a great cash flowing rental. I’m into places for less than half of that with the same rent. Take that sweet 100 and put into a better price/rent area. Good luck

Derrick E. · Answer

I think you made a good decision to make the profit. It had been an entire year and you hadn't finished it yet. I would sit down and figure out WHY you didn't do anything with the property for a year. You said "short story long, we did nothing for a year, no new construction,...."I would think about as to why. Were you burnt out from the all nighters? If so then try to better plan to where you try to avoid those all nighters next time. You also said it was a brutal 4 month rehab? 4 months is a long grind my friend. I'm sure you worked a lot of hours pretty much every day of the week. If that is the case then consider searching for something that doesn't require a full gut. That might be impossible in your area for your price range so I'm not sure to be honest, but I would look for an easier type of flip if need be. I think you kind of got lucky. It seems just as likely they could have easily just offered to renew and you accepted while doing no construction for a whole other year? I've kind of been there so I hear ya. Never to that extreme though lol. I've never been lucky enough to make that kind of money though. Good for you on that. I also think you create your own luck and you did so by buying the place at a good price and obviously doing a good job with the renovations of the one side. Also, if you are looking for buy and hold, why not consider a legit multi unit? With that kind of money I would imagine you could get an apartment building somewhere.

Alicia Spence · Answer

@ Alexander Felice- Thanks for your kind words and advice. You pretty much nailed it. We did have a plan, but it turned into another. As the saying goes, the money is in the Buy; and I got that part right. The real problem is we do not have the next venture lined up. And yes, I know that this deal is not necessarily repeatable. I have been thinking hard about creating repeatable opportunities. I want to create a monthly income which brings me back to buy and hold.....@Joe Marshall- Thanks for the Congrats!

Joe M. · Answer

Congrats on the success...anytime you can make 100k, its a success lol