Another Flip vs Hold Question - Single Family w/ Possible Equity

[Bob Crane]

Purchased a home last fall. Here are the details:

• Home – SFH 2/1 1200 sq ft.
• Purchase price - $27k paid cash
• Repairs to date - $24k in repairs from hard money loan.
• Current rent – Occupied when I acquired. Long term tenant paying $550 a month. Rent should be $700.

I’m looking for advice on three options –

1. Make it a 3/1 and sell it. This option would require an additional $5k goes into the house bringing my all in to $56k. In this market I should get $90k. Use proceeds (plus cash I had in) to go after next property.
2. Make it a 3/1 BRRR to get my cash out and pay off the hard money loan. Then rent for $850 per month. After expenses I'd be bringing in $125 per month.
3. Leave the house as is. Needs $2k-$3k in additional repairs. Refi to pay off lender and get some money out of it. Then tell current renters I need to move them to $700 per month.

The town is in central Illinois – an area which historically sees very low appreciation.   

[Mitch Messer]

Hi @Bob Crane!

I'd take Option 1: Make it a 3/1 and sell it. This assumes it really does only need $5K to do so (which seems low for a bedroom addition, but ...).

My main concern is that one lone bathroom. If you want tenants who will stay, and not a revolving door of itinerants, you generally want a rental property with at least two bathrooms. And, frankly, adding a bedroom only makes the situation worse.

So, if you can get $30K-ish in equity out now, I'd go for it!