What do my numbers tell you?

Question

Hi all,

I am currently house hacking my first rental property that I bought in late 2020, and I don't know what to do with it. I want to share some numbers and insight to get some recommendations/feedback on what my next move should be.

Property information -

Located in Litchfield County, CT. Built in 1800. Three-family home. 2350 sq. ft. 0.53 Acres. Unit #1 is 1BD/1BA 800 sqft. Unit #2 is Studio 650 sqft. Unit #3 is 1BD/1.5BA (with small office space) 1,000 sqft.

Purchase Details -

Previous owners are local investors who purchased the property as a foreclosure in 2015 for $150k.

My purchase price in 2020 was $320k. I put down 20%, $64k. Closing costs were about $11k. Interest rate is 3.15%. Mortgage is $1,692 per month.

In 2021 I spent a lot on repairs and rehab for the unit I moved into. At the end of the year my net income was -16.7k.

For 2022, I have spent a lot on repairs and rehab for Unit #3 which became vacant in May. So far, my net income is -17k.

Due to the inspector missing a lot of big issues with the house and the age of the home itself, I am very worried that I will continue to dump money into the house rather than use potential profits to invest in more properties. Some days, I want to sell immediately, and other days I want to hold as long as possible (buy&hold investing is what I am most interested in).

I will attach a screenshot of current and projected numbers for the property (if I were to move out).

I appreciate everyone's input, please be as straight forward as possible. You will not hurt my feelings, this is business. Feel free to ask any questions that will help you have better solutions to offer.

Thanks again!

Samuel Eddinger · Answer

@Sean Llewellyn - I probably spoke too harshly. You are kind of going up against it though because of the investing environment. When you sell, you may have to sell at a loss to your cost plus you are going to probably have to pay realtor fees, closing costs, and state and local taxes. You will be selling probably at a 4% interest rate only to buy into a close to a 6% interest rate.

Ultimately this could be a good opportunity to learn like you said but the investing environment now is worse than when you bought this property. Regardless of all this, good luck!

Ultimately this could be a good opportunity to learn like you said but the investing environment now is worse than when you bought this property.  Regardless of all this, good luck!

Ryan Deasy · Answer

@Sean Llewellyn all of those things help boost rental value. if an appraiser is looking determine value and there are no comps, they just keep broadening their search. i would look into comparable towns that are close by and that is probably your best bet.

Sean Llewellyn · Answer

@Ryan Deasy thanks for your advice.

What are ways to determine market value in an area that doesn't have inventory to compare prices to? Are there factors that boost rent value, such as square footage, appliances, parking, yard, etc.?

Ryan Deasy · Answer

@Sean Llewellyn

always happy to help another CT investor. 320k is just alot for 3 units unless youre making crazy money in rent per unit. i just moved out of my house hack (3 units) where i made money but the real income is in my rent i wasnt making by living in one of the units. if you want to keep this place and make any money at all, move out and rent the unit you're livin in. bump all rents to market place. youre already losing money so you have nothing to lose. rip the bandaid off and move everyone up to market. no, 50$ increases every year. there are some laws etc on how big of an increase you can do, but within those guidlines, go straight for the max amount.

Sean Llewellyn · Answer

@Samuel Eddinger - I appreciate your input!

Buying really bad properties cheap with cash, or really good properties with an FHA or Tradition loan is something I have never heard before, and I really like the way you put that. That's something that will change my perspective when looking for future deals, thanks.

You mentioned if I were to sell, then I should give up investing. I am a little confused, because if I can recognize that I made a bad business decision/investment and the market is in my favor to get out to cut my losses or even get out the hole I dug, why must I give up? Why can't I learn from my mistakes, learn better strategies from members on this forum, and make a better investment later on?

Samuel Eddinger · Answer

@Sean Llewellyn - you need to decide what you want to do, not a community of Monday morning quarterbacks.Ultimately, you make money with real estate over long periods of time, not short periods of time.  You unfortunately, learned the hard lesson that I try to educate young investors in this space; you need to buy really bad properties cheap with cash or hard money loans or really good properties with an FHA or traditional loan.

The middle is where hell is; properties that are pretty good but need a lot of CAPEX and so you buy at 80 or 97% LTV but then have to put in so much cash that it pushes your equity from 3% or 20% to 40 or 50%.  This limits your ability to buy more and you feel like you are drowning because there is always another expense that will occur.

Here is your answer; if you do not want to own this property long enough to get your money out of it, then sell now and give up investing.  This game is get rich slow, not get rich quick!

What do my numbers tell you?

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