Hi BP community - I am looking for some advice and/or options for my "parents" (mother and stepfather, age 70+) to consider as they have purchased a new home and would like to rent out their prior home. The home is in a nice part of town with a large lot, single-level, built in the late 50's or early 60's, 4Br 2Ba home ~1600 sq ft. Except for the fridge, HVAC, and ok roof, the home has not been updated; appliances are from the 80s, kitchen, bath, doors, and windows are original and not in good shape. You can imagine. Similar to the interior, the exterior lacks all curb appeal. It certainly stands out and not in a good way.
Homes in the area sell for 1.2 to 1.5M, depending on extent of updates. While making some updates and selling probably makes the most sense in their case, they are not interested in selling - in part due to projected cap gains tax as the home is paid off and the basis is quite low (and/or perhaps they would like to pass it down, but want the cash flow?). Overall this is a good problem to have, but I wonder how seasoned investors would think about renovating a situation like this?
I estimate rehab costs at approx $70-90K - I think this is the bare minimum to make it look fresh and appealing to a tenant paying rent of $3500 or more (which is still a bargain compared to purchasing in the area). I have done some remodeling so I know how long it takes to do things yourself on weekends - thus most all of this work would be contracted out.
As an investor, how would you consider financing the updates? They are reluctant to borrow, however the idea of paying out of pocket for the remodeling does not sound smart to me as it would commit all that cash and take 2-3 years to re-coup, whereas I think they could still have ample cashflow while paying back a loan for the improvements (depending on length of payback). I would like to give them some counterpoints to consider and educate myself as well.
Thanks for your thoughts!
Alex
