Okay so I'll try to keep this concise. I'm looking for advice, and if anyone local is interested in perhaps taking over the project, having lunch/coffee, or recommending any good property managers/GCs, I'm all ears!
I purchased this 2-story brick rowhouse, 1890's vintage, from the bank in November 2018. It's right on the edge of an improving downtown, but still in a transitional area. 1 block north there are (very large) million dollar historic homes, but 1 block south is a C-ish area. There are properties undergoing mid-high end renovations right across the street, opposite corner, etc. Plan was to make high-end rental units with some exposed brick, in-unit washer/dryer, off-street parking, tile shower, solid countertops, etc.
Mistake 1: I had a local architect make building plans involving a floorplan change for a new bath/kitchen/master bedroom with walk-in closet arrangement in the rear of the units. However, I didn't ask the architect for an estimated cost of the renovations. Perhaps I didn't want to hear that I couldn't afford to do this project.
Mistake 2: I probably overpaid a bit for the property out of the gate considering it's condition (vacant for 4 years, copper boiler pipes cut out, kitchens and baths complete disaster, etc). But it's an improving area that I am pretty stoked about, and I decided I would "bet on the appreciation" just a little bit here.
Mistake 3: I estimated the repair costs myself, not taking into account the cost of working on a property this old, in NY state, in an area that has a lot going on and not a huge shortage of work right now.
So my estimate was purchase price of $85k, renovations $60k (ya, I know), and hopefully an appraised value around $175k for a successful BRRRR deal. Now I'm realizing to actually do the renovation I had envisioned, it's probably more along the lines of 2x-3x that ($120k-$180k), so with purchase price, and all other costs, I'd probably be all in at around $100k over appraised value. Ouch. I've already eaten up 2/3 of my original renovation budget on just a new roof, cleanout of the basement, demo, and framing.
The way I see it, I've got 3 paths forward:
1. Sell (probably at a loss) - lesson learned, move on. Regret if/when area turns around.
2. Find more funding and plow all the money in to complete the intended rehab. HODL (hold on for dear life) until area turns around, telling myself that in the long run, even going way overbudget will eventually not be felt once the property. My estimates based on comparable units within the same block are that I could get $1250/unit, making the property able to sustain about $200k total debt and still break even.
3. Reduce the scope, remove some luxury items, go with cheap HVAC option (space heaters and/or electric baseboard), section 8 even, just to get it rented. Downside with this is dealing with the tenants it will draw, and then if/when the area turns around, I might have missed the market's desires.
I'm thinking that I should get an appraisal subject to my repairs so I at least know what I can expect to get back when I refinance. I'm trying to get in touch with local property managers, to confirm my rent estimates and see what the location can support in terms of luxury features.
Any advice is much appreciated.
John
