First Rental - Do I fix and keep or sell??

Question

I own a SFH that I rent long term and is cash flow positive.  There are foundation issues, water leaks into the unfinished basement when it rains (the basement is used for laundry so the tenants do go down there). It is at the point that the entire interior needs repainted, the first floor hardwood could use refinishing, the small deck out back needs repaired (probably torn down and rebuilt for foundation repairs), the main door needs replaced. This is to name the majority of the bigger cost repairs. I bought the home for $145k 5 years ago and its probably worth about $200k today, with a good foundation.  I have been wanting to own rental properties and continue to expand my portfolio and was planning on taking the equity I have in this home and using it to fund the purchase of additional properties, but now that so much has to be done in this home, should I just sell it and take the profits or should I spend all this money on fixing it and keeping it? I worry because it is a 100 year old home and I feel the problems might never end, but it is a nice home for a rental and in the 5 years I've had it, I never had a problem finding renters (2 long term families).  Seeing as this is my first rental, I don't have experience in this world and am learning as I go. I really appreciate any and all guidance here guys!

Drew Sygit · Answer

Hmm, property needs:

Foundation work (expensive!)Interior PaintRefinish Hardwood FlooringNew DeskNew Front DoorAnd more...

So, what profits are you expecting if you sell?

Why have you ignored these repairs?

If you were buying this property, how much would you deduct from the $200k market value for all the needed repairs?

Janice Carter · Answer

@Joe C. Based on what you have described, I am honestly surprised you are able to rent it in its current condition. The foundation issues alone will be a major expense and with a 100 year old home, ongoing repairs are going to be part of the equation.

At this point, it comes down to numbers. I would get quotes for the foundation and major repairs, then compare that total investment vs. your equity and future cash flow. If the repairs are too heavy and unpredictable, selling and redeploying that capital into a more stable asset may be the better move.

Leo Carter · Answer

Option 1: Reinvest

• If you fix the foundation/water issues correctly, you’re protecting the asset long-term
• Then you’re basically resetting the property into a more stable, lower-maintenance rental
• BUT—you need to run the numbers: total rehab cost vs. rent vs. return. If you dump $30–50K in, is your cash-on-cash still strong?

Option 2: Sell

• Sell while the market’s still solid and before the issues worsen
• put that equity into multiple units or a cleaner asset with fewer problems.
• A newer property may be more expensive up front, but is definitely more predictable when it comes to repairs.

Given it’s a 100-year-old home with foundation + water concerns, I’d be cautious about over-improving unless the numbers clearly justify it. Sometimes your first deal is better used as a launchpad for your portfolio, not something you stay emotionally tied to.

Liang Xu · Answer

Hey Joe! I would say when it comes to deciding if you want to fix or sell and move on you need to factor in:

1.) What is your long term view if you kept the property?

If you believe in the area and  see home prices going up more, rents going up more and the area being more desirable I think keeping the property would be a good idea. You can always improve a property but you can't ever move it to a better location.

2.) How much would it take to rehab the property?

Before even debating on selling I would make a list of everything that needs to be improved on the property and then call around and get quotes for how much it would take to fix up the property. This would be good knowing in both selling and holding because you can make the determination if fixing or selling will make more sense financially.

If there are issues with the property you will need to sell at a discount but if you fixed it up you could get more closer to your market value that you've determined

3.) What would you do with the cash if you sold?

If you see better opportunities to roll your money in a different properties that make more cash flow are in a better area and have a better long term view then selling could be a good option. But if not then keeping this property and doing some repairs could make more sense.

Hope these considerations help!