Should I Sell or Hold a Bad Deal?

Question

Looking for input/opinions/constructive feedback.

Purchased a property 9/30 with intention of marketing as STR/MTR.

DD with no red flags and seemed like good area for this strategy d/t lots of healthcare and huge military presence.

1. The numbers:

Closing costs: 82K

Furnishing: 10K

Purchase: 292,500

HELOC on primary used for funds to close.

2. The problems:

a. Well, despite my research, it seems that STR is not permitted in the city, period.

There are a lot of STR's currently there, but I'm afraid there will be a crackdown because a state bill was passed on Oct 1 stating that abnb will send all occupancy taxes directly to the city.

So now the city will be receiving tax revenue on all of these properties that it didn't even know about.

b. The numbers don't work for a LTR (if it was just the property I could make it work, but can't cover furnishings, heloc payment, etc. so would be a loss; not to mention the holding costs for the last 3 months)

c. So my only option it appears is MTR, which seemed fine at first. That's really what I was hoping for anyway, and to fill in holes with STR. But I have had the property listed since beginning of November and it is still not rented.

3. The solution:

Should I just unload the property, take the hit, and move on with the lesson learned?

Or should I hang on and keep trying to rent it because it is a terrible idea to sell a property after 3 months?

Thanks for any help.

Heather Brown · Answer

@Nick Robinson So true that many lessons learned with this deal. I am going to use that to help me to do better moving forward. Not going to let it stop me! I joined my local REIA and am doing some more education before my next deal. Thanks for your input. Lots of great points!

Heather Brown · Answer

@Joseph Davis. That's awesome...thank you! I will do the same.

Joseph Davis · Answer

Yes, I understand your dilemma. I am in the process of furnishing now and its adding up, but if this doesn’t work out I have an LTR near EVMS that I will try once my long term tenants lease expires. I enjoy the game and I believe we can all be successful. Wish you the best amd if I’m full and somebody needs an MTR, I’ll definitely send you a referral

Joe Davis

Heather Brown · Answer

@Joseph Davis Those are both in great locations. I actually looked at a townhome in Mill Lake that I really liked but didn't get an offer in quick enough and it sold. I'm still figuring it out myself, as far as the best way to market this property, but as far as advice, I would say have multiple options for marketing the MTR. In your area the hospital thing will probably be a good target for you, but if it's not consistently giving you leads, then look at the insurance and corporate rentals too.

I would also recommend calling the HR people at CRMC and CHKD and letting them know you have the property available for monthly rentals. They can directly let contract employees know about your place. They should have a list they keep.

Wise move to make sure it works as LTR. That was my thinking too. Then the MTR would be all bonus.

The only snag I hit with that is that by the time i spent 10-12K to furnish it that baseline LTR option didn't look as feasible, plus I would have had to move all of the brand new furnishings out and eat the cost.

Anyway...still learning! Good luck with your places!

Joseph Davis · Answer

That’s great!! Glad you got things going. I currently own 2 townhouses in greenbrier. One in Mill Lake which has been a great LTR. My recent acquisition is in Woodlake Common behind the mall. Currently making minor repairs and furnishing. Any advice is greatly appreciated. My reassurance is that it underwrites well as an LTR, but with the current rates cash flow isn’t quite what it was. It’s difficult to get a gauge on the MTR market, but I know there are many travelers in the area

Heather Brown · Answer

@Joseph Davis Hey Joe, yes I did eventually get it rented thankfully. It's through an insurance relocation situation. They have been displaced due to a flood and their home is being renovated. I never have gotten much traction or interest as far as the "traveling nurse" thing goes. Depending on where your place is you might do better with it. My place is about 5 miles from CRMC in Greenbrier East, so if you're more central Greenbrier or West and closer to hospital might get more interest. Also, it seems lower prices do better for that, like up to 1600-1800/month. That's just been my observation so far. Hope that helps. Let me know if I can answer any questions. Good luck with your place!

Joseph Davis · Answer

Hey Heather, have you had any success leasing your MTR in Chesapeake? Coincidentally I had the same idea and in the initial phase of setting up a MTR in the Greenbrier area. Would be interested in how things are going. Thank you.

Joe Davis

Nick Robinson · Answer

@Heather Brown

How much is your monthly payment? It sounds like you would lose about $600-700/mo as a LTR based on Proforma, which as you are finding out does not mean anything. Obviously, no one wants to take a loss but how long can you afford to lose $12k/year? Did you set yourself up with a reserve account? How long will that last you? Considering the probabilities are pretty high and growing daily that we are heading into a recession it's not the best time to be losing money. The hard part is no one knows how long or deep the recession will be. Another question to ask yourself along with can you afford to take those monthly losses is your job security. If you get hours cut, lose your job etc. now you have your own bills plus this albatross around your neck dragging you down.

Sorry to hear this. Unfortunately based on markets and evidence I have been seeing you jumped into the STR market after the high. In the future I would look more into LTR, being CF+ on current #s not proforma, use conservative projections, and looking into local rules and regulations more. If you closed 9/30 you were in contract early September and on Oct 1st, they passed this law. That means they had probably been talking about voting on it for a while.

This will make you a better investor b/c you won't make that mistake again. The more you invest the better you will be at it. Don't let this sour your taste on investing learn from it move on and you will make better investment choices in the future.

Scott E. · Answer

Sounds like you are marketing this place everywhere that you should be. If it's still not renting at $2,400 per month, just means you are priced too high. You could improve finishes and furnishings to try to get your higher rent rate, but that might be throwing good money after bad.

If I were in your shoes I'd try to sell the place and get as close to breaking even as possible. I'd cap my losses probably around $5k. Meaning if you try to sell, but are unable to sell without losing $5k+, then consider a LTR for a year or two until values catch up in the area.

Eliott Elias · Answer

What's ARV on it? What are rents? Need more info