Significant repairs to rental property vs selling for equity

[Jason Ellis]

Hi BP! 

I'm looking for some advice on a dilemma I'm having with one of my rental properties. I own a short-term rental in the Charleston area that is a really nice townhome. It cash flows well as a short term rental, but I of course took some losses during Covid like everyone else. My problem is that the townhome sits over a lake, and even though I got the insulation updated when I got new floors, apparently it wasn't good enough as the moisture underneath the home has damaged the subfloor. Contractors are telling me that the subfloor needs to be replaced. This will be a significant expense on an otherwise great property, or at least that's what the estimates I've received so far would indicate. My dilemma is that I have a good deal of equity in this property, over 100k in fact, because the value of the property increased significantly after I bought it. Considering how long it would take to recoup the losses from this repair through cash flow, I'm wondering if a better option is to sell the property and use the profits to buy 1 or 2 more, or maybe a multifamily. I recently moved to the Atlanta, GA area, and I've been wanting to get into this market, but I haven't been in position to do so. I do believe that the property could still cash flow if I decided to keep it, but I'm just wondering what other investors might do in a similar situation. 

Thanks in advance for your replies!

[Dan Maciejewski]

Quote from @Tyrek Brown:

Will you recoup the losses for the repair faster with the current property or with other properties?

If you do decide to move into the Atlanta market, are the neighborhoods/appreciation equal or better than the current?

If those two are true, I would say that it's fair to consider moving on. Especially because something like this will most likely be a recurring issue considering the property is near water and you can find a property that's closer to you in Atlanta. 

This is pretty much the answer.  You'll most likely be paying for the repair either way.  Either by fixing it before sale, or reducing the price, or giving a credit.  You can't hide the issue -- you'll have to disclose it.  I absolutely find that it's cheaper to fix prior to sale.  Buyers will add 2-3x the actual cost in their heads, and assume all sorts of other issues, too.

But, if it's better for you to move investments to closer, then that may balance out.  Remember, you'll be re-setting your equity position because of the appreciation over the past few years.  I would at least make sure that anything new will cash flow the same.