To keep vs sell property ?

Question

I’m seeking your advice on whether I should continue holding or sell a property I purchased last May 2023 in Windsor, Ontario, a city next to Detroit, Michigan. I acquired the house for $350,000 with 3 bedrooms and 1 washroom, investing $30,000 in rehab. The downpayment stands at $108,000, and I have a mortgage at 4.9%, costing $1450/month. Additional expenses include property management at $142/month, property tax at $1700/year, and other costs like insurance and maintenance. Currently, the property is rented at $2100/month.

The house, built in the 1900s, requires significant renovation, and the tenant frequently requests various repairs and maintenance, such as duct cleaning and appliance upgrades. I’ve heard about recent developments in the city, including Stelantes battery establishment, an Amazon warehouse, a new bridge, and the construction of a mega hospital.

Considering the property’s condition, ongoing expenses, and potential development in the area, I’m contemplating whether to sell, especially since the property is not cash flowing and needs substantial renovations. The renovator mentioned the house is in poor condition, requiring a ground-up renovation, which would demand additional funding.

I’d greatly appreciate your insights and advice on this matter. Thank you so much!

Sharon Supera · Answer

Thank you! Super helpful information:-)

Konstantin Ginzburg · Answer

@Sharon SuperaIf the condition is as bad as you say it is, this will be a problem when you are trying to sell the property and many buyers may ask either for you to make repairs prior to closing, lower the asking price, or provide seller credits for repairs. Selling may wind up costing you a fair amount of extra money as well unless you are willing to be very patient and wait on a buyer willing to purchase at a price you are comfortable with in "as is" condition. The choice to sell vs rent is usually summarized by: do you need the money right now or not? If you do not have an immediate need for a property, then holding the property often makes more sense if you think that the market in that area will continue to appreciate in both home and rent values. There is a common saying in real estate: "you make money when you buy, not when you sell". This means that you should have a good idea of what the return on investment will be on a property before you close on the property since making money after the fact becomes far harder. If the property was not a good deal at closing, then there are not many options to turn it into a good deal in a short amount of time. The good news though, is that with real estate; even a bad deal can become good if enough time passes. Both property values and rent tends to go up over time, so given enough time; the property should begin to cash flow if you are willing to keep it and put in the time and effort. If you decide to sell, you may need to be prepared to accept a net loss in the sale.