Triplex under contract! Questions on next step

4 Replies

Hello everyone! I recently just got my first real estate deal under contract. Here is a breakdown to provide some context:

Property is a Triplex, asking price was $135,000 and I got it under contract for $94,600.  All three units are currently leased for $425, $425, and $450 a month, which is about $125-150 a month below market rents.  One tenant has been renting the unit for 10 years, the other for 8 years and the final a little over 1 year.  The property could use a lipstick renovation (paint, cleaned, new flooring in bathrooms, etc.).

I do not plan on holding this property.  While it is a great deal, my goal is to build some capital to funnel into some flips. So my question is, should I spend the time and money into doing a small renovation and bring the rents up and then list it for sale? Or should I just throw this property back on the market and sell it as is?  The current appraised value on this property is $125,000.  Just checking to see if I am missing anything.  Any suggestions would be appreciated.  Thanks!

@Blake Shuecraft

I'd do market analysis and see which way it will be faster/easier for you to sell the property. If it was on the market for $135k and they accepted $94k what makes you think that you will sell it for $125k? How long the property was on the market before they accepted your offer?

@Blake Shuecraft

I'm with Yuriy on this one, what makes you feel that you can turn around and sell it for $125k?  

Also you will need to know the tenants lease terms, if they are under a lease that is longer than month to month you cannot go in and automatically raise the rents.  You have to honor their current leases.  Also if you do raise rents later on down the road by as much as you say they are under valued then you risk getting rid of some very good long term tenants if they have been there for 10, 8, and 1+ years.  In my opinion it is better to keep the rents a little below market value to keep good long term tenants. 

I would also like to add, that you probably shouldn't do any renovations while there are tenants living in the units.  Do the renovations as they move out, whenever that may be. 

I don't want to make things more complicated and add in another option but have you thought about putting some time and money into the property to bring up the value and rents then pull some of the money out to use towards your flips?  I am not sure what your market comps look like and how much work it needs but if you could get the value up to $150,000 with minimal cost and some work, you could pull out the $25k you plan on making if you just sold it as is.  This way you get the cash to put into future flips and you still have the cash flow coming in.  

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