I have a duplex I am selling that has low cashflow and a ton of equity. The rising property value has increased the taxes to the point where it is eating a lot of my cashflow. I cannot sell it as-is to a conventional buyer currently because it is a duplex in a single family zone. I am now in a situation where I would make much more selling than collecting the measley cashflow.
The property is a duplex and is rented out until February 2019. So I have 2 options:
1. Sell fully occupied property now in as-is condition. Its in decent condition. I have a cash offer for $125k and bought it at $105k. This sale would allow me to pay off a mortgage on another property and increase my cashflow.
2. Wait until February 2019 for leases to expire. Do rehab on house, convert back to single family and bring it up to level of rapidly rising neighborhood. Similar houses fully rehabbed are going for $200k-$325k.
I'm leaning towards the rehab option. How much $ would it take to rehab the house to be able to sell for 200k?
@John W. Not quite sure how much it will cost to rehab. It depends how much I want to get out of it. The main problem I need to solve is to convert it back to a legal single family house so an end buyer can get conventional financing on it.
Up and above that Its up to my discretion on the level of finish.
Or I could take the easy profit and sell now...
What you mean is it isn't a legal duplex? Sounds like you wouldn't clear much selling as is. Better to convert back to sfh after the lease is up.
@Joseph Weisenbloom ... you had mentioned that fully rehabbed properties are going for $200K to $325K... that's a really wide range.
If it is on the lower end of that and you'd need to pay real estate commissions when selling that's a much harder decision than toward the top end of that range.
For example, if your costs of sale are 7% (which I don't know if that is normal in your market or not) and a sale price of $200K that's $14K in cost of sale plus whatever you need to put into the property to sell it. If it's $20K in repairs, then you might net $61K over what you paid.
At $30K in repairs, you would still net $51K , right? $40K in repairs, $41K? I don't do much rehab anymore, but I don't like having my ratio of repairs to profit be that high personally. Not sure how you feel about that.
I am assuming your $125K cash offer doesn't have the same 7% costs of sale, but is it worth the extra work and risk to earn $61K then $20K from the cash sale? For me, probably.
If you're toward the $325K price, I think this decision becomes MUCH easier for me.
I'm curious what is causing you to hesitate with waiting? Are you afraid of a market correction? Of fines from it being an illegal duplex? Doing the rehab work? Coming up with the rehab money? Interest rate risk for owner occupant buyer if you wait? Something else?
@Eric James Yes it is a duplex in single family zone which means in it cant get traditional financing. Thats what Im planning on doing after its vacated.
@James Orr The house is in decent condition and when I talk about rehab the main thing that needs to be done is combing sides to make a legal single family house. The 200k-325k range depends how much I want to update. 200k is if I reconnect the duplex and make it a legal SFH. I won't need to do much updating just need to make it legal so I can get end buyer with a conventional loan. 325k would be if a reconnect the duplex and upgraded everything.
I hear what your saying about the rehab cost to profit ratio. Ive factored in 10% closing costs and commissions into the equation. Personally I think the smart move will be to do the bare minimum to convert it to single family and sell the house in its current condition.
Biggiest thing im concerned with is how much it will cost. Making sure the cost to reconnect the duplex isnt super high. If at any time it doesn’t make sense to continue I can still sell for cash offer.
@Joseph Weisenbloom ... yes, that makes sense to me and sounds like a reasonable plan. I'd be interested to hear what happens when you do it. Love hearing the success stories... maybe come back to this thread and post the details if you're willing?
@James Orr Absolutley I will try to keep the forum updated on the progress. First step is to see if the tenant will vacate early.
@James Orr @John W. @Eric James Guys an update for the forum. So I was able to do a cash for keys program with my tenant and get them to move out early. Rehab work started last week. Looks like it will be around 10k to combine electric with permits and everything. I'm hoping to do a light cosmetic update and recombine both sides to sell it in the 180k-200k range.
That's awesome; I love it! Would love to hear what it sells for.