WHAT TO DO!? Should I keep it or Sell it!?

54 Replies

Hey BP, 

I'm writing because I would really appreciate some advise on a particular situation I currently find myself in.  I'll like to think this is not a unique situation but rather more of a common one investors encounter when buying properties. 

Heres the situation: 

I bought a 2 family home  3 months ago for $200k in NYC. I have the funds to renovate the property but currently waiting for architectural plans to get approved to start work.. My plan is/was to renovate the property for $180k and either:

1.  Sell it for $600k (Make $190k+ after closing cost) & move on to the next. 

2. BRRR it: Take 80-85% of the appraised value & rent it out. The property would cash flow about $1,000.mth net & I would put some

     cash in my pocket from the refi. 

Now the property has been sitting vacant for 3 months as we await for DOB approval & im paying holding cost each month. Today I received an  ALL-CASH offer from another investor for $350k closing next week if I accept. SO.... I can make $130K after closing cost if I accept this offer. $130k in 3 months is nothing to sneeze at, in my opinion, would you agree?

Why am I conflicted? 

  Im a bit tight on cash, because Im stabilizing another property which i finished renovating last month. I have carrying cost for both of these properties and none of them are performing just yet. I have tenants moving into the former mentioned property and I should be cash flowing $3,000/mth once Its rented (should be rented by July 1st). So, I will go from paying 2 mortgages to making money in the next month... However, IN THIS VERY MOMENT , I am  TIGHT ON CASH... and thus the reason why $130k right now sounds enticing! 

Has anyone ever been in this position? if so, what did you do? or what would you suggest is the wisest thing to do? 

Your responses & suggestions are much appreciated. 

Thanks in advance. 

Jorge P. -  "JP"

I have not been in this situation but given the information you have provided, I would take the 130k cash from the 350k deal and run with it

@Caleb Heimsoth thank you for your response. Man I have to say that I’m seriously considering it! 

But even if I stand to make the same about in 5 months after I refinance it ? .. I’ll have $130k if I refinance it & a cash flowing asset.. but I’ll have to wait 5-6 months... thoughts ?

@Jorge P. I think a lot of it depends on how much rehabbing experience you have.  

If you have a lot it’s probably a toss up as to what you do, if you don’t have a lot of that or doing rehabs of this size, I’d still take the cash and run.

@Jorge P. the main reason to sell is because a lot of bad stuff can happen with rehabs of this size.  Take the cash as that’s guaranteed 

@Jorge P.  

Like @Caleb Heimsoth mentioned it depends on your situation. You stated you are tight on cash. You have the opportunity to make a quick pile of it with little to no risk and without the headaches and hassle of a full rehab. Based on the info provided I'd take the quick paycheck.

@Alan Fitzpatrick Thanks for your advise... so my goal is to accumulate rental properties. I want to increase my passive cashflow. the thought of being able to BRRR it & also receive cashflow was/is very appealing to me. I have done renovations before so im not concern about the renovation stage... I know it would get done.. whats really messing with me is do the ability to add 2 brand new rentals to my portfolio (cap x would be minimal given it will be renovated). thoughts ?

@Jorge P. you’ve gotten the advice of two different people who both say the same thing.

Yet you keep saying you want to rehab it and keep it. You’re looking for advice where at least me and @Ryan Murdock aren’t going to give it.

If you want to keep it, keep it. You could easily take the cash from the fast sale and get more rentals with that. That’s what I’d do.

Good luck with whatever you decide

Originally posted by @Jorge P. :

@Ryan Murdock thanks Ryan. 

Even if I can make the same amount in 5 mths and keep the cash flowing property? I’m having a hard time analyzing this.. can you tell me why you would sell?

If you pull cash out at 80% you'd be getting 100k given the numbers above assuming:

200k Purchase
180k Rehab
600k ARV
480k Loan amt
100k Profit

Can you pull out 85%? I know around here you can't, maybe NYC area is different because of property prices..

Personally, I'm not keen on a rental in that market. You're leaving 120k in the deal at 80%, and getting 12k a month. In a cheaper market, you can get that return unleveraged. But, it seems to be working for you.

@Ryan Murdock - Your def correct.. I am tight on cash... I just feel that Im letting my temporary situation affect my end goal which is accumulate cash flowing properties. I mean theres always another deal to be had right? so maybe the quick pay check is a good idea. Now , if I do take the cash now , ill be hit with short term Capital gains & if I BRRR it I wont. what do you think of that?

@Jorge P.

I've definitely sold good properties that I would rather have kept if it weren't for the need to free up some cash - capital gains and all. We can't always have everything we want and sometimes need to make sacrifices.

Figure out what's best for your situation and do it. 

@Alan Fitzpatrick .  Yes, I can pull put out 85%. I have a back who gave me 90% on my last renovation this year. So im not concern about being able to pull out the cash. The NYC market is def a diff type of market, it has its pros & cons, but if you study the market you can def carve yourself a nice piece without doing a ton of volume. It is a VERY expensive market however. Im deff looking into other less expensive markets as we speak. 

You did a good job buying this place so cheap, now cash in and reap the benefits. $130k with no work or $190k with the stress of dealing with a rehab & sale? I would take the $130k every time.

I vote for you to sell.

This is based on my sense that a correction is coming. I invest in NYC and the last two peaks I experienced was 1986, and 2006. There is a brief correction in 2007-2008, and it continued it's climb, with prices here double what it was in 2008.

When I sensed the correction in 2006, I quickly sold a property for around $750K to what turned out to be a flipper before the end of 2006, closed in Dec 2006. When the correction came, fell to $630K by the summer of 2007, and later to $600K. These properties, in Queens, has since doubled selling between $1 million or more.

So take the money and keep the powder dry. Peaks and valleys seem to run in 10 year cycles, with downturns usually triggered by bad news. The trade wars triggered by Trump and the 10 years since the last bottom in 2008 is my sign to sell.

@Jorge P.   One figure that has not been mentioned is what your capital gains hit is going to be. Does your state have cap gains tax as well? My state, California, has 9.3% cap gains tax, so in addition to the 20% Fed cap gains, (and 25% depreciation recapture in my case), that would take a huge chunk out of that 130k. 

Too bad you can't do a 1031 exchange. Still, with the cash in hand, do you have an idea of what kind of cash flow you could get from a replacement investment? 

You sound very tempted to keep the property and are in love with it as well. It's not that long before you cash flow $3,000/mo, you say. You feel confident in your ability to renovate the property, and you have the funds to do it. Those are the factors that keep you wanting to hang onto it. 

You have to weigh those factors against all the good advice you've gotten here, and make your decision based on bottom line, not emotions. 

@Manon Sheiman thank you for advise. 

Capital Gains in def a factor in my decision. As you may already know, if I BRRR it I won't have to pay capital gains & I'll have a cash flowing property.

I guess the question I need to answer is: 

If I were not tight on funds... would I sell the property now or would I keep it?  (This is an “Aha” moment for me). 

If I was not tight on funds - I would prob still sell it, because I’m not in love with the bedroom setup of the property & think I can get a better rental in a better location. There’s my answer :-)

Thank you guys for helping me get clear on this. 

@Jorge P. , a dissenting opinion from a little pockets investor.

Unless you are in danger of drowning financially, I would keep the property and proceed with the reno, even if it goes a little slower than you plan.  

There seems to be the opinion that this offer is a unicorn, some magical improbable thing that will not happen again unless all the stars align property at exactly 3:58am on a specific Thursday in June. My feeling is if one offer comes in at $350 today, three more are waiting in the wings, and in three months you might be receiving $375 offers. Selling quickly at the first sign of dollar signs is something REI ignorant people do when they receive a "We Buy Houses" postcard in the mail. It's not what an experienced RE Investor does.

Instead of rushing to sell (when you don't necessarily need to,) I think you should be conducting some market research.  You bought at $200K three months ago, hoping to reno for $180K and sell for $600K.  Now some guy is offering $350K.  I think it's time to re-evaluate your original assumptions.  Maybe, after a $180K rehab, the property will actually be worth $825K-$900K.  Maybe the area is appreciating at a much higher pace than you originally estimated.

My point is, don't assume the other person is making a mistake by offering you so much so soon after your purchase.  Consider the fact that maybe you made a mistake in your original estimation of how much the property was worth.  Maybe the area is appreciating much quicker than you expected.

I'd be happy to reno and rent.  If the area is appreciating, rents are also appreciating.  You'll make more in rent now, and will be able to sell for even more later.

Of course, if you are drowning financially, maybe you do need to sell now and move on to the next deal.  However, if this is simply a case of spending a little less on personal lifestyle choices now during a cash poor period while you complete a couple of rehabs, I say absorb the lifestyle pain now and enjoy the profits down the line.  Delayed gratification and all that.

Just my opinion,