What would you do if you were in my shoes

24 Replies

I recently bought a property at discount to fix and keep as a rental, a week later the realtor calls me and tells me she has a buyer and I can double my money
I paid $20k for it I had 1 contractor give me a $30k bid and I’m having another one looking at it and it would rent for $950 when is fixed. Location is Dalhart Tx

what would you do?

If it were me I'd sell as that is a small town in the middle of nowhere that I wouldn't want to invest in long term.  If you increase your holdings you either 

1. run the risk of having more rentals in that town than the town needs

or

2. You have rental properties in different locations which can make them tough to manage.

However a solid investment if you are really sure you can get $950 for $50k all in

Whooo boy, Dalhart TX! Would you really find someone to rent a 20k property for $950 there? The whole point of small town TX is a little goes a long way and $950 is a steep askign price. I would sell and keep looking for deals. The more remote locations always haeve them. 

@Fabian Marrufo

Always amazes me with the disdain to small town properties.  I can't tell you home many times I have had this discussion on BP.  So in today's world where many landlords are wondering how to pay their mortgage when their tenants won't be paying the mortgage.....over 90% of my tenants will be paying on time.  Why? Because with my $20-30k purchases that rent for $600-800, I have teachers, law enforcement and retirees where their income is not effected .  

I am through Dalhart often driving back and forth from our homes in Austin and Colorado.  It is a strong rental market and I have made offers on a few properties there over the years.  About 1/2 of my rentals are in between Lubbock and Amarillo and I have zero issues keeping them occupied.  30K is a steep remodel in that price range.  What kind of work are you doing?

I am a Realtor in Amarillo and grew up in Dalhart. From what I've seen, rentals are strong in Dalhart, a nice brick starter home never seems to rent over $950 as many renters seem to set that as their top budget. I'm skeptical in the under $50k range to get anything more than $750, yet still a solid ROI. Remote if you're not from Texas, yes! Those of us locals consider it part of the territory!

Hi Greg, thanks for the feed back, and yes you are right, now I'm  not a professional landlord, but I've had 2 other properties there one of which I still own one and I also didn't have any problems placing tenants, the principal of the high school there has been living in the one I currently own there for 2 years now, the work being done is pretty much a total remodel kitchen cabinets, bathrooms remodels,replace the sheetroock in one of the bedrooms re-texture the walls, get rid of a gas fireplace, new flooring, painting interior and exterior light fixtures and add a central heat and air and is a 1300 sf 3/2.The people who lived there were just not clean at all and they just didn't care for the property. 

Jeannette, I know right, and I'm getting my numbers from other investors who have properties in Dalhart and also love there as well. Which I had them look at it and they both estimated it between 900 and 1000. And btw is not on the north side 

Jeannette, I know right, and I'm getting my numbers from other investors who have properties in Dalhart and also love there as well. Which I had them look at it and they both estimated it between 900 and 1000. And btw is not on the north side 

Originally posted by @Greg H. :

@Fabian Marrufo

Always amazes me with the disdain to small town properties.  I can't tell you home many times I have had this discussion on BP.  So in today's world where many landlords are wondering how to pay their mortgage when their tenants won't be paying the mortgage.....over 90% of my tenants will be paying on time.  Why? Because with my $20-30k purchases that rent for $600-800, I have teachers, law enforcement and retirees where their income is not effected .  

I am through Dalhart often driving back and forth from our homes in Austin and Colorado.  It is a strong rental market and I have made offers on a few properties there over the years.  About 1/2 of my rentals are in between Lubbock and Amarillo and I have zero issues keeping them occupied.  30K is a steep remodel in that price range.  What kind of work are you doing?

 The disdain is over the feasability of something purchased for $20k going for that price... not the fact its in small town America. In fact thats where a higher percentage of deals are to be had, the more you go into remote locations.

Take the money and run. My gut would tell me to do just that, listen to your gut! 

Originally posted by @Fabian Marrufo :

Jeannette, I know right, and I'm getting my numbers from other investors who have properties in Dalhart and also love there as well. Which I had them look at it and they both estimated it between 900 and 1000. And btw is not on the north side 

 So if I'm reading your numbers right, this is what I see:

You paid $20k. You need to put $30k into it to rehab it to rent it for $950. Someone is willing to give you $40k for it. 

Now it's just an easy numbers game. 

If you paid $20k for it, your closing costs (assuming cash) are probably somewhere in the $1-2k range, depending on what is necessary for where you are - title costs, inspection, prepaid taxes, recording fees. I'm assuming no appraisal. So you probably got $21-22k in it. When you sell it for $40k you will clear about $15k (since I assume the realtor wants their fee). You will pay short-term capital gains on that profit so you will end up with about $10k out of the deal.

Rehab it = spend $50k, rent it for $950, let's say your costs are 1/2 of that ($450 so numbers are easy). That's $500 profit per month.

$10,000/$500 = 20 months to break even. 

I don't know what your models are, but I don't sell anything that I can break even on in less than 5 years. If I was closer to the graveyard, or thought there was some imminent doom model coming, I might alter that somewhat. If you plan on being around 20 months from now, unless you have some superstar replacement in mind, it probably would not be financially savvy to sell. You have a property that (according to you) is going to gross you about 2% monthly of your purchase price. That is a grand slam in today's market. The guy/gal that wants to buy it wants to buy it because they'll gross 1.5% when they take it from you, while you struggle to find something else that you can gross 1%. 

@Fabian Marrufo

I agree with @JD Martin - If you CAN rent this place for $950, it makes sense to hold the asset.

Based on others in the discussion, $950 rent is a lofty expectation. If your game plan going into the investment was to hold long term, your numbers are accurate, and the location you picked is expected to live up to your long-term game plan, this is worth more than $40k right now (my opinion).

On the flip side you certainly don't lose realizing your return early. Re-deploying your earnings into your next buy-hold puts you in a stronger starting position than your last go-around.

What's your strategy? I like to keep up-to-date numbers I would sell at to take the emotion out of an offer when it does come around.

@Fabian Marrufo , if this is an actual double, then hell yes. Every day of the week! However, take into consideration your closing costs as well as the elephant in the room ie. Capital gains tax! That double can turn into a quarter rather quickly.

I really don't get the idea of selling it. The OP says he "bought it at a discount to fix and keep as a rental." I could be wrong, but I really don't imagine that in this market 2%+ houses come on a regular basis, especially at the $20k range. That is usually war-zone, D-class tenant land. If the whole point of this was a flip, maybe it would make sense (and maybe not, since $10k profit really isn't much on any deal). 

It all reminds me of "Let's Make a Deal" with Monty Hall, where a guy has already won $10k and has a 33% shot at getting a $20k car behind one curtain and a 66% shot at getting a bucket of ping pong balls behind the other curtains. If you follow the odds long enough, you're going to end up ahead, and if you buck the odds long enough you're going to end up broke. Casinos never go out of business because the house always wins in the end, because that's how the numbers are arranged. 

@Fabian Marrufo

If you feel your rehab costs are accurate, that is pretty close to a 2% rule.

I would do the following:

1) Review with the agent if it seems to be a done deal i.e cash purchase, etc or are there risks with the buyer getting the money?

2) Think about your risk tolerance considering all that is going on with covid-19 and potential worsening of the real estate market. Would not taking the offer and the rental market souring cause you serious financial hardship if you were not about to rent it immediately?

3) Do you fully trust the accuracy of your bidders/bids? Are there a lot of unknowns with the rehab costs? Would the deal be devasting if the costs ended up 10-15% higher?

If you're comfortable with the long term play, have some long term hold experience and are confident/comfortable in these questions, I would continue with your plan to hold and rent. Do the math over 10 years. A bird in the hand is nice if your trying to build capital to do bigger and/or more projects but I would imagine the long term play will net you a lot more in the end unless you have deals at every corner which is unlikely.

Originally posted by @Fabian Marrufo :

I recently bought a property at discount to fix and keep as a rental, a week later the realtor calls me and tells me she has a buyer and I can double my money
I paid $20k for it I had 1 contractor give me a $30k bid and I’m having another one looking at it and it would rent for $950 when is fixed. Location is Dalhart Tx

what would you d

With the current environment I would sell. That cash may help you find good deals down the road. And I think having cash right now is important.  

Since you seem conflicted to sell at an offer of 40k, then counter the buyer with an offer to sell at 50k.  Worse thing they can tell you is no, and then you move forward with your planned rehab.