Rental Property Investor · Elk Grove, CA · Member since 2016 · 306 posts · 76 votes
Hello BPers,
I'd like feedback on when an investor should decide to sell their investment.
I bought an SFH in Parma, OH, in June of 2017. I bought it for $86,500, including closing costs. I immediately found a renter for $1097, and she stayed until this past September. After about a year, I paid it off. After she left, I spent about $7,000 on repairs, paint, etc. After two months, I still haven't found a tenant (I did briefly, but the tenant backed out) and found out today that the basement needs waterproofing, which can cost between $4500-$5200. The house was built in 1955, and thinking if I should sell it.
My goal was to gross $5,000 per month between my three properties. I have a duplex in Euclid renting out for $2600 monthly.
Rental Property Investor · RVA · Member since 2016 · 5k+ posts · 4k+ votes
3y
Looks like you're buying from a distance. I'd take a step back and ask what degree of physical and market due diligence you did before purchasing the property?
Hi @Amir B., what would you do with the money if you did sell it? Do you know what amount you might be able to sell it for? If you have no plans for the cash or something better to invest in with your sales profits, then I wouldn't sell. Unless you have some extenuating circumstances where you really need to. Otherwise, I would do the repair, find the tenants, and keep looking for the next deal. And while you are looking for the next deal, consider putting the property up for sale with all the nice photos, etc. If you get a good offer and have found the right deal to move the money to, then I would sell. Otherwise, what is the point?
Looks like you're buying from a distance. I'd take a step back and ask what degree of physical and market due diligence you did before purchasing the property.
Correct. Hmm, in 2017, I did not. In California, we don't have basements so the waterproofing is new to me. The area is fine. I was there in October. Love the Cleveland area.
Could you let me know why you paid it off? You just paid the total price for the property.
Why are you concerned about the gross? The gross doesn't matter.
June of 2018. After buying the house, I used another $3,500 to fix it up for the renter. I meant I wanted to gross $5,000 monthly on top of my W-2 income ($13,000).
Hi @Amir B., what would you do with the money if you did sell it? What amount might you be able to sell it for? If you have no plans for the cash or something better to invest in with your sales profits, then I wouldn't sell. Unless you have some extenuating circumstances where you need to. Otherwise, I would repair, find the tenants, and keep looking for the next deal. And while you are looking for the next deal, consider putting the property up for sale with all the lovely photos, etc. If you get a good offer and have found the right deal to move the money to, then I would sell. Otherwise, what is the point?
Use the cash to buy another property. $167,000+. I wouldn't have any plans if I did sell it. I don't have any extenuating circumstances. OK, I will continue to think about keeping it.
I'd like feedback on when an investor should decide to sell their investment.
I bought an SFH in Parma, OH, in June of 2017. I bought it for $86,500, including closing costs. I immediately found a renter for $1097, and she stayed until this past September. After about a year, I paid it off. After she left, I spent about $7,000 on repairs, paint, etc. After two months, I still haven't found a tenant (I did briefly, but the tenant backed out) and found out today that the basement needs waterproofing, which can cost between $4500-$5200. The house was built in 1955, and thinking if I should sell it.
My goal was to gross $5,000 per month between my three properties. I have a duplex in Euclid renting out for $2600 monthly.
Real Estate Agent · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes
3y
As someone who recently sold one of my investment properties, here are some questions/thoughts to consider:
1. What would you do with the money? You would need to do a 1031 exchange, otherwise be taxed on the gains.
2. Are you going to have to disclose the necessary water proofing if you don't do it? Buyers are going to want it done and you aren't likely to get a premium for brand new waterproofing. I had a client where to re-roof would cost $30,000. I told him not to do it, we disclosed all leaks that were fixed and buyers still took it as is. Buyers are expecting systems to be working, not brand new (unless a remodel/flip/new construction).
3. Do you anticipate any repairs in the immediate future? For example you have an AC unit that is functioning today but on the older side.
4. Since you paid it off, does it make sense to do a cash out refi and put that money to work? For example making improvements or buying other property.
I'm not familiar with the area but I would imagine waterproofing is a big deal. An experience Realtor will be able to tell you.
Could you let me know why you paid it off? You just paid the total price for the property.
Why are you concerned about the gross? The gross doesn't matter.
June of 2018. After buying the house, I used another $3,500 to fix it up for the renter. I meant I wanted to gross $5,000 monthly on top of my W-2 income ($13,000).
As someone who recently sold one of my investment properties, here are some questions/thoughts to consider:
1. What would you do with the money? You would need to do a 1031 exchange; otherwise be taxed on the gains. I just wanted to let you know that I don't have any plans. Correct.
2. Are you going to have to disclose the necessary waterproofing if you don't do it? Buyers will want it done, and you will likely get a lower premium for brand-new waterproofing. I had a client where to re-roof would cost $30,000. I told him not to do it, we disclosed all leaks that were fixed, and buyers still took it as is. Buyers are expecting systems to be working, not brand new (unless a remodel/flip/new construction).
3. Do you anticipate any repairs in the immediate future? For example, you have an AC unit functioning today but on the older side. Not at the moment, but I have done tons of plumbing repairs, which made me think of selling it.
4. Since you paid it off, does it make sense to do a cash-out refi and put that money to work? For example, making improvements or buying other property. Not a fan of re-fi.
I'm not familiar with the area, but I would imagine waterproofing is a big deal. An experienced Realtor will be able to tell you.
Could you let me know why you paid it off? You just paid the total price for the property.
Why are you concerned about the gross? The gross doesn't matter.
June of 2018. After buying the house, I used another $3,500 to fix it up for the renter. I meant I wanted to gross $5,000 monthly on top of my W-2 income ($13,000).
Investor · Charlotte, NC · Member since 2020 · 236 posts · 247 votes
3y
@Amir B. He's asking why would you pay the entire mortgage off when you didn't have to? You probably had an interest rate lower than inflation and your tenant was paying the mortgage for you. All you did was prepay about $75,000 for a couple extra hundred bucks of cash flow per month. The interest on that loan was a tax deduction. Always pay the minimum and buy more cash flowing assets with that remaining money. Storing money in the equity of a home is the last place you want your money.
And gross revenue is a weird way to look at things. If you have $5,000 gross rents, but your expenses are $5,200 do you care how much your gross is, or that you're paying an extra $200/month?
Could you let me know why you paid it off? You just paid the total price for the property.
Why are you concerned about the gross? The gross doesn't matter.
June of 2018. After buying the house, I used another $3,500 to fix it up for the renter. I meant I wanted to gross $5,000 monthly on top of my W-2 income ($13,000).
That still doesn't answer either of my questions.
Sorry I don't understand.
Why did you pay off your property? The more cash you spend on a property, the more you paid for that property. 100% equity means you paid full price for the property.
Why are you concerned about the gross profit? The gross doesn't mean anything on its own. What matters is the net profit/cash flow. The only thing that matters is what you "keep".
@Amir B. He's asking why would you pay the entire mortgage off when you didn't have to? You probably had an interest rate lower than inflation and your tenant was paying the mortgage for you. All you did was prepay about $75,000 for a couple extra hundred bucks of cash flow per month. The interest on that loan was a tax deduction. Always pay the minimum and buy more cash flowing assets with that remaining money. Storing money in the equity of a home is the last place you want your money.
And gross revenue is a weird way to look at things. If you have $5,000 gross rents, but your expenses are $5,200 do you care how much your gross is, or that you're paying an extra $200/month?
Correct on everything except the comparison of the mortgage interest to the rate of inflation. Just because they are both percentages, doesn't mean, doesn't mean they are related in in other way. They're not. Whether or not one (either one) is greater than the other is insignificant. Either the property cash flows or it doesn't.
have you considered lowering the rent to get more applicants? vacancy utterly destroys cash flow and is much worse than even a significant reduction in rent. do the math.
@Amir B. He's asking why would you pay the entire mortgage off when you didn't have to? You probably had an interest rate lower than inflation and your tenant was paying the mortgage for you. All you did was prepay about $75,000 for a couple extra hundred bucks of cash flow per month. The interest on that loan was a tax deduction. Always pay the minimum and buy more cash flowing assets with that remaining money. Storing money in the equity of a home is the last place you want your money.
And gross revenue is a weird way to look at things. If you have $5,000 gross rents, but your expenses are $5,200 do you care how much your gross is, or that you're paying an extra $200/month?
Thank you Anthony for clearing that up for me. Hmm that's a great question. My wife suggested I pay it off and that was the reason I do so. My interest rate was 4.0% at the time.
That is something I have not understood (not paying a home off). Yes, gross income is a strange way of looking at your profit margin. I will re-evaluate my profits and post them here.
have you considered lowering the rent to get more applicants? vacancy utterly destroys cash flow and is much worse than even a significant reduction in rent. do the math.
At the moment self-manage. I did lower the rent a $100 per month. I went off of the leasing agent's suggestion market rent. It was too high.
Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
3y
I advocate for keeping for the long haul. Unless you need the cash to get into another killer deal, I would keep it and pull the money out with another loan
I'd like feedback on when an investor should decide to sell their investment.
I bought an SFH in Parma, OH, in June of 2017. I bought it for $86,500, including closing costs. I immediately found a renter for $1097, and she stayed until this past September. After about a year, I paid it off. After she left, I spent about $7,000 on repairs, paint, etc. After two months, I still haven't found a tenant (I did briefly, but the tenant backed out) and found out today that the basement needs waterproofing, which can cost between $4500-$5200. The house was built in 1955, and thinking if I should sell it.
My goal was to gross $5,000 per month between my three properties. I have a duplex in Euclid renting out for $2600 monthly.
Could you let me know why you paid it off? You just paid the total price for the property.
Why are you concerned about the gross? The gross doesn't matter.
June of 2018. After buying the house, I used another $3,500 to fix it up for the renter. I meant I wanted to gross $5,000 monthly on top of my W-2 income ($13,000).
That still doesn't answer either of my questions.
Sorry I don't understand.
Why did you pay off your property? The more cash you spend on a property, the more you paid for that property. 100% equity means you paid full price for the property.
Why are you concerned about the gross profit? The gross doesn't mean anything on its own. What matters is the net profit/cash flow. The only thing that matters is what you "keep".
I paid it off because I didn't want to pay interest. Positive cash flow was $762.50.