Rent property long term or sell for small profit?

Question

Hello everyone,

I'm new to real estate and recently purchased my first property in Coachella, CA for 335K with the intention of renting it out long term. After investing an additional 50K on upgrades, the house was appraised at 400K.  We decided to put it in the market, and though we've had several showings we have yet to receive any offers. I'm starting to wonder whether I should stick to my original plan or just sell for a small profit.

As a first time investor, I'm feeling a bit unsure on what the best move is. I would love to hear your thoughts on the matter, especially is you have experience with the Coachella market or have been in a similar situation. Is the rental market strong in this area, or should I look to sell sooner rather than later?

Any advice or guidance would be greatly appreciated. Thank you!

Salvador Mariscal · Answer

Hey Reed,

I appreciate the feedback. I also agree that the numbers i mention don't reflect the entire picture. In fact after taking a closer look, i realize i would actually be in the negative. Thank you for pointing this out, as it will help me be more accurate and precise in the future.

Reed Rickenbach · Answer

$335k Purchase Price, ~$6k Closing Costs, $50k Renovation = $391k Basis

$400k Sales Price, $32k Sale Costs = $368,000 Net

Profit = Negative $23k - unless I am missing something.

You didn't mention what the property would rent for or what your debt, insurance and tax cost is, etc.. so it is hard to say.

Just wanted to mention that, if this is your first sale, you might not net a profit at all.

Brock Dowis · Answer

The current interest rate on the property in question could be helpful in making your decision. If you are sub 3.5 that is extremely money you are borrowing. Might be awhile before we see money that cheap again. Just food for thought. This is the place to ask questions, good job and good luck!

Ace Kaspar · Answer

Hi Salvador,I would recommend keeping it for the long term if it is a good place. Capital gains tax will ruin a big percentage of the "gain" you will make along with closing cost, agent fees and the total you put in for renovations.Hope this helps!

Bjorn Ahlblad · Answer

It really depends on your goals. I am into rental income now that I am retired but earlier I kept them for income and long term appreciation. For example I kept Ca properties for over 30 years and they did very well. Selling early would have made no sense. But it is never a sure bet.

Ace Kaspar · Answer

Everyone has been there so you're not alone in that bucket.If you have any questions about real estate, I am always happy to help.

Salvador Mariscal · Answer

Hey Ace,

Appreciate the feedback, it definitely helps! Being new to the industry i didnt even consider the some of the additional fees.

Thanks again for the advice!

Salvador Mariscal · Answer

Hey Bjorn,

Thanks for the feedback, your perspective on the matter has given me a lot to consider, and will take it into serious consideration moving forward. Thanks again!

Rent property long term or sell for small profit?

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