House is a money pit

[Kyle Weinapple]

Hey BP, I am stuck in a situation where i have rental property in Baltimore city and it is a money pit. The good thing is that its at at 2.875% interest rate. I have owned it for 4 years now and have put a good amount of money into it already but with the condition that it is in now, it probably needs another $30,000-$35,000 put into it. I have enough in savings to pay for it but I keep asking myself should i just sell it and get it off my plate and lose the low interest rate or bite the bullet and do a big rehab and continue renting it out. I know the solution can really depend on the individuals situation but any opinions or ideas are appreciated! thank you BP!

[John Underwood]

I would lean towards keeping it given the low interest loan.

This would depend on what your anticipated net income would be after the rehab and it being 100% rented.

[Albert Johnson]

Quote from @Kyle Weinapple:

Hey BP, I am stuck in a situation where i have rental property in Baltimore city and it is a money pit. The good thing is that its at at 2.875% interest rate. I have owned it for 4 years now and have put a good amount of money into it already but with the condition that it is in now, it probably needs another $30,000-$35,000 put into it. I have enough in savings to pay for it but I keep asking myself should i just sell it and get it off my plate and lose the low interest rate or bite the bullet and do a big rehab and continue renting it out. I know the solution can really depend on the individuals situation but any opinions or ideas are appreciated! thank you BP!

 If it's a money pit, you don't want to loose money. Is it currently rented?

what is the potential income after rehab?

[Jack Seiden]

Quote from @Kyle Weinapple:

Hey BP, I am stuck in a situation where i have rental property in Baltimore city and it is a money pit. The good thing is that its at at 2.875% interest rate. I have owned it for 4 years now and have put a good amount of money into it already but with the condition that it is in now, it probably needs another $30,000-$35,000 put into it. I have enough in savings to pay for it but I keep asking myself should i just sell it and get it off my plate and lose the low interest rate or bite the bullet and do a big rehab and continue renting it out. I know the solution can really depend on the individuals situation but any opinions or ideas are appreciated! thank you BP!

 What area of Baltimore is it in?

[Jack Barrow]

What type of work needs to be done for that estimate? Where did you get that number?

[Nathan Gesner]

It's all math. 

After pouring $30,000 into it, what will your return on investment be? If that doesn't make sense, sell it and move on.

[Tim Jacob]

I invest and manage properties up here in Baltimore.  I can tell you this entirely depends on the area.  The area will determine the quality of tenant you can obtain.  If you will only be able to get a certain quality it won't matter in the long run how things work.  If you can't get someone with a 700 plus credit score within a few weeks of quality leasing the property at the right price I would not keep the property.  Things are getting harder and harder in a lesser asset class and as things trend into the future influenced politically that's going to get worse.  In that asset class you are depending on things to save you that are trending against it.

That said if the 30k completes a partial done rehab it might make sense but if it's a purely cosmetic one I would sell it now close to as is.

[Ned Carey]

@Kyle Weinapple the interest rate is irrelavant. Keeping a bad deal because it has a low interest rate is just silly. 

You need to run the numbers at least two ways. What happens if I sell as is now vs what happens if I put the needed work in. if you put the work in would you sell it or keep it as a rental. That is another consideration. You might have t choose the least bad choice. Please don't do what many do, which is trying to avoid losing money by selling now only to have a bigger loss later. You can't just HOPE it will work out - you have to run the numbers.

You have to make sure your numbers are realistic. You said this was a "money pit". Have you had cost over runs? is your estimate of needed work realistic?

Good luck.

[Hunter Stoudnour]

Run your numbers for both scenarios and see what it looks like. Would you purchase another one? Could you re-invest the capital into something else? Are you planning in investing in that area for awhile? 

There are a lot of different options but these are some things you should ask yourself.  

Good Luck!

[Shem Varhaftik]

Quote from @Kyle Weinapple:

Hey BP, I am stuck in a situation where i have rental property in Baltimore city and it is a money pit. The good thing is that its at at 2.875% interest rate. I have owned it for 4 years now and have put a good amount of money into it already but with the condition that it is in now, it probably needs another $30,000-$35,000 put into it. I have enough in savings to pay for it but I keep asking myself should i just sell it and get it off my plate and lose the low interest rate or bite the bullet and do a big rehab and continue renting it out. I know the solution can really depend on the individuals situation but any opinions or ideas are appreciated! thank you BP!

If you decide to pull the trigger and sell this property I would be interested in a potential sub2 deal. May be able to get you a decent chunk of money and market it to my network of investors who would absolutely love that interest rate.