A good problem to have
I recently purchased a single family home for $230,000 in a up and coming area. The bank I do most of my investments with wanted an after construction appraisal (detailed scope of work included) on it which came back at $390,000. I have worked this area for quite sometime, and currently have a few projects going on in this neighborhood. My business model has been predominately been renovating, but after researching the rental market for that area I was stuck with what I call a "good problem". Option (1) renovate the house as planned with a rehab ranging from $30,000-$35,000 and list the property for somewhere in the range of $379,900-$389,900, with the potential to net somewhere in the six figures. Option (2) scale the renovation back to rental standards $20,000-$25,000 refinance it for $290,000 and rent it for somewhere between $2,400-$2,600 per month which is what the property could bring after checking the rental market for the area. Option (1) definitely seems to be more lucrative for the short term, while Option (2) is definitely the stronger play for the long term in my opinion. I am currently leaning towards Option (2) for multiple reasons, I will have a rental property with $100,000 of equity, it will cash flow well above my break even of $1,850-$1,950 per month, and I can pay myself around $30,000-$35,000 on the refi along with having the property paid off in 10-12 years depending on how much more I apply to the principal. I have rented a few homes in the past with great success, but I decided last year that my next big rental purchase would be multi family apartments, with that being said I feel that this is somewhat of an exception to that rule for me. Any insight or feedback would be greatly appreciated, thanks!