Need advice - sell at a loss or short term rental

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Need advice - sell at a loss or short term rental

Mike Deemer
Investor · Indianapolis, IN · Member since 2020 · 5 posts · 0 votes

I have a now beautiful home in the Fountain Square District of Indianapolis. I have $400k into the property and was assured that I could sell it for $500k. Of course, that was at the beginning of the year. My contractors were supposed to have the home completed in March and did not complete until August. The house sat on the market for two months and only had one person even look at it after 3 open houses and having dropped it to $450k. I have two lines of credit maxed out for a total of $330k. It took years to save up the money to begin this venture ($70k). So, I’m faced with the choice, sell at a deep loss, or try to make it a short term rental until the housing season opens back up in March. I have a bank willing to loan me $360,000 to pay off the credit lines and put some money aside as a slush fund in case rents don’t meet expenses on a monthly (pending appraisal of course). I have a professional that runs multiple properties in Indianapolis through multiple short term rental platforms and he has told me he could get me net $3500-$3000 a month in rent. Monthly overhead will run around $3500. Is it worth the risk to try and survive until March or just sell at a loss now, if I can find a buyer?

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Robin SimonBusiness Member
Lender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votes
3y
Quote from @Mike Deemer:

I have a now beautiful home in the Fountain Square District of Indianapolis. I have $400k into the property and was assured that I could sell it for $500k. Of course, that was at the beginning of the year. My contractors were supposed to have the home completed in March and did not complete until August. The house sat on the market for two months and only had one person even look at it after 3 open houses and having dropped it to $450k. I have two lines of credit maxed out for a total of $330k. It took years to save up the money to begin this venture ($70k). So, I’m faced with the choice, sell at a deep loss, or try to make it a short term rental until the housing season opens back up in March. I have a bank willing to loan me $360,000 to pay off the credit lines and put some money aside as a slush fund in case rents don’t meet expenses on a monthly (pending appraisal of course). I have a professional that runs multiple properties in Indianapolis through multiple short term rental platforms and he has told me he could get me net $3500-$3000 a month in rent. Monthly overhead will run around $3500. Is it worth the risk to try and survive until March or just sell at a loss now, if I can find a buyer?


 Probably really depends on the rest of your financial situation.  If you are pretty comfortable and liquid and can absorb the months of breakeven or slight loss without a material harm to your personal financial situation, you should probably hold out.  On a long-term time horizon (5+ years), the property will probably make money and appreciate again in the aggregate

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  • Jeremy Horton
    Rental Property Investor · Somewhere over the Rainbow · Member since 2021 · 1k+ posts · 1k+ votes
    3y

    So a few things...

    Do you think March will be significantly better than today? Why? My bet is no, that's just a few months away. I don't think next summer will be either. And in that time you will be incurring more holding costs, interest etc. On top of that, your credit is maxed out, so you can't do any other projects. So you're literally frozen, losing $ - this thing needs to be sold with a quickness. 

    If the professional says he can rent for $3000-3500, I'd estimate as $2500 in underwriting. He'll make money regardless, you'll still be losing 500-1000 a month minimum.  

    Couple things with houses like this - location, something wrong with it, PRICE TOO HIGH (very common these days). And now the house has been sitting on the market for over 2 months, not a good look for retail buyers. 

    If it was me, I'd lower the price, get it sold and move on. You may take less of an L doing it now than waiting, incurring more losses, and likely selling for what you would today OR even less. 

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  • Robin SimonBusiness Member
    Lender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votes
    3y
    Quote from @Mike Deemer:

    I have a now beautiful home in the Fountain Square District of Indianapolis. I have $400k into the property and was assured that I could sell it for $500k. Of course, that was at the beginning of the year. My contractors were supposed to have the home completed in March and did not complete until August. The house sat on the market for two months and only had one person even look at it after 3 open houses and having dropped it to $450k. I have two lines of credit maxed out for a total of $330k. It took years to save up the money to begin this venture ($70k). So, I’m faced with the choice, sell at a deep loss, or try to make it a short term rental until the housing season opens back up in March. I have a bank willing to loan me $360,000 to pay off the credit lines and put some money aside as a slush fund in case rents don’t meet expenses on a monthly (pending appraisal of course). I have a professional that runs multiple properties in Indianapolis through multiple short term rental platforms and he has told me he could get me net $3500-$3000 a month in rent. Monthly overhead will run around $3500. Is it worth the risk to try and survive until March or just sell at a loss now, if I can find a buyer?


     Probably really depends on the rest of your financial situation.  If you are pretty comfortable and liquid and can absorb the months of breakeven or slight loss without a material harm to your personal financial situation, you should probably hold out.  On a long-term time horizon (5+ years), the property will probably make money and appreciate again in the aggregate

    [email protected]
    Harpoon Capital514 Reviews
    WebsiteView Page
    1Reply
  • Kerry Noble JrPro Member
    Investor · Indianapolis, IN · Member since 2018 · 2k+ posts · 1k+ votes
    3y

    We did a flip on Harlan and there was a new construction on the corner that rented each room individually. So keep that in mind on top of the STR option as well. Nurse rentals for more of a "midterm" rental (ive seen that coined now)

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  • Mike D'ArrigoPro Member
    Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
    3y

    @Mike Deemer I wouldn't count on the market being different in March like in normal market conditions. I'm not sure how you would take a big loss by selling it immediately if you are all in for $400K. My guess is that you should be able to break even or come close. Indianapolis is a a good STR market but without knowing anything about the property, I'd be real skeptical of netting $3000-$3500 a month. You need to dig in to that more. Ask him what average daily rental rate and occupancy rate he is that projection on. Personally I would opt to sell now.

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