Deciding if I should fix and sell or fix and hold/rent

[Tim Braun]

Good morning all, I have my first deal that I am working on and I am trying to figure out the best exit strategies:

1. Fix and sell

2. Fix, rent, refinance

This is a single family home - 2/1 but I may be able to make it a 3/1. I have a purchase price of $35k, ARV of $80-$90k, I am thinking about $15k worth of repairs, maybe $20k if I can add a room. There isn't much wrong with it, it needs interior paint, flooring, updating in the kitchen and bathrooms - it was a rental and the owner is sick of getting bad tenants. The only major issue I have seen is that the living room floor is sagging but I didn't see any major issues from the basement. I'm working on getting an inspector in there to investigate that and make sure the foundation is fine, lets assume it is for this conversation.

I am bouncing between using hard money to purchase, rehab, and take my profit or using a conventional loan plus doing a light rehab, rent it out, then refinance. I guess I wasn't super excited about keeping it as a rental as I was hoping to target multi-family homes, but I also think I'll be into it at a decent price point that it wouldn't be bad to hold on to for a while. I have been flipping mobile homes for a while now so I have a little experience with finding qualified tenants and contractors but nothing in buy and hold rentals so maybe I'm just not thinking about it the right way.

Does anyone else have any thoughts? Anything else that I should be looking at? Like I said, I'm not an expert, I've been successful with mobiles and am looking to step over into flips and holds so that I can scale.

[Stephanie P.]

Quote from @Tim Braun:

Quote from @Stephanie P.:

Quote from @Tim Braun:

Good morning all, I have my first deal that I am working on and I am trying to figure out the best exit strategies:

1. Fix and sell

2. Fix, rent, refinance

This is a single family home - 2/1 but I may be able to make it a 3/1. I have a purchase price of $35k, ARV of $80-$90k, I am thinking about $15k worth of repairs, maybe $20k if I can add a room. There isn't much wrong with it, it needs interior paint, flooring, updating in the kitchen and bathrooms - it was a rental and the owner is sick of getting bad tenants. The only major issue I have seen is that the living room floor is sagging but I didn't see any major issues from the basement. I'm working on getting an inspector in there to investigate that and make sure the foundation is fine, lets assume it is for this conversation.

I am bouncing between using hard money to purchase, rehab, and take my profit or using a conventional loan plus doing a light rehab, rent it out, then refinance. I guess I wasn't super excited about keeping it as a rental as I was hoping to target multi-family homes, but I also think I'll be into it at a decent price point that it wouldn't be bad to hold on to for a while. I have been flipping mobile homes for a while now so I have a little experience with finding qualified tenants and contractors but nothing in buy and hold rentals so maybe I'm just not thinking about it the right way.

Does anyone else have any thoughts? Anything else that I should be looking at? Like I said, I'm not an expert, I've been successful with mobiles and am looking to step over into flips and holds so that I can scale.

That price point should bring some solid cash flow in upstate New York and the taxes on the income if you sell would be significant. I think I'd fix it and keep it for a little while and see what kind of profit you're making. If you use a hard money loan for acquisition and to pay for the renovations, you'll have to consider carrying costs while the title seasons and bear in mind that you will have a hard time getting a DSCR loan for long term at that value so conventional or a credit union that will hold the loan in their portfolio will be your best bet for long term financing.

Thanks Stephanie, I think we are thinking the same way. I don't see a lot of negatives if I buy and hold it. I have been coming across qualified renters left and right as I try to sell mobiles so I have decent confidence about filling it. There is a good neighbor on the left who would love me to clean the place up some, a duplex on the right with what I'm told are decent tenants. I was also going to look into accepting section 8 - still researching that though. But if renting doesn't work I think I could sell it and still come out ahead.

Luckily I found a good local bank that will hold the loan and that I have been talking with. They understand the situation, the BRRRR, and seem to want to work with me. I think going the conventional route and holding is going to be my best bet.

And since you mentioned it... what kind of carrying costs would apply here? I'm not saying there wouldn't be any, I'm just looking to learn all that I can.

 Monthly payment on the loans (the initial loan for purchase and rehab and then the loan for long term hold).  You may not be able to refinance it until the property has stabilized (seasoned title and you have a tenant) so the monthly payments you'll have to make before getting any return is what I'd call carrying costs.  Depending on taxes and insurance, the payment could end up being 6-700 dollars per month until you get a tenant.