cash-out refi / sell / or hold??

7 Replies

I own a mixed-use building (free and clear) in the downtown area of a rough city in Mass (2 efficiency apartments over a commercial unit). The building is worth 100k-- at least that's what it would likely appraise for. It cash-flows roughly 10k per year which I'm happy with. The kicker is that the building is in a terrible neighborhood and is surrounded by probably 40% vacant and rundown properties. The area is likely going to continue to decline. The saving grace is that the building is across from a new police station.

I cant decide what to do with the equity in this building. I could cash-out refi for roughly 75k and still cash-flow positive. This would be great to continue on investing in multi's in better areas. I could try to sell, but not sure if there is any market for it. Or I could leave it alone and let it cash-flow-- until I lose the commercial tenant.. then the building breaks even and becomes really difficult/ impossible to sell or lease.

Am I missing any better options for what I could/ should do with the equity in the builing? All thoughts and suggestions welcome!

My gut feeling is to sell it. But you may also want to consider the tax ramifications of all of your options, because they will all likely be different.

If you think it is going to continue to decline then get out while the getting is good.

You have already figured it out. Refinance and take the cash out and invest it in a more desirable area. As for the existing, now soon to be a mortgaged property, (actually I find it hard to believe that a lender would finance such a high ratio amount on a refinance from a regulated lender the way you have described it to us in this communication). If what is presented holds true, you have to give serious thought that if a lender is willing to lend in this area, despite red lining concerns by the lender, any financing that is offered under such conditions by a regulated lender hangs in a neighborhood despite extreme conditions means that a change is coming and coming soon. If what I report is true then after taking as much cash as you can, and then stay as long as all any banker would continue to finance it the kind of conditions as you have described. Because you may not choose to live in a neighborhood that you invest in should care through to you investment decisions. If that were true, I would only invest in apartment buildings that had a high concentration of young woman that . . . You get my point! Trust your financial instruments and never question the reported results and never listen to any other source and I will guarantee that you will always do well as an investor. Warren buffet sells when markets are on the rise and buys when the markets are heading down. Why, as Mark Twain puts it, real estate, they ain't making any more. People will kill for two things without a thought food and shelter. While it may take 40 years or as in Detroit, never make a come back. However, you will never find the land vacant no matter what. I guess being long winded is that unless you live alone on a desert island, be observant of your surroundings and ask questions when you see things going on in front of you you don't understand. You'd be surprised what you can find out some of which you may want to forget. Are you still awake, good. You get it. Good night.

Sorry I'm a couple days late. I'm assuming that the property is in Fitchburg.

Personally, I would sell. But my tolerance and goals are probably far different from yours, as you are probably young and just getting started.

Before you make that decision, talk with others who invest in that area.

@Brian Lucier and Dave Fleckner invest in Fitchburg. Brian is the head of NWCLA. And Worcester Property Owners is at MassLandlords.net for more landlords in Worcester county. Get to know some other property owners in Fitchburg and get a feel for whats going on in the city and how many people are looking to buy in your neighborhood. The answer may become more evident as you get more local knowledge.

Thank you all for the great advice!

Thought I'd update this thread. I got lucky and just signed a 5 year lease with a 5 year option to renew with a dental practice! Fitchburg doesn't seem so bad after all. 

 @Ann Bellamy I was fortunate enough to meet with Dave Fleckner per your recommendation. His company will be managing a 4 unit multi I'm about to close on in the coming weeks. Thanks!

Glad it worked out.  Were you able to make it to Tuesday's Black Diamond?  Dave was one of the panelists and they did a great job talking about MA landlording.  We had record attendance, so I couldn't get to talk to everyone in the room, so don't know if you were there.

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