I bought a 3 unit in Boston (Hyde Park) last year and it's been a low-key year of ownership. I get maybe one call a month from a tenant. I live in one unit, other two are renters.
My tenant leases expire this month and I told them they're tenant at will until the spring, when I will write new leases. I'm starting to get cold feet. None of my tenants are bad tenants by any means, I just really don't like answering to them and solving problems for them. I don't like mowing the lawn and landscaping the front flower garden. I don't know if I can do a full up-to-market-value rent increase in one swing. I feel like I'm slave to the decisions previous owners made on the house, silly layouts, crappy windows, etc. The furnaces or the roof could go any day now. There's pipes in unheated spaces and exterior walls. For comparison, I once worked a job supporting crappy software and I loathed it to the same degree, I now work a job developing awesome stuff and there's so much more gratification. I'm wondering if renovation would bring me there for real estate investment - maybe that's more my place in this market.
I'm stuck between renting it as-is for as long as I can, or just gutting it and building something low-maintenance, nicer, and more profitable.
Right now it has a ~600sqft studio, ~1100sqft 1 bed 1 bath, ~1200sqft 2 bed 1 bath. Rents are/were $1.1k, $1.5k, $1.7k. Market rates should be $1.5k, $1.8k, $2.1k.
If I bump up the rents and rent my unit out, I can take in $64.8k/yr, mortgage is $32.5k/yr for a cash flow of $32.3k/yr. I can afford a property manager and write yard maintenance into the first floor lease. Instant headache off my hands.
If I gut it, I can turn the place into: ~1100sqft 1 bed 1 bath with 15 foot vaulted ceilings in the open concept kitchen/living area, ~1300 sqft 2 bed 1 bath, ~1400sqft 3 bed 1 bath with huge open kitchen/living area, 11ft ceilings. Rates would go up to $2k, $2.2k, $2.5k. (Yes it has 900sqft of free unfinished space I can use)
This would bump my yearly income up to $80.4k. ARV roughly $800k. Currently valued at $610k and I have 25% equity in it. Renovation would cost $150k-$175k, I can finance that cheaply short-term privately, then refinance and take that cash out. My refinanced mortgage would be $42k/yr, which means $40k/yr cash flow. A mere $7.7k/yr gain over how it is now. A lot of the repairs in that renovation are impending anyways (30yr old furnace and roof) so I'm not sure if I'm talking apples to apples here. I could also condo it after the renovation and keep one unit, but I haven't begun to look at the cost/benefit of that. I'm not too confident in any of these numbers, though.. the ARV, ARV rental rates, cost of renovation... If I'm off by 1% this whole thing could hurt for a few years! But I love the idea of contributing to it and building something I'm proud of, and I expect the neighborhood to continue to increase in value too.
Obviously this is my first rodeo. I'm so torn! I wish I could find clarity in the numbers. What would you guys do? (And if you're in the Boston area with a bit of wisdom, let me buy you lunch and we can discuss!)
Sell it to me :)
Every problem you listed I just saw $$ $$ $$ in my pocket.
What you don't want to do outsource and problem solved. If you have the money to do the renovation - do it. It seems like you have a good investment there. If you think your money can make more return elsewhere then sell, otherwise do the renovation, perhaps join a realestate group from your area and find a recommended good project manager that will do it all for you and you wont have to stress.
The answer to this question is what is your goal? If you plan on staying in the area for a long time and want to self manage then fix it and live in it. If you don’t want to self manage, hire a property manager. Save your time and money and invest somewhere else.
If I were you I would fix it and then hire a property manager. I hate leaving money on the table. The improvements will increase your cash flow and decrease your headaches. I think that’s a win win.
@Kavi Where in Hyde park are you? I live in Hyde park. I think it’s a good area and growing in popularity. You might want to consider gutting out one unit at a time because you’d rather get ahead of the fixes than be forced to fix it afterward. (I mean if you’re really saying that things can go at any minute) other than that: property management is definitely the way to when you hate answering to someone. Get a quote from a company. I can recommend some if you’d like?
@Alex Jean Baptiste I'm in Fairmount, near the BP gas station! Good to meet you neighbor! Might take you up on that manager recommendation when I figure out what I'm doing. Unfortunately the upgrades I need to do require total vacancy, removal of a chimney, full heating system replacement, removing walls between units, etc.
@Tony Mai I thought my goal was going to own and self manage a few places, but I think that goal may be changing. I didn't realize the degree of hands-on required. I guess renovate and hire a manager could be a good combo. If I hire a manager today and a heating system goes or the roof leaks, well, the manager is still going to have to call me up right?
It sounds to me like your a tired landlord. Your tired of the headaches but don’t want to sell yet. So based on the three options that fits your goal the best is Number 1. Yes if something does break or need fixing then you will have to talk to property manager. But that’s much less work than you answering every call from tenets and doing an update/rehab project. For number 1 you are betting that “things” don’t break. However, if you already know there’s going to be a lot of deferred maintenance,then it would be wiser to fix the deferred maintenance then hire a property manager so you will get less future headaches. But you will need to put in more work for this step.
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