Advice Needed: Sell or Furnish?

Question

I made a big mistake and now I'm looking to resolve it.

I do MTR's for nurses in the midwest. This year, my goal was to buy my first flip and use the profits to buy my first quad.

I found a great 3/2 condo flip on auction. All in after rehab was $83k, comps are north of $125. Good neighborhood and the best school district in the area. This seemed great.

Once the rehab was finished, I was floored with two hard hits; the first was that the HOA was $650 due to a special assessment. The second was that there was a warrantability issue, making DSCR difficult.

This property doesn't cashflow to be sold to an investor, and the challenges around warrantability will require creative lending for a buyer. I painted myself in a corner.

I spoke with my conventional lender bc I had bought two other properties in the same complex and asked her how I was able to do that if the properties weren't warrantable. She explained a process that we went through which I did not understand at the time where they can do spot lending for certain buildings within an non-warrantable complex. If I were to find a buyer, it could be done.

That still doesn't do anything about the imposing HOA, which I had not considered at time of purchase because my intention was never to hold, it was to flip, so I didn't do a cashflow analysis on it. Rookie mistake.

I've had the unit listed for rent for 5 weeks as an LTR and only had three showings and no bites. I can rent it myself and break even, and consider myself lucky to not have more damage done.

However, since I haven't gotten an LTR in there, my choices now are to relist it for sale (the market is slowing), or invest $15k or more into furnishing it. The problem is I have never rented a unit this large as a furnished MTR. I have NO idea what the market is like for this. Is it possible to rent it?

If it could be rented as a furnished rental, I'd be cashflow positive on it. If it doesn't, I've thrown good money after bad.

If I try to sell it, I could be stuck carrying holding costs for a few months, north of a grand a month.

I'd love some advice on what to do, or resources on how to check the viability of renting it if I were to furnish it.

(I will keep it listed as an unfurnished LTR for now and if someone does rent it, I'll take it. I won't cash flow but it will break even and pay for itself, buying me time to either sell it next year or determine it's MTR potential).

Kelly Bailey · Answer

Hi Amelia! I would recommend connecting with the WIIRE ladies, Amelia McGee & Grace Gudenkauf. I think they may be able to speak to all aspects of your scenario.

In regards to MTR, you can always start marketing it on Furnished Finder with the professional unfurnished photos, tag in the headline "furniture coming soon" and block the calendar for the dates you would need for furnishing. I would give 2 weeks at most for the furnishing. Then you can see if someone comes through on the LTR or MTR side prior to spending the $15k. Look up 3+ bedroom stats on FurnishedFinder.com/stats. I've been an MTR host for 5 years and 4 of my MTRs in Texas are 3 bed, 2 bath homes, all have over 95% occupancy.

Lastly, depending on the laws in your area, you could actually keep it for sale while you MTR and keep guests on M2M. We did that with a duplex and let the MTR guest know prior to booking that the property was on the market and may have a showing here or there. They didn't mind and even helped with the showings! We actually might have to do that with one of my husbands flips soon.

Allen Duan · Answer

Hi Amelia, sounds like you've had some great lessons lately =) Nothing is a mistake unless you don't learn from it.

To determine MTR demand and rates, look up comps on Airbnb and Furnished Finder. This will give you an idea of the current supply of furnished 3 bedrooms in your area, as well as the rates they rent for. I'm not sure what market you're in, but in Los Angeles where I operate, three bedrooms are the most sought-after MTR property size. It's the ideal size for the average American family. Insurance bookings typically are looking for three-bedroom homes.

One idea that may help with the furnishing expense is to use 0% promo cards that allow you interest free payments for 12+ months. Then worst case, if you have to sell the furniture, you can pay off a good chunk of those cards. We've used Amazon and Ikea's store cards in the past and you can furnish an entire property with just those two.

Let me know if you have any other questions. I'm happy to share anything from my experience setting up 30+ furnished rentals and currently managing 42 here in LA.