When to Let Go of the First property?

Question

So I bought my first investment property earlier this year for $55,000 cash.  This property wasn't in horrible shape nor is it in good shape, somewhere in the middle.  Built around 1950s.  I'm currently getting work done to it and was planning to hold it, however I'm also wondering if maybe I should sell it now that I've gotten some experience in what to look for in a house.  It's a 4 bedroom and in the area it's in would rent for about $900 per month.

I'm currently in the process of buying my second property with a mortgage $85,000.  It's a duplex with both sides being rented for $500 each.

My question is, is there any good way to tell if I'm "Emotionally attached" to a property and keep thinking to myself "If I fix this one more thing it will be renter ready"?  I still feel like there are a couple of big things that need to be done.  At what point do I say I've wasted enough time and just go ahead and sell it to use the money elsewhere?

Then again, I could just be getting cold feet with this first house when it will be Okay.  I do know it needs a Ductless 2 Zone AC system for the upstairs being all the AC vents are currently for the downstairs due to it being an older home.

Tell me your thoughts.  First deal stuff.  The way I figure, at least I learned something.

Joe Villeneuve · Answer

When you ask that question, it's time to sell.

Theresa Harris · Answer

@Brandon Ellis

Was any of this noted during the inspection?  I'd still suggest looking at the numbers.  When you are in the middle of repairs, it can get you down.  Figure out how much the repairs cost, how much they add to the home and your all in costs and go from there.  If the numbers don't make sense, then move on.

Joe Villeneuve · Answer

You win the prize grasshopper.

Answers:

1 - None, zero, zilch, $0,,,that's because you are still in the game.

2 - See #1...same answer...different game.

When a deal goes bad, get out of it.  Don't stay around with that property (of hand) hoping you get better ones, of hoping some future event you have no control over somehow turn almond shells into Disaronno. Not a plan...and, while you are waiting for this event, you are falling further behind.  Remember, you don't start to make a profit until you recover your cash...so, the more behind you are, not only is there more to recover before you start profiting, but you have less to work with to get there.

Why haven't you lost any money in each case, even though after the first 5 hands you have less cash than you started with?  Why haven't you lost money, even though you walked away from a bad RE deal with less cash than you went in with?

Simple answer...you still have cash to move forward with, and...you will recover the "missing cash" from each of the two paths from future hans...or deals...and go beyond that.  All because you got out of the bad ones, and could "still be in the game".

In Poker, you haven't lost any money...just hands.  The money from those lost hands remains on the table...just in different piles.  In REI, your haven't lost any money...just properties.  The money is still in play, and available to you,...just in the different (next) properties/deals.  Both examples are true, because in both examples, you are "still in the game".

Money is a "verb", not a "noun".  When it becomes a "noun", or you think of it as one, you lose.

Brandon Ellis · Answer

@Theresa Harris  I'm really in the middle of repairs.  I started off doing repairs myself but finally came to the realization it would be better if I just got a contractor to finish work on it.  As time goes on I find a few more things that need to be done such as the ductless AC, Walkway to front steps (It's just grass right now), front brick steps are usable but I wonder if they could be considered a safety issue.

I don't know, maybe I'm just over thinking this.  I know a property manager in town, once the contractors are done with their part I'm going to see if I can schedule time for a property manager to stop by and see if he can see any issues before someone renting or whether I should sell.

I'm up for any advice.

Theresa Harris · Answer

Some people use the 1% rule, so a $55K house should rent for $550 to be profitable.  Most would say $900 a month on a $55K house is good.  Is it the fact that it needs a new ductless AC that is putting you off or that this is your first place and you're in the middle of repairs?

Run the numbers and look at those as if it was a fresh investment.

Brandon Ellis · Answer

@Joe Villeneuve

Hey Thanks.  I believe I see what your saying.  Even if you sell at a loss or loose a little money and fold your hand.  You still have the next round or in REI could work out another deal which may end up better than the last.  As long as I stay in the game and keep moving forward one step at a time.

Joe Villeneuve · Answer

Yes...and I sold it right away...and no I didn't lose money on it, even though I sold them for less than I paid for them.

Now, that may sound like I can't add, and you'd be wrong.  What you have to understand are two things:

1 - REI is a sum total game.  It's not about the individual deals as stand alone.  Each individual deal does impact the rest though, so when you have a loser of a deal, get rid of it (them),  Which leads to #2,,,

2 - REI is a lot like playing Poker.  Not because they are both forms of gambling.  Poker is by far the biggest example of gambling of the two.  It's because the #1 rule of success in both is the same..."stay in the game".

You have to understand what a loss is...and combining #1 and #2 above should help.  To that end I have two questions for you:

1 - If you lost the first 5 hands in Poker, and half of your chips, how much money have your lost?

2 - If you bought and sold 2 properties (in REI), the important word here is "Sold", and after each sale, you had less cash in hand than what you started out with, how much money have you lost?

Brandon Ellis · Answer

@Joe Villeneuve  Thanks for the input.  Have you had any properties you bought but later you realized it was taking things in the wrong direction?  I just want to hear your experiences or anyone else for that matter.

When to Let Go of the First property?

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