A bit over budget - complete the flip or brrrr???

Question

This latest flip of mine has gone over budget.  At the moment, it looks like I can sell for a profit of around 7k-12k, or if I refinance, I recon I'd have to come out of pocket for 5k.

Purchase: 50k

All in purchase and repairs: 101k

Projected sale price 120-123k

Market Rent - 1,200

Monthly payments (6%, 20 year loan + insurance + taxes) - 830

So, my monthly plus/minus would be around 350 dollars (granted, that's assuming perfect conditions, no repairs, vacancy, etc)

I don't need the cash flow right now, so I could live with the above scenario, although I know it's not ideal.  If I sell, 10k is nothing to scoff at, but it's just not what I'm used to returning.  I've also considered starting to rent my places for a year or two to reduce my capital gains taxes so maybe I could gain a bit more equity that way.  What would you do in this situation?

Jody Sperling · Answer

With numbers like those, you won't hurt either way, so I'm strictly giving a biased opinion. I'd BRRRR so you get all the financial benefits of real estate. If I could pull of the elusive 50k/3mo. flip, I might do it just for the boost, but at 7k-12k, you might as well refi as much money back out as possible, move in some renters and take the monthly cash and tax advantages. Plus, there's always a chance of appreciation. Best of luck whatever you do!

Whitney Hutten · Answer

@Aaron Hollingshead Got it. I'll ask the silly question then... have you shopped around? Can you get a commercial loan and get a better AM? Lending is a huge piece of the puzzle.  If you can't get terms that help make the deal:

You can refi as it now if you have a reasonable idea you can qualify for better terms later.

You can bring in someone who can get the loan for you.  Do you have a spouse that could qualify for better terms?

Just a couple of ideas.

Aaron Hollingshead · Answer

@Theresa Harris and @Whitney Hutten - maybe you didn't see that it's a 20 year 6% loan.  I can't get conventional lending on this place for a few reasons - ergo not 400 a month but around 680 a month mortgage...PITI is around 150 a month.  Whitney, you're probably right about the net out after all of those expenses...that's why I'm asking the question...not sure the right call! Thanks for the input

Theresa Harris · Answer

If you are into the property for $100K, your payments shouldn't be that high.  Mortgage would be about $450 a month, are taxes really $400 a month?

Whitney Hutten · Answer

@Aaron Hollingshead I see your projected expenses PITI are $830 (are your taxes really high?).  Then you have to add in vacancy, capex and maintenance (albeit probably low since you just rehabbed it), and your PM fee.  I don't calculate you clearing $300-350 a month in this scenario, but maybe $70 if not breaking even.  Your PITI seems really high... if you can get that cost to come down and negotiate your PM fee to 7 or 8% then maybe keep it.

Aaron Hollingshead · Answer

@Kris L. Thanks for the reply! I’m not sure what you’re referring to but I’d be in the back by 300-350 a month. I have a manager that charges around 10 percent. It’s a tough call!

Kris L. · Answer

@Aaron Hollingshead

Sounds like you would be cash flow negative on this by about $150/mo unless you self manage it.  Are you set up to self manage?

A bit over budget - complete the flip or brrrr???

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