My rehab house is almost completed and I am way over budget. I have budgeted 4 months of holding costs( 2 months are already spent), realtor fees, rehab cost, purchase price etc…
My break even point right now is $205, and the house will be listed for $215.
Here is my delima, I would like to list for more but the realtor does not suggest it.
If the house doesn’t sell in a few months, what should I do? Refinance and rent it out? I have HML loan currently.
Help!
If I understood this correctly. You are in this project for a total of 205K and the realtor is suggesting you sell it for 215k. That is a terrible situation to be in. I’m not sure how much you budgeted for closing costs, or if you did at all. If you didn’t, there goes that 10K in profit. If that 205k does include closing costs, I’m not sure how you plan on paying the HML back the double digit interest on the money you borrowed. Then even if you do by some miracle make any money, 40% goes to Uncle Sam.
You may not have enough equity in this property to refinance. If I were in your shoes, I’d sell it as fast as possible for whatever I had in it, consider it a huge learning experience and move on. Do you want to list it for more than 215k because you subjectively think it’s worth more or are you justifying a higher price to yourself so you have a chance at making a dime? Everyday it sits on the market, you lose money, sell it fast and get out!
I’d price it at the suggested $215k and negotiate down to the break even price. If you even have to go a tad lower do it and suck it up. The longer the wait the worse the holding costs so GET OUT! RUN AWAY! Get it sold, then sit down and write down everything you did wrong. Take it as a learning experience. Even if you lose $5,000 its still cheaper than college…its not the end of the world.
Thanks for the replies. Yes, so far I am up to 205 and that does includes my closing costs when I purchased the home.
If I can sell for 205 - 210, I will be happy, I learned alot. I can’t sell it for less then that, or what happens if I can’t sell right away? If a few months go by, I may need to take it off the market and rent it out.
I wanted to sell it for higher, but the realtor doesn’t think its a good idea.
I would not write down any of this. I would find someone who knows how to do a good real estate deal and write down what they do. It is like when you are playing golf. You don’t look at the hazard, you look at the green. If you study on how you can hit the ball into the lake you will hit the ball into the lake. If you study how to make a bad real estate deal you will make bad deals. Only look to where you want to go. I would attend my local real estate investors club and find out what the people making money are doing and do that. Don’t reinvent the wheel. You don’t want to bring up the rear but you don’t want to cut brush either.
So how much did you go over budget? You may even end up taking a loss on this one, but it’s better to just get rid of it. You may want to figure out how much you’d lose by renting it out. One other possibility is trying to rent it out as a furnished apartment, this only works in nicer areas of town though. I do see these all the time in MLS. Not matter how you price it, people always seem to think you’re making money. I’m in the middle of negotiating one deal where the owner is just trying to get a little more than he paid for it, but probably dropped 20-30k fixing it up. Just be happy you’re not in his boat. He started at about 100k higher a year ago and had to keep dropping his price til now. The market has just gotten worse in the last year here and maybe if he hadn’t priced it so high, he would have sold it earlier before the prices dropped more.
One other thing, you’re paying your realtor for advice. Ask him for the data to back up the 215k price. He probably has it.
Hi Jrock,
The previous posters, regarding selling, figuring out what you did wrong and move on, are correct. If you don’t know the difference between the hazard and the green, you’ll never be able to differentiate between the two. The golf analogy works in the ‘move on’ part but only after you know what you did wrong.
Look at what is happening in the market . . . inventories are rising and prices in some areas are declining while others are remaining flat. That is only the beginning of the huge down cycle that is coming at us. Even if you rent it out, you probably will not be able to cover your monthly debt service and other expenses for very long.
Good lessons here. And we’ve all been there or will be there sooner or later.
Good luck. Keep us posted.
Cate
I don’t think Danny meant closing costs for acquiring the property, I think he meant for selling. You do have it listed with an agent.