Hi,
What could you realistically rent out the two units for, assuming you fixed it up to a rentable condition?
What is the vacancy rate in the area?
Now adjust those numbers to account for how the recession could affect them in the next 1-5 years.
Once you have that you can determine the realistic rent expectations for the units and work back a minimal value that a fixed up version of the units should have to an investor. For a quick and dirty method you could use the 2% rule to estimate how much an investor could pay and still make a profit. For a more accurate estimate you could work out a full, I mean full, income and expense sheet for the place and work out a price that an investor could still make a reasonable return on their investment with or without the place mortgaged.
Take that number and compare it to your lowest ARV COMP and put in an investor discount of 30%, maybe 50% in this market. Take the lowest of that number and the value you determined from the rental income. This number is the likely minimal value your property, fixed up could have.
This minimal value is not necessarily what you would get after the fix ups. Some people purchasing for personal use or investors whom did not do their homework might very well pay more. However it does give you a base line of what you may very well end up with, assuming the market there is as dried up as most other places. Note: At this point, this is the most you should expect in a sale with everything fixed up and everything else is just gravy.
Is that value worth the investment and risk of another $25k-$30k?
Take that minimal value and discount the repair estimate you’ve made of $25k-$30k. This is how much you likely could sell the place today. And very likely the highest price since only an investor would take over from the condition you’ve described.
How much is left?
One thing you should avoid is the gamblers’ fallacy. This is the notion that usually kills most people whom get wiped out at casinos and the like. The idea if you just continue playing, fortune will turn around and you will win or at least break even. Sometimes the best course of action is to collect your remaining chips and play again another day. Otherwise you may not have any chips left over to play at all.
While you did not provide a complete view of all estimates and descriptions of the units and the area, I can probably make a few guesses from similar stuff I have seen.
Your units probably rent out for about $300 (1 bed) and $400 (2 bed).
That is $700/month and under the 2% rule a good investor would not pay more than about $35k after repairs and maybe even just $31.5k when compared to the comps.
And that assumes that the 2% rule is enough for your area, here in NY the good cheap areas seam to actually need something more like 3% due to the high property taxes as compared to the rents.
You’ve sunk in $30k (+ holding and lost opportunity costs) so far and expect another $30k to get everything fixed up.
At this rate you may expect to get your $30k addition future investment back, assuming you do everything right this time. If you are lucky you might get all your money back if someone pays full retail and pays the top of the line price for your area and assuming the deflating bubble doesn’t take your area down a bit more while you are completing your project. So maybe if you do everything right this time you might get another 10k-15k back of your already spent money.
Assuming you various past expenses are locked in you may want to just sell for whatever you could get and start fresh with something else.
A recent property I have seen was bought by the previous investor for 15k and so far he’s sunk in an additional 20k in repairs. I had the property checked out and have an estimate for an additional 15k-20k in repairs. For about $700 a month in rents and with huge local taxes I could at best reasonably offer the guy something in the range of 10k-13k. And it seams other people whom have visited the property have determined the same thing as the guy can’t even get the 20k he’s been hold out for several months. Likely he’ll probably do no better than $13k-$15k. Just because money got thrown at something did not make it worth much more.
At best maybe you can bring in a buyer whom will give you profit sharing on the final sale price. They will invest the additional repair capital and you get maybe a base sales price along with a small share of the resale final profit.
If you do want to stick it out then here is what you MUST do:
Bring in 3 reputable contractors to give you full repair estimates if not absolute price quote.
Redo your area comps, just in case the situation changed.
Find out the local vacancy and rental rates.
Do an honest check out of the area. Is there a lot of competition? Is this place just another Detroit-like area?
SUE your husbands friends. In this case they are your contractors, not friends. Whatever agreements they made, they must honor or return the money they have taken from you.
The only way you have a chance to succeed in this case is to get your money back from them. If you cannot sue, then you fail in your fiduciary responsibilities as a business owner and should turn over the matter to another person or entity. If it makes it any easier you can always “hire” a representative for the business to handle this matter for you, although it will make little difference to your husband’s friends.
Once that is done you can complete the project with a much tighter reign on your contractors.
And NEVER, NEVER do any business with friends and family. Unless you are from certain Asian cultures, and even then it is risky, in which everyone gets brought up conditioned to support the common family good, you are likely to get burned as this limits your ability to complain, fire, or control your employees.
Good luck to you.