I bought a 3/1 Single Family house with some pretty major fire damage last year.
This is in California and I paid cash for it, $20k
I’m nearing the end of the rehab which is costing roughly $30k
My total invested is about $55k and Trulia estimates it’s value at around 130k which could give me a 50k profit.
I’m trying to figure out if it’s better to rent it for a while which I could easily get $1000 per month for, or sell it and use the money for my next rehab project.
Currently I work full time and am probably in the highest tax bracket but next year I’m considering quitting the regular job and going into Real Estate full time. Next year I would also likely be in the lowest tax bracket since it would probably take a while to get this going so it could be a good time to sell the property.
What is the sales market there for that home? How long will it take to sell?
Here it’s a real buyer’s market, so it’s great to get the cash to get some other bargains.
Are you ready for your next rehab project? If so, market the heck out of that house and get it sold. If the market is deader than a doornail, rent it and find an owner-carry rehab project. Just sink your teeth into the next one now that prices are down.
If you, first thing I would do is ask myself; can I really be a landlord and how favorable or unfavorable are the local landlord/tenant laws to landlords and find out about the local rental market. I would then check the rent/price and income/price ratios for your area to see if the local bubble has completely dis-inflated. Most of California is still in bubble prices so, just in general, I’d expect that 130k property to come down in price over time. Once I knew the answers to those questions I would be able to make an educated guess.
For an easy 35k (after taxes) and with no experience in land-lording (I’m assuming from your post) I might just take the sale money and run.
If me however I’d probably just:
Put the property in a self contained LLC.
Rent the property to a quality tenant.
Mortgage the property and get my investment money back (maybe more if safely covered by the rent, remember to calculate all your expenses and the 2% rule), preferably without a personal guarantee which might be achievable if your rental numbers are really, really good.
Let the property pay its mortgage debt off over time and use your capital on other deals. This way I end up with an asset over time and my investment capital back to work on other projects.
Keep one of those properties as a rental and 1031 the other one into 2 properties.
Keep one and sell the other and 1031 it into 2 properties.
For future reference, you need to decide whether to rent or sell before you renovate, because you will use different materials and different upgrades, depending upon whether the plan is to rent or sell.
I did decide to rehab it and use it as a rental before I bought it but after all of the tenant issues I have had with my other properties (In process of 3 evictions currently) my thinking is starting to change from buy / hold / rent to buy / fix / sell now.
Fortunately in this area demand for properties 130k and below if very high, all of them getting multiple offers over asking.
I can rent it out, collect a good positive of 1000 - 1100 a month or I can utilize this opportunity to quit my regular job and start flipping. I think I will have an advantage flipping because I can pay for a property cash from the sale of this place and will have around 130k of capital to work with so no carrying costs or timer going. Right now it is pretty overwhelming working a full time job and taking care of 9 properties at the same time with one of them in major construction right now.
1031 does sound like a good idea so I am also considering that as well.