Advice On Hold Or Sell
My first RE investment - I bought a multi-family 4 plex unit in Alaska in June 2004 for $315,000 with $15,000 down. Rents were $800, it's in a little bit of a crummy neighborhood. I'm an oversease investor (I'm from Alaska, but now live overseas), so I got a good reference for a real estate agent to help me with the buy and asked my sister in Alaska to manage it for $200/month.
As soon as I bought the place, about a month later all the tenants left, some skipping out on paying their rent. All 4 units were empty for 3 months while I paid $3000/month on mortgage and other costs. I spent another $1000 on newspaper advertisements trying to fill the units. I got a couple of non-performing tenants, one skipped rent for 2 months and left and another that is also 2 months behind, but keeps promising to pay the back rent.
Last week I had the property appraised for $360,000. There is some damage to some units that will cost about $3000 to fix. There will also be costs for getting the empty units filled.
In this situation, I'm trying to consider what to do.
1) I could hold the property as is, spend the money to fix and get tenants in. Still try to hold for 5-7 years. Principle builds at $100/month and if all units are filled, will cashflow at around $300/month.
2) Pay in a substantial amount, like $100,000, to the principle of the loan. Monthly princeple would then increase at about $1000/month. Fire sister, get professional property management company. If all is well, it would still cashflow at about $300 month.
3) Sell for $360,000. After agent commissions, fixing items, getting a tenant to fill empty units, minusing the extra money I've put in since buying (about $10,000), I would come out with just my original $15,000 investment back - nothing more, nothing less.
I would love to hear any and all opinions on what you would do in this kind of situation.
This was my first buy and I've learned a TON from the process. I wish I had found this TCI forum before making the plunge the first time! I'm a big believer in the holding-long-term for cashflow idea, but this property just doesn't seem worth the superb headache it gives me.
Cheers
Well at least you have options,and you got in for only 5% down. Good deal, $200/mo for mgmt, if all were rented and cash-flowing...but if your sister isn't used to this, do you really expect her to want to go to this "crummy neighborhood" to show the place AND screen tenants? Maybe $800/month is too much for rent. Since you're having second thoughts, invest in a few calls to property mgmt companies and get a feel for what they think your prospects are, as well as what the rents should be. Tell them to give it to you straight. Even if you do sell, having it full will make it worth more.
Wish I was in sunny Anchorage right now. Our temps haven't gotten above zero for days!