Need An Answer Quick!!!
Okay I own a rental house in Orange County, Ca. We just evicted our last tenants and fixed the place up...it looks beautiful. Prices in this area just shot up again and we were thinking of selling instead of renting. We would make about 180,000 if we sell and 1031 and buy multi-family residencies. If we rent it we will have a cash flow of $450. We want to keep it but the thing is the house has a problem with the foundation the back bedroom slopes down a couple inches, it had been fixed before we bought it but when they fixed it they didn't fix the problem...everything was draining towards the house and no gutters. We fixed both these problems and it seems to have stayed the same for the last 5 years or so. We just don't know if this is a good time to sell "As-IS" since houses are going like crazy or keep it since it does have good cash flow. With the foundation we just don't know??? I hope this makes since Thanks Erik 
The settlement problem seems to have been cured. According to what you say , it has been stable for the past 5 years.
I personally would take $180,000 and do a 1031 exchange over a positve cash flow of $450/month. You should be able to significantly exceed that cash flow with a multifamily.
The answer in my opinion depends upon how good of a replacement investment you can find.
Calculate the return on assets on buying a multi-unit vs. current return.
$450x 12=5400 5,400/180,000= 3%
Don't forget to take into consideration your research time & transaction costs to buy another property.
Good Luck
I must say, I don't understand why you would attempt to sell the property as is. This has to be a fairly expensive property if you have $180k equity and you still are only cashflowing $450. If I was going to purchase a (I'm guessing here) $300k house I would not buy one that sloped 2 inches on the word of the seller that it had stopped settling. I think your best bet would be to fix the problem and then you would not be required to disclose that there ever was a problem unless you simply chose to, which might actually be beneficial.
I would sell. $180k or $450 a month is an easy answer. More money now is the best.
Right now real estate is at pretty high levels and you might get much more for a "problem" house than if you wait until the market cools. If FL settlement problems are huge and your house would have a real black mark against it. Even if you did "fix" it.
Quote: then you would not be required to disclose that there ever was a problem unless you simply chose to
I am not an expert of disclosure, but I believe you will always have to disclose that there was a foundation problem. Even if you "fixed" it.
Brenda
The market is really hot right now and I can sell it as-is for $415,000 the houses in that area are going for 425 to 435 so It would be below market, but the realtor thinks that even with the problem it will sell...and I would disclose this problem . Right now if you list the house you usually get two of three offers for above the asking price Sounds Crazy, but true. I just don't know if I should give up this rental when it is positve. I want to buy a lot of properties some day . One other thing I forgot to mention is that even if I don't sell I would still buy multi-family properties, but I would use the equity in the house. Does this sound too risky or is this what REI is all about. Thanks so much for all your help! Erik <IMG SRC="images/forum/smilies/icon_confused.gif"> [ Edited by toolittletime on Date 02/29/2004 ]
My opinion sell. Be careful and have an attorney set up your 1031 so that it complies with IRS rules for exchanges. You should be able to buy a property worth about $900,000.00 using your $180,000.00 as a 20% down payment.
Michael
What do you think of borrowing from the equity and keeping it ...too risky? Better to get rid of a house with a foundation problem? I've read things youv'e posted and value you opinion. Thanks, Erik
Dumb question, but why would you engage a realtor in an area where you get offers in days? Seems like a waste of $25K in commission. Hot markets are great for FSBO.
I'd list it FSBO for $415K as-is and see what happens. Even if you put 3% for a buyer's agent, you still save $12K+.
I sold a house in Chicago in '99 (very hot market) that took 1 day to sell and the realtor got $25K for 4 hours work. Oh, and it sold $12K above asking, $35K above what the realtor wanted to list it for. Glad I pushed for the higher listing price.
But, I'd sell and use the money to buy other properties. My 2 cents.
Peter
Peter
Because there is the problem with the foundation I was a little nervous to do it on my own and we also live 5 hours away I thought it would be easier, but that is a lot of money to shell out. I have to think about this. I did decide today to sell it not rent and I called the realtor and told her Yes to sell, but I didn't sign anything yet. What do you think with the foundation and the distance. Thanks so much Lisa(Erik's at work)
Just an update ...After getting all these great replies. We decided to put the house on the market .Within two hours someone wanted to see it and put an offer for 8,000 over the price I was asking. I did use a realtor, because I was nervous about selling with the foundation problem, but I should have listened to "moveitnow" and just did it for sale by owner. I guess this is what's it all about learning form your mistakes. I could have done it on my own..not that I'm complaing I'm really happy about the sale! I already started looking for an apartment building to buy. Thanks for the great advice.
Congrats. And... I've sold all my houses with realtors. It is only now that I feel comfortable that I'd do an FSBO.
Look at it this way, your buyer really paid the commission, since you priced it to include the commission, plus you got an extra $8K in your pocket. That is a good deal.
Now, get on with your REI career.
Peter
Erik,
Was curious to know, why you wouldn't be renting or leasing the problem property out for more income? Maybe I didn't catch the total rent being accumulated for the month. Sounds like a nice area, what did you actually rent the property for monthly? Could you include a map(mapquest) of where the property is located and what homes of this type are being rented out monthly? Is there a high vacancy rate it that area or is it just bad tenants?