Delemma
Need some help here from the experienced. First rei deal. Bought house from mother in law for 100k put 22k in reno's and should appraise about 142k. What is the magic formula in whether I should rent this home or sell it.
Hi frazierp,
The general rule of thumb is that a house should rent for 1% of its value. In my area, that rule is applicable up to about a $90,000 house. My experince in renting higher priced homes is that they dont cash flow. Meaning in my area, a $140,000 may rent for $900 - $1,000 per month. So generally it will cover your expenses, but not much else!
There may be a tax incentive to keep it for a year or two, but you would need to ask your accountant for details on that.
The other thing that you could do to preserve your equity in the house is to sell it on a land contract for slightly higher than it's value, with a balloon in 1-2 years. This way, you dont fight with the market and you dont pay an RE commission!
Best of Success!
BAMZ
[ Edited by BAMZ on Date 11/06/2003 ]
Assuming that it would cash flow, the question is this: Do you want a lump sum of money ($15,000 or so) or money to trickle in every month (say $150 per month).
That's the question that only you can answer.
I would probably sell it and cash out on your $20,000. Consider using a lease/option or contract for deed if you are after montly cash flow. I would take that $20,000 and put it into another rehab. Once you have done several that will be a huge chunk of change that you can put down on a larger multi-unit property that has more cash flow. Just some thoughts.
Thanks BAMZ,
Live in South Carolina coastal area, seems the more rundown a place is the better cash flow, small apratments with half section 8's generate the most. On this deal I should probably clear my 20k and move on, it served it's purpose and I learened a lot. One is I don't want to spend every spare moment fixing up houses, need the spread to hire a turn key contractor. The other thing is I believ I got to personnaly involved with the house and spent too much, need to learn not to be so anal.
TKS for the advice
It would depend on appreciation in that area, and your immediate cash needs. If appreciation is high enough then it might be worthwhile to hang on to it even it doesn't generate much cash flow from renting. If you want to cash some money out, I have a 90% no seasoning cash-out program, see my profile for contact info.
I hate to say it, but that doesn't sound like a great deal to me. Even if it appraised at 142K does that mean you would get that much? Usually the buyer will talk you down some, there will likely be a lot of costs associated with selling the property, holding costs etc. Also, it seems like the rental income would not even pay the cost to hold the property in most areas of the country. If you want to do rentals, I would suggest you sell it and take whatever you get and try to find properties that are much cheaper. A good rough rule of thumb that works well in my area is to multiply 6 times the gross annual rent the property will bring in. Don't pay more than this including purchase price, renovation costs, and closing costs. I only occasionally flip a property so I won't give you any advice there.
I would get a TB in there on a lease option. You could charge $4-6K for the option and get maybe a couple hundred bucks a month more in rent than you could as a "regular" rental. You could make it a 2 year L/O, market it as "Rent to Own", and it's a gold mine for you!
sacramentophil,
Would you suggest offering a rent credti?
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