Dump It Or Stick It Out?
About a year ago, my buddy and I bought a 4-unit building in Long Beach, CA. Prices were (and still are) high - we paid $660K. We knew it was a "fixer-upper" when we bought it, but we have put in much more time, money and effort than we expected - almost non-stop for a year now. With the recent rains here in CA (more rain so far this season than a normal year), the roof has begun to leak also. It seems never ending.
Anyway, my delimma is this: My partner wants to sell and move on to a different building, I say we should stick it out since we have put in so much work and effort.
We have replaced carpet in 2 units, upgraded bathrooms, installed exhaust fans, installed landscaping, done some painting and tiling, all to make the building look nicer and bring in more rent.
The building is cash flow positive on a monthly basis, and rent increases go into effect Feb 1, but we have exhausted all of the security deposits on repairs and now we need a roof repair (at least.).
What do you think? Stick it out hoping that we are almost done with the repairs, or cut our losses and 1031 out?
Thanks!
What could you get for it now?
Buildings in this area bringing in this kind of rent seem to be listed for around $750-800K now.
Regardless if you sell or keep you are going to want to fix the roof...and quick. When you disclose the condition of the property you don't want to have to say that the roof caused damage.
A roof shouldn't cost you much to replace, although it certainly isn't pocket change.
From what I know of your area, the area is hot but properties are taking longer to sell. This is a good sign that there may not be much more appreciation in the property. I'm sure there will be more but at some point the market will change and you will want to buy strictly for cash flow.
I can't advise you to keep or sell because I do not know your current financial situation, goals, or dreams. Only you will have to decide what to do next.
Sound like a typical rehab. They never go as planned and almost always require more time and effort than originally envisioned once you get to know the place and start to uncover all those little hidden bugs.
If you are a seasoned veteran at doing this kind of stuff then you would quickly know if the building was a lemon and whether or not you should bail. If your relatively new to this you probably don't have a lot of comparative experience to draw upon.
Rehab is hard work and always more than you expect... sometimes much more. I think you should look at it from a financial perspective. If it's in a desireable area, the rental history is solid and your return on investment or equity is worthwhile then finish the job and keep it. If it does not meet your financial critereia then sell it and move on.
Quote:
On 2005-01-07 22:26, joespine wrote:
The building is cash flow positive on a monthly basis, and rent increases go into effect Feb 1, but we have exhausted all of the security deposits on repairs and now we need a roof repair (at least.).
Thanks!
Wait a minute - I thought the landlord could not "borrow" money from the security deposits? It was explained to me that the deposits had to be held in a separate account, and I have to be able to cough up that money at any time.
I would look and see if you can take out a line of credit on the place. It's another option than selling something that has a positive cash flow.
Many states do not require sec deposits be kept in separate accounts and I think CA is one of them. But, I'm not an expert. I think some localities do require it though.
Thanks to all for the sound advice. I like the idea about buying him out if he does not want to go along - but I am pretty set on the idea of holding the building. After all, we paid an extra point and a half upon purchase to get the payment down even lower so the upside in rents would be even better. To sell before the 10 year lock period seems silly to me.
I guess for my next property I will just have to be more aware of what a "fixer" looks like as opposed to the "no deffered maintenance" the previous owner was touting.
Thanks for all the good advice.