Wanted: Advice To Sell Or Rent Purchased Property...
In October a friend and I purchased a repo property for half it's value with 100% financing from an investor (another friend of mine). This investor is also financing our repairs. We plan to finish the property in a couple of weeks and expect to profit 20-25K. Initially the plan was to sell the house when we were finished, but in the last couple of weeks, I have begun to seriously consider keeping the property to rent out. I am not quite sure how to go about this. My thinking goes something like this... If we rent out the property and I get financing a couple of months after renting out (the title is currently in my name alone), we would have a couple of months "backup rent", could pay our investor back with his 15% of the "profit", and split the remainder of the profit. We have our "eye" on a couple of other properties which we would like to do the same thing. I'm looking for any advice you might have, or ideas on how to make this work better. Especially whether we should go ahead and sell our first couple of houses, or keep them to rent out. Thank you! I am looking forward to your help! <IMG SRC="images/forum/smilies/icon_smile.gif"> [ Edited by blhull on Date 11/30/2003 ]
Some thoughts to ponder:
How quickly are properties renting in your area? (ie. what is vacancy rate)
What will you be able to reasonable charge for rent?
Have you previously been a landlord? Do you have time to fix toilets, answer tenant calls, show property, and post eviction notices?
I would recommend joining a local Real Estate Investors Club. You may meet a peer there that can help you learn the market, and can share some enlightening landlord experiences with you.
You would get more cash by selling it at FMV than refinancing at say 85% LTV. Of course you may be able to refinance at 100%, depeding on your credit etc. Either way, you will need to really work out your cash flows to make sure the rent covers your payments and other expenses (property tax, repairs, vacancy allowance etc.)
Be realistic about how much you can sell it for against refinance/rent it for.
You may also look at a lease option. You could get money up front, a locked sale price and above market rents.
This answer depends solely on your your goals in your real estate investing career. My goals are different than your and they are different than the next persons. Rehabbing properties and being a property manager are two totally different investing goals. Opposite end of the spectrum on REI. I'm sure this isn't the answer you are looking for but the answer lies in yourself rather than anyone else.
This was a question we had when we first got started. I learned this if I sold the property and 1031 into a rental property I could paydown more up front creating more monthly income. Of course if you did this three times profiting $15K each time thats $45k. Roll that into a quad or duplex or better if you hunt. It's a good downpayment for a lender to look at, plus a track record (exit stratigy) This would create more cash flow due to size down and more units.
Just a thought
Sire
Wow! You have all given me so much to think about! Thank you!
I'm really leaning towards selling this one and possibly renting the next. I don't think we are ready for all that goes with being landlords yet. The one thing that keeps bringing me back to consider renting is how much we will lose in taxes and realtor fees if we sell. That cuts our profit considerably. But we both need some cash from our first deal or two. Leasing is definitely a future possibility too.
I'm obviously a Newbie... could someone explain 1031 to me?