Author Topic: 45k + repair to rental house - time to sell?  (Read 635 times)

Healthie

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45k + repair to rental house - time to sell?
« on: June 19, 2022, 02:17:21 PM »
My partner and I just moved to another city and I chose to keep my little starter home as a potential rental. The rental property has been trying for two months to land tenants and it appears we are close to landing some. The issue is the city has had very heavy rainfall and the basement has been getting some water in it. I got a quote to get this and A new set of basement cement stairs done and itís in the area of $42,000. I got the house assessed by a realtor and it is worth around 350 K. Itís a lot of money to spend for me right now and I would be getting two grand per month in rent  with a mortgage of around $900 per month.

Iím wondering white peoples thoughts are in terms of selling or keeping this property? Frankly itís a ton of money and I was hoping not to spend this, I had a graded the slope and got all new gutters and that alleviated the problem of water for sometime but the rain has been very substantial.

SunnyDays

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Re: 45k + repair to rental house - time to sell?
« Reply #1 on: June 19, 2022, 08:14:17 PM »
Do you think the quote is reasonable for the work that needs to be done?  Do you know what actually does need to be done?  Water in the basement can have a number of causes, some of which are easy, cheap fixes and some that arenít.  I recently had water coming in a window because the well had filled up during a torrential downpour because one downspout was blocked.  Thatís an easy and cheap fix.  But if you have something like foundation cracks that allow water in, thatís another thing.

If itís going to be major, expensive work, it will take over 3 years to pay for itself.  If itís in otherwise good shape and wonít cost any further major money, AND you want to keep the rental longish term, it might be an acceptable expense.  But you have to factor in the convenience factor if youíre living at a distance.  Also, if it truly needs that work, you might be losing more money than that by not getting it fixed before selling.

ChpBstrd

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Re: 45k + repair to rental house - time to sell?
« Reply #2 on: June 19, 2022, 09:28:16 PM »
You have a "little starter house" that is worth $350k if you sell it now. The alternative is you could have (350+45=) $395k tied up in a rental house yielding (2,000-900=) $1,100 in rent before upkeep, property management, termite policy, umbrella insurance, etc. So maybe *very* optimistically you profit $750/mo or $9,000 per year if there's nothing else wrong with the building. This house utterly fails the "1% rule" landlords have used for ages.

$9k a year on a $395k investment is an ROI of 2.28% before taxes. That is not good for a concentrated, risky, and time-consuming investment. You're earning less than the yield of BND, a fund the holds mostly risk-free, hands-off treasuries. Also, from the rent-price ratio I can tell you're invested in an area where most people (who set the market price on rent) cannot afford the purchase price of a house. I would unload the house immediately and invest the proceeds per my IPS.

Healthie

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Re: 45k + repair to rental house - time to sell?
« Reply #3 on: June 20, 2022, 09:48:44 AM »
Thanks guys. I've asked the rental company to pause any showings/repairs they were going to do and I'll be talking to an agent. I should have sold when the market was insane.

YttriumNitrate

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Re: 45k + repair to rental house - time to sell?
« Reply #4 on: June 20, 2022, 10:08:13 AM »
The rental property has been trying for two months to land tenants and it appears we are close to landing some.
Is that how long it usually takes to find tenants in your area at this time of year? At least in my area, in the spring time if it takes more than a week or so to find a tenant something is wrong.

ChpBstrd

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Re: 45k + repair to rental house - time to sell?
« Reply #5 on: June 20, 2022, 11:20:38 AM »
Thanks guys. I've asked the rental company to pause any showings/repairs they were going to do and I'll be talking to an agent. I should have sold when the market was insane.
I have some excellent news about "when the market was insane."... It still is!

Maybe you'll miss the peak of the housing bubble and miss out on the equivalent of a few months' of 2021 gains, but I bet selling at the point where things start going downhill is going to be just as satisfactory. People will tire of you telling the story at parties.

Jon Bon

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Re: 45k + repair to rental house - time to sell?
« Reply #6 on: June 20, 2022, 11:25:27 AM »
You have a "little starter house" that is worth $350k if you sell it now. The alternative is you could have (350+45=) $395k tied up in a rental house yielding (2,000-900=) $1,100 in rent before upkeep, property management, termite policy, umbrella insurance, etc. So maybe *very* optimistically you profit $750/mo or $9,000 per year if there's nothing else wrong with the building. This house utterly fails the "1% rule" landlords have used for ages.

$9k a year on a $395k investment is an ROI of 2.28% before taxes. That is not good for a concentrated, risky, and time-consuming investment. You're earning less than the yield of BND, a fund the holds mostly risk-free, hands-off treasuries. Also, from the rent-price ratio I can tell you're invested in an area where most people (who set the market price on rent) cannot afford the purchase price of a house. I would unload the house immediately and invest the proceeds per my IPS.

I think you should hold it for the endless and proven price appreciation that will happen, now matter what happens ever, for all time. /s

You also get to keep all the gains tax free if you are in the states. Sell that house yesterday.


former player

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Re: 45k + repair to rental house - time to sell?
« Reply #7 on: June 20, 2022, 12:17:42 PM »
Managing a rental at a distance works out as expensive because you have to hire everything done and can't check on what work is really needed and how well it is done.  It also takes time and worry, for instance in not being able to personally vet tenants or how well they are looking after the property.

If you are not going to go back to live in this house within a couple of years, then I would sell.  If you want to be in the rental business then find something where you are currently living, or find something that needs minimal management, such as a new apartment.

Healthie

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Re: 45k + repair to rental house - time to sell?
« Reply #8 on: June 20, 2022, 12:19:21 PM »
ChpBstrd - thank goodness.

Jon Bon - this was absolutely my attitude. Now I've actually seen house prices cool off a bit in my new market. It's my only property right now so I'll at least be protected. Even if I lose 50k off the estimated value, I'll still come out way ahead.

 former player - this was a uniquely 'good' house. My first house, I lived in it for 4 years, made a bunch of updates and repairs, and thought this issue was sorted - felt like a solid house. And, I bought it for a good price. As it turns out this was a terrible idea to keep it in lieu of my decision.

Hard lesson to never use the word 'hope' around an investment property. Also, in terms of finding tenants - it's a full 4 bed/2 bath home with a big yard for $2000/month. Comparatively, 3 bed room top suites are renting for 1700-2200/month. Many of the applicants have just been bad fits for the property. I don't know why it's taken so long, there aren't a lot of full-house rentals available and I figured this would be appealing.
« Last Edit: June 20, 2022, 12:35:48 PM by Healthie »

clarkfan1979

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Re: 45k + repair to rental house - time to sell?
« Reply #9 on: June 20, 2022, 06:03:24 PM »
Do you think the quote is reasonable for the work that needs to be done?  Do you know what actually does need to be done?  Water in the basement can have a number of causes, some of which are easy, cheap fixes and some that arenít.  I recently had water coming in a window because the well had filled up during a torrential downpour because one downspout was blocked.  Thatís an easy and cheap fix.  But if you have something like foundation cracks that allow water in, thatís another thing.

If itís going to be major, expensive work, it will take over 3 years to pay for itself.  If itís in otherwise good shape and wonít cost any further major money, AND you want to keep the rental longish term, it might be an acceptable expense.  But you have to factor in the convenience factor if youíre living at a distance.  Also, if it truly needs that work, you might be losing more money than that by not getting it fixed before selling.

Water problems are usually solved by diverting water away from the house. The problem usually isn't the house itself. I wouldn't spend 45K on that type of repair. Need more details to be sure.

I bought a foreclosure with water problems in the basement. One downspout was clogged and water poured next to the foundation during heavy rains. I added two additional downspouts to help divert water away from the house. I had a handyman help me with the first downspout. It was $250 (material) + $250 (labor). Second one was $250 in material and I did it myself. So $750 total.

I have concerns on why it takes two months to get a tenant. All my stuff in gone in one week with multiple applications.

If you didn't need the repair of 45K and it would rent in a week for $2,000/month, I would rent it. If your mortgage rate is around 3.5% and you have at least $300/month going toward principle, I think it would make sense. I don't know your local market, but rents are on the rise and likely to continue to rise over the next two years. 

As the fed continues to increase interest rates, purchase price will become less affordable and more people will be pushed into the renter pool. This will then continue to push the rent to higher levels.

How much can people afford? Much more than you think. The couples that were trying to buy their first home in the last two years but were not successful in pulling the trigger have 50K to 100K in their checking accounts. Raising the rent from $2,000/month to $2500/month is not a big deal. They won't like it, but they can comfortably afford it. 

Jon Bon

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Re: 45k + repair to rental house - time to sell?
« Reply #10 on: June 21, 2022, 07:32:50 AM »
Do you think the quote is reasonable for the work that needs to be done?  Do you know what actually does need to be done?  Water in the basement can have a number of causes, some of which are easy, cheap fixes and some that arenít.  I recently had water coming in a window because the well had filled up during a torrential downpour because one downspout was blocked.  Thatís an easy and cheap fix.  But if you have something like foundation cracks that allow water in, thatís another thing.

If itís going to be major, expensive work, it will take over 3 years to pay for itself.  If itís in otherwise good shape and wonít cost any further major money, AND you want to keep the rental longish term, it might be an acceptable expense.  But you have to factor in the convenience factor if youíre living at a distance.  Also, if it truly needs that work, you might be losing more money than that by not getting it fixed before selling.

Water problems are usually solved by diverting water away from the house. The problem usually isn't the house itself. I wouldn't spend 45K on that type of repair. Need more details to be sure.

I bought a foreclosure with water problems in the basement. One downspout was clogged and water poured next to the foundation during heavy rains. I added two additional downspouts to help divert water away from the house. I had a handyman help me with the first downspout. It was $250 (material) + $250 (labor). Second one was $250 in material and I did it myself. So $750 total.

I have concerns on why it takes two months to get a tenant. All my stuff in gone in one week with multiple applications.

If you didn't need the repair of 45K and it would rent in a week for $2,000/month, I would rent it. If your mortgage rate is around 3.5% and you have at least $300/month going toward principle, I think it would make sense. I don't know your local market, but rents are on the rise and likely to continue to rise over the next two years. 

As the fed continues to increase interest rates, purchase price will become less affordable and more people will be pushed into the renter pool. This will then continue to push the rent to higher levels.

How much can people afford? Much more than you think. The couples that were trying to buy their first home in the last two years but were not successful in pulling the trigger have 50K to 100K in their checking accounts. Raising the rent from $2,000/month to $2500/month is not a big deal. They won't like it, but they can comfortably afford it.

The return on this property is still terrible if the stairs do not need to be done (9,000/350k) <3%. It does not rent at $2000, what makes you think it will rent at $2500? Cash flow will basically be not worth mentioning, it will eat up time and effort taking care of it. Furthermore your former primary residence is going to get beat up and not be nearly as nice as it is now depressing the sales price when you get fed up with it and sell anyways in 2 years.

OP Not every house is designed to be a rental. Sell this house, and dump the tax free profit into the market.


Healthie

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Re: 45k + repair to rental house - time to sell?
« Reply #11 on: June 21, 2022, 10:17:40 AM »
Do you think the quote is reasonable for the work that needs to be done?  Do you know what actually does need to be done?  Water in the basement can have a number of causes, some of which are easy, cheap fixes and some that arenít.  I recently had water coming in a window because the well had filled up during a torrential downpour because one downspout was blocked.  Thatís an easy and cheap fix.  But if you have something like foundation cracks that allow water in, thatís another thing.

If itís going to be major, expensive work, it will take over 3 years to pay for itself.  If itís in otherwise good shape and wonít cost any further major money, AND you want to keep the rental longish term, it might be an acceptable expense.  But you have to factor in the convenience factor if youíre living at a distance.  Also, if it truly needs that work, you might be losing more money than that by not getting it fixed before selling.

Water problems are usually solved by diverting water away from the house. The problem usually isn't the house itself. I wouldn't spend 45K on that type of repair. Need more details to be sure.

I bought a foreclosure with water problems in the basement. One downspout was clogged and water poured next to the foundation during heavy rains. I added two additional downspouts to help divert water away from the house. I had a handyman help me with the first downspout. It was $250 (material) + $250 (labor). Second one was $250 in material and I did it myself. So $750 total.

I have concerns on why it takes two months to get a tenant. All my stuff in gone in one week with multiple applications.

If you didn't need the repair of 45K and it would rent in a week for $2,000/month, I would rent it. If your mortgage rate is around 3.5% and you have at least $300/month going toward principle, I think it would make sense. I don't know your local market, but rents are on the rise and likely to continue to rise over the next two years. 

As the fed continues to increase interest rates, purchase price will become less affordable and more people will be pushed into the renter pool. This will then continue to push the rent to higher levels.

How much can people afford? Much more than you think. The couples that were trying to buy their first home in the last two years but were not successful in pulling the trigger have 50K to 100K in their checking accounts. Raising the rent from $2,000/month to $2500/month is not a big deal. They won't like it, but they can comfortably afford it.

The return on this property is still terrible if the stairs do not need to be done (9,000/350k) <3%. It does not rent at $2000, what makes you think it will rent at $2500? Cash flow will basically be not worth mentioning, it will eat up time and effort taking care of it. Furthermore your former primary residence is going to get beat up and not be nearly as nice as it is now depressing the sales price when you get fed up with it and sell anyways in 2 years.

OP Not every house is designed to be a rental. Sell this house, and dump the tax free profit into the market.


For the water, I've installed new gutters & flashing, graded the foundation away from the house, and added 8' extensions to the gutters. It wasn't an issue prior to the heavy, heavy persistent rain we've had. The additional issues are after the area is dug up the yard needs to be reseeded and sections of fencing need to be taken down & reinstalled for the back hoe to fit. I did the simple interventions to fix it, but unfortunately it persists. The house is a block foundation.

For the price: comparable, albeit larger homes are renting for 2750-3000+. I started at $2500 and had 2 people view it. A couple at $2200 who passed, and it's been at $2000 for at least a few weeks. Many of the possible tenants either have several animals or more people than there are bedrooms for, or are dicey. The house is in a blue-collar, working city, and typically people can afford a house after a few years of full-time work & saving.

I've contacted my agent I was working with and told him I want him to sell it. He's going to get back to me today with a price and we'll go from there. There's a lot of good about the house, some major renovations and repairs since I've owned it, but at this time in my life I cannot reasonably afford a 50k bill on a house that I'll get $900/month from (minus 10% property manager fee, minus mortgage/property taxes). It's very stressful but I'm taking solice in that I've done all I can from my end of things.

Addendum: my interest rate is 1.79%. I believe I can transfer this to the buyer with some stipulations, which may help me sell it.
« Last Edit: June 21, 2022, 11:48:44 AM by Healthie »

Jon Bon

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Re: 45k + repair to rental house - time to sell?
« Reply #12 on: June 21, 2022, 02:58:11 PM »
Nice! Let us know how it turns out.