What to do with a Rehab

Now that you have begun to purchase real estate investment properties, you have another problem to solve. Should you sell the rehabbed home or keep it? If you have done your due diligence, then you followed the most basic plan of buying low knowing exactly how much you could invest in renovations and repairs before you would start to chip away at your desired profit margin. But after all of the work is done, you begin to wonder if selling it might not be the right answer. And there is a long answer and a short answer to every question so here is the short answer first.

The biggest question is how quickly do you need your initial investment back? Do you need the cash to roll into a new property or to pay the trades and material costs for this rehab? If the answer is yes, then selling immediately is your solution. It makes no sense to keep the property if you can’t move on to your next investment or if you will be paying interest on a credit card that you used to purchase materials. Get your money, pay your bills and move on to the next property. That’s the short answer.

The long answer begins with reaffirming that you don’t need to cash out right away for any reason. If that is in fact the case, then you have more options. You could sell but try to get a higher price knowing that you could be in a position to cover the carrying costs for a few months to get a bigger profit. But if you are solely motivated by the return on your investment then you need to keep the property. If you keep it you stand to make more.

In addition to realizing cash flow each month in the form of rental income, you will get the tax break and hopefully more appreciation in the overall property value. A safe national average for appreciation is about 5% each year but there are some locations that have experienced a 100% increase in value in just five years. Also, in a few months you can refinance post rehab at about 70% of the value to a long term loan at 85-90% of the value and pull cash out to begin another project. The one part that some investors see as a down side is the fact that they have now become a landlord. But if you don’t mind those duties then you are set. And if you have a nice place and are diligent in screening your tenant then your issues should be very minimal.

A big factor in keeping or selling a rehab is your cash and how quickly you feel that you need it. Another factor is how comfortable are you with the idea of becoming a landlord? Not everyone wants to deal with a tenant and it might just not be worth it to you. If it sounds like a chore then sell the property and be happy with the profit that you made.

Looking For Investment Properties?

Fill out the form below to join our "Preferred Property Buyers" list and for local real estate updates too!

Enter Your Information Below To Get Immediate Access

... to our HANDYMAN specials. *These are not on the MLS - Many are below $100k. Available properties on the next page.
  • This field is for validation purposes and should be left unchanged.

Leave a Reply

Your email address will not be published. Required fields are marked *