In this video, I am showing you a house that was originally a rental property. I purchased this house as a rental property (with the tenant in place) and I have only seen the interior of the house one time previously. The house has been neglected with a lot of deferred maintenance from multiple tenants over many years.
At this point, the house has substantial repairs that are required to be completed. In addition to this, there is also a code enforcement violation for the exterior of the house which will need to be fixed as well.
I have to decide if I want to fix this house to make it rent-ready, or if I want to fix the house and sell it by listing it on the MLS. There are many considerations that go into this decision since there are benefits to both. Inventory is very scarce right now, so fixing this house nicely and listing it for sale on the MLS will definitely get me the highest amount for the house.
However, that will require paying a hefty capital gains tax on the profit. So one key decision if you are doing this, is what you do with the money after you have sold the house. You need to be able to reinvest that money at a higher rate of return than what you are currently getting on the rental in order for it to make sense. You also need to believe that prices have peaked or are close to it since why would you sell if you thought prices were going to continue increasing higher? You can use my helpful Rehab Property Calculator to figure out your earnings for your fix and flips.
Fixing the house up as a rental has many advantages too. Holding the house long-term with a 15 or 30-year mortgage in place means that the property will continue to cash flow and generate rental income as well as tax deductions like depreciation. It’s not an easy decision to make, however, one of the important considerations is how much will need to be spent on repairs. With houses that have been neglected, there is often a lot of deferred maintenance and sometimes the cost of getting the house ready for rent again can be substantial. In other rentals, with less work required to make them rent-ready, they may just need a cleaning and an interior coat of paint. In that scenario not selling the house and keeping it as a rental is an easier decision.
As you can see from the video, this house needs quite a bit of work. There is a hole in the exterior wall that has created a situation where water is coming into the house that has to be repaired. There are a lot of shingles missing from the roof so that will require new shingles if I want to list this house on the MLS. For a fix and flip, the interior needs new flooring, new kitchens, new baths, and pretty much new everything. The kitchen will be challenging since I don’t see any way of opening it up so it is not as big as I would like it to be.
This is what a typical fix and flip looks like before repairs. I buy many houses just like this from “tired” and disgruntled landlords that are sick and tired of having their rental properties trashed by tenants. I find many of these sellers by going through code enforcement violations and eviction records. These houses can often be purchased at a substantial discount since the sellers are very motivated to sell if their tenant is not paying rent and they have code enforcement violations as well.