Should I SELL or RENT My House? + How to Finance Home Renovations (Rookie Reply)
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Let's get your questions answered. I'm actually care and i'm here with my cohoes, tony jay Robinson.

And this is the podcast to help you kick start your real, say, investing journey. And today we're going back into the bigger pockets forms, which if you didn't know the bp forms, are one of the absolute best places for you to go as a worker to get your real state questions answered by real state experts like me, naturally.

Now what we're going to discuss the day we're talk about how to determine if you should rent or sell your property, will talk about how to fund the rehab for flip and will discuss if house hacking is dead in this high interest rate market. Now before we jump in, we want to think corporate direct, this episode sponsor by corporate direct, protect your properties with an lc and the corporate direct, take care of the paperwork, go to bigger pockets, outcome slash direct for a three fifteen minute a consultation and one hundred books off. If you mention the podcast nap, let's go into the show. okay.

So the first question I pull today is my wife and I recently moved to lindberg, Virginia for work and will be living here for approximately a year and a half. Our work is expected to be completed by only twenty twenty six, after which we plan to move back to our hometown. In the meantime, we purchased a home with the intention of converting IT into a short term rental once we leave.

We also plan to finish the basement, which would add about one seven hundred square feet of living space. Before purchasing the property, we ran preliminary numbers and converting IT to a shorter mental scene promising. However, after taking a deeper look at the financials, we realized the property would barely cash low.

This is on recent short rental projections. We expect about forty thousand dollars in annual revenue for a five bed three in a half back near river mount bullet bar, which would only net us a couple hundred dollars in monthly cash. Low estimated costs of finish.

The basement is around twenty five thousand, with an additional twenty five thousand needed to complete the rest of the property. Our latest calculation show a cash and cash return of just five point eight seven percent face on the forty thousand revenue projection. At this point, we're feeling uncertain. We're seeking guidance on the best approach moving forward.

So should we pursue the short of mental strategy and aim to be one of the top performing properties in the market to increase cash low, potentially up to one thousand hours a month, or should we pave IT and run the house to long term tenants? However, the potential long term rent is about the same as our mortgage, meaning we lose money in factory in repairs eventless. Should we go the short term rental or a long term rental out to break even and rely on future appreciation with the goal of selling in five years, I plan on di wine, the basement to save cost.

But is having this extra square footage even worth the trouble? So we just sell the property when we leave and cut our losses. Our ultimate fears that we dumps fifty thousand into this property for a very small return. The biggest issue is that we already currently own the property and are unsure where to go from here. So tony, there's a lot to address here.

But as our short term rental experts on the real state rookie, hardcase, what's start off talking about the the revenue potential here? And you know, should they finish the basement? And what are some ways that they could actually be in one of the top places to stay? And do you think that's actually achievable?

Yes, whenever we analyze, you know this is true for any short term, long term in term, whatever that may be. But we look at a worst case, a best case and then a most likely case scenario o and what IT sounds like is that your worst case scenario is that your cash flowing a few hundred buxa month on the short term tal, which is Better than the long terminal option of breaking eva or or losing money potentially.

So your floor on the short term tal is much higher than the ceiling on your long term tal. I think that's one data point take into account. Now I don't know how you came up with this.

You said potentially up to two thousand bucks for months, but that sounds like that might be your best case scenario is getting a thousand bucks from month in cash low on this robby, which then doubles your you know maybe even triples your your cash on cash returns like the low teen somewhere in that ball park. Um so I like the range there, right? Like if the floor is say we're still doing Better than the alternative and we're so cash positive, that is not a bad floor to have the ceiling.

I think I would in order to like really understand what that ceiling is, I try and find as many supporting data points as I can to say, are there other properties that I say was that was a five bedroom during a half bath? Are the other five bedroom during a half baths in this part of town that are doing the kind of numbers, sixty, seventy thousand dollars year in annual revenue? And if they are, is that a property that I can actually compete with, right? Is is a similar and functionality and layout and design aesthetic.

Do they have certain of minutes that I can also incorporate into my property? And just actually, I can I actually compete with those listings? And if you can, then there is more confidence for me to say, okay, actually turning this into a short term, tal might be the best option. But that's my thoughts on that first question. They're actually like, you know should .

we should we not yeah kind of a follow up piece of that they ask is even worth you renovating the basement for the extra square footage. And I think that goes right along with what you are saying as you have to look at the and look at, okay, if you add that square footage, what is the new daily rate you can charge? How much more than making and is IT worth at that way when you actually run the numbers on IT, how long is IT going to take you to recoup that twenty five thousand that you're putting into to finish the basement?

One don't think that, asha, to because this is the estimate that costs to finished the basement is twenty five grand and then an additional twenty four thousand needed to complete the rest of the property。 Five bedroom. I don't think they gave the overall square footage with the entire house.

But when I look at a five bedroom, I feel like you're probably going to need more than twenty four thousand books to further h and design the rest of that property because we we typically say about twenty to twenty five bucks square foot if you want like good design. So know if you've got to, I know, five bedrooms, maybe three to four thousand square feet, somewhere in that bof numbers year. Abb IT says, three thousand square feet, three thousand times twenty books.

So what does that sixty gram I turned out to spend on design and furnishing? So even the twenty four thousand feels a little light to me. And I think that's the mistake that a lot of people make when they get their for short time mental is that they underestimate how much capital actually goes in to setting that up the right way from the beginning. And then they don't perform the way they want to, not because the property didn't have the potential, but because they simply didn't put the necessary investment in that deal to make IT reach that number. So just one of the caviar, twenty four gram fels, little light on a five bedroom plus seven hundred and feet of basement living space .

yeah and maybe they're gonna leave some of their own personal furniture and maybe that's why that number is off. But I wanted to address their decision between doing a short term to or a long toronto. So IT seems like they're pretty comparable as so that they make a little bit of cash or basically break event may have to put money in if there's repairs of mainland said need to be done for the long term tenants.

So i'm looking at, okay, can you save that fifty thousand by not adding the square position, basement, not furnishing IT and get a long term tending in there? So how much would you end up losing throughout the next five years? If you go selling in five years, is that less money than if you were to go and dump fifty thousand and just break even? So I think look at that, but also look at your resources in your opportunity.

Is there a great short term rental manager that is going to run this property for you? Do you is there a great long term rental property manager? Because the Operations of whichever ver road you go can highly impact, which will be a Better investment for you. So if you are just going to self manage remotely and a short term, so that's going to be a lot more work than if there's a long term time and in place, too. So I think taking into account the actual Operations of them can kind of help you decide to as to what strategy do you want to do. I think sometimes people get too caught up and just looking at the numbers and not what is the the time consideration that can go into a strategy, but also who are the resources or the people that they're able to outsource to that will really make or break their investment also.

what do you think about the um just I own appreciation with the goal is selling in five years. Uh what are your thought on the knowingly getting into a deal that may either break even or lose money? But our hope is that five years from now, we can exit on on the appreciation .

to say you're at least getting mortgage pay down. You're having somebody that's paying your mortgage every month, you're going to recoup that equity from the mortgage paid down. Um I would have to look at do a little market analysis as duel.

Has there been appreciation in that area? Does IT stay stagnant know we are people moving into that areas? The population growth? Are there things that are driving up Prices in that area? But I do love having the mix of appreciation and catch le, especially since you already know that you wanna sell this property in five years, that and also if you do lose our money every month, but you think that this property can make you one hundred, one hundred and fifty thousand dollars in five years when you go to sell IT, is that what are you going to have to put in every month if you do lose money on the property? And how does that kind of offset each other? But I don't like the the risk of losing money on a property and waiting for appreciation to kick A N yeah I feel like the appreciation .

independent on what you bought this. This seems like you bought IT for the immediate cash low. And the appreciation is just kind of like the the icing on top. So I feel like I would again, we talk about floor versus ceiling. Your floor, if if you go potentially long terminals that you lose money on this property every single month. And as I are, you are you comfortable personally with that floor with that type of risk um to I think that the final piece of that, like should we sell the property when we live in and just kind of cut our laws's?

Um again, I think that comes down to what why did you buy this in the first place? And do you see a clear path forward to actually achieving what that goal lose? And even if you've already invest the time over for an energy into purchasing this property, doesn't necessarily mean you need to keep IT, no, maybe subject yourself to even more future losses, right, even more money that you can't recoup.

And and IT says they'll be living there in you in a half. So theyll be moving out in twenty twenty six, IT says. So i'm thinking to why do they expect to take a loss in twenty, twenty six? Why do they think that they're gona take a loss? It's not like it's right now where they know that it's going to sell.

You know, they're looking at comparables and gonna sell off. So I think that as you get closer, this is an a decision that you need to make a now that you can continuously watch what the market is doing is compared to you looking at home cells, looking at rental Prices. Maybe you know today when we're recording this, we just found out we have you know who the new president is going to be.

So that could dramatically change the market in the next year and a half. So I think you don't have to make this decision right now, but continuously looking at what are the short term rental rates, what are the long term rental rates, even what are the short term rental laws that are in place in this market and what they during this time period. Two, which may affect your strategy.

So I think you don't have to make a decision now. And you can kind of you know keep an I on everything and know that you're actually in a position to have three options, which is is great. Not a lot of people can do that with the property.

Before we jump into our second question, Ricky, we want to thank you so much for being here and listening to the podcast. As you may know, we air every episode of this podcast on youtube as well as original content. Like my new series, Ricky resource. We want to hit one hundred thousand subscribers, and we need your help. If you aren't already, please head over to our youtube channel, invited that youtube dot com flash pt real city rookie and subscribe to our channel.

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Kay, everyone, welcome back. Tell me what's the next question and you got for us. This says i've .

saved eight twenty percent dow payment for a property, but i'm struggling to save the remaining sixty five k for actually fixing this property up. For example, the property costs one hundred and fifty thousand dollars. I ve saved up thirty five thousand dollars, but i'm struggling to save up an additional sixty five kids to the rehab. My understanding is that the Linda will not give me the rehab money right away. After pay my own money to start rehabbing, the Linda will then reimburse me in stages of the rehab portion.

Is that correct? Is IT Linda who will give the construction budget write at closing when I purchased the property, I have some equity, my rentals, but I don't want to touch them with the interest rates being so hi if they're very Linda who could lend to me without needing to save of the 5k， that would be great. Thank you.

So what this question is really asked me, us you actually is, are there different loan products that exists that might allow this person with this twenty percent dow payment to cover not only his purchase rise, but his renovation costs as well? I know you've been a lot of birds actually, so i'll kick you on this one first. But have you seen any one products to kind of fit what this person is looking for? Um yeah are your thoughts?

yeah. So I think the first question I would have back is this for a primary residence or this purely investment property because that will definitely impact what type of moon product you're going to get. It's going to be your primary residence.

There's a four or three. Is that four three? B yeah okay, I don't know. I was going to say four three k, but I was like, no, that's where you .

can .

go to the london and they will end you you know percentage of the purchase prize plus the rehab on the property. But during that time period, you you have to use a contractor that is approved by your lenders. You have to do draws. They'll have an inspector that comes out and inspects the property. And i've heard i've never done this type of one that a bit can be kind of greek going through all the hoops and you know going through the whole process, everything is documented, everything you know just a lot more gruelling than if you had your own cash and you're paying on your contractor going along the process. So there is that option for you, which IT has worked for a tons of people to to go this out.

But there also are small local banks that due in house portfolio loans where if you are buying this property under a market value and can show them that you know this property is right now worth a hundred thousand but I have an under a contract for eighty thousand, they might be willing to um lend you more money than what you're actually purchasing IT for so that you can use that on the rehab to um as far as your other properties that you have, you don't wanted touch because of the interest strates being so high. I would go to one of these small local banks are a credit union and ask about a commercial line of credit to get a line of credit on these rental properties and then you can use that. So that's actually what I do.

I pretty much fund all of my rehabs with line a line of credit that's on um two mirena properties and I will take money off as I need IT. And then once you know my rehab, its son and I either refinance or i'm selling the property, I paid back my line of credit and then IT sits there until i'm ready to use IT for the next deal. So i'm not continuously paying interest on IT just when i'm using IT. And this is a way Better option, in my opinion, than going out and borrowing from a lenders for the rehab and having to follow the rules and their processes.

But also, there is hard money lenders too, that you can find and you can go into the bigger pockets forms and get recommendations where they'll do a lot of these loans, where they'll let you person to the purchase prize, maybe all the rehab present the rehab and then their expectation is that you're going to go in refinances property and sometimes they have in house where you can just go ahead and refinance with them for know you're and loan product that's a fixture ate over so many years um or you'll take you know with somewhere else and refinance and pay that that went back. But if you have that equating those oranges, I would definitely try to tap in and get a line of credit for sure because then you don't have to go through inspections, you don't have to get approval and go to the loan process every time you want to do a rehab property, you're able to just use your own line of product. And onest ly, we will probably then sure, sure you will be Better than if you are going to a hard mony's there. The havens sometimes pay points and usually a higher interest state.

I can agree more. I think the hard money portion is probably the most expensive debt that all maybe run into. But I think actually you hit on a super important point. Like a lot of the kind of smaller local banks and credit unions, those might be a great place to go because they tend to have a little bit more flexibility than even hard money lenders in some situations because some of these bigger hard money lenders are these massive organizations in corporations as well, right?

Um I I think one of the things that I realizes we've growing our portfolios that even though know a mortgage is a mortgage and dead is debt, every london has a lightly different way in which they package that debt to you as a real said investor. And I think the more lenders you can talk with, the more potential financial institutions you can build relationships with, the more or tools you start to add to your tool built to say, well, hey, this dad actually makes a lot of sense for this deal or this type of loan product, mister tendencies for this deal. So you know, if you're buying up you you said proper one hundred and fifty k you're probably bite in a smaller town. There are probably credit unions in that city who would love to give money back to folks in your area to say, hey, let's go reval ze some houses in this community.

guys. We love talking about real love in your questions like this with you all. And we would love if you'd hit the fallow button on your podcast APP. Wherever you are listening, we have to take one final break, and we will be back with our last question.

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Okay, welcome back. Our final question today is hello B P, new to the forums and new to relate investing. I've been debating on house hacking into homes because the Prices of homes are just so prized.

My question is, is how hacking dead and to live rent free no longer and exist in today's market looking at a duplex and I owner occupy my game plan is to buy and hold multifamily houses to build my purpose lio of appreciation due to catch ful home sea so hard for me in my market. Okay, what do you think, tony? Let's answer that first question is how the hacking dead. Let's use this, says a social clipsed you strip them, delete.

I yeah is how sacking did I? I don't think in anyway SHE perform that how sacking is even close to that is is not even on life support, right? It's not even in its old age, right? How sacking is Young.

And spray, you know now is is is slightly more chAllenging because of the interest rates were in short. But that's just really say across the board is not specific to house hacking. It's house hacking, its long term, it's short term.

It's medium term. It's commercial, it's know whatever IT is are all seeing a bit of a pinch because of the increase interest rates. But said the house hacking is dead, I think is probably one step too far. Now I think that for for some people, they only categorize a house hack as a success if they can one hundred percent cover their living expenses and produce cash on on top.

That I think that was with the birth strategy for a long time. Two people said, if I can pull all my money out and cash, well, that is a bird where that is really hard to do now for sure even even for the birth example.

say that you have a hundred thousand dollars like a little next day that you're starting with and maybe you don't get one hundred key bag. What if you get you know fifty key back right now? You can go use up fifty percent of your initial capital.

You can go to or into something else. Is of us no right? So ah I think it's redefining what to act actually is. But our biggest expense right monthly is the amount of money we spend to live right like the roof over our heads.

And if that is not the case for you and IT is your car or a depreciating .

yeah that's true.

Need to go back to list all or ever. So for .

most people, it's their mortgage, is their rent. And if you can get that even eighty percent lower, well, now you've just freed up eighty percent of your income to pour back into buying more reality, which is a win. So is IT dead. Absolutely not to think we just need to redefine what success as a house hacker actually looks like that it's it's a bit of a range and not just a black of my answer.

yes. So let's kind of put together an example. And this is the way I always like to describe my sister's house tax. So with the first duplex, SHE got SHE was paying forty five dollars a month and IT wasn't SHE had to pay something.

But if he would have lived in the same exact unit somewhere else today, she's so she's probably paying she's paying lesson forty five now. She's probably paying zero now just because run has increased in her work, gage payment has stays the same. But that same size using unit when he moved in good rent for nine hundred dollars per month.

So if he had gone and moved into a house that was similar in run at IT, sh'd be paying nine hundred dollars, and he said he went, bought the house and SHE paid forty five dollars, and then the person that lived below her paid a thousand dollars a month. I think IT was, and that covered her mortgage. So SHE was not making cash low, but he was getting mortgage paid down. So equity built up in the property 是 could save that eight hundred and fifty five dollars every single month。

And I just did the math just over for ten thousand dollars year that is putting back .

into her pocket and then you get increase in. So she's lived there. Are trying to think like two thousand nineteen, maybe two thousand and eighteen maybe was. So she's lived there a while. And like I think right now that downstairs person is paying twelve hundred, so it's increase ed two hundred dollars in that know five, six years that she's looked there. So now he is cash flowing off the property.

But um yeah, so I think there is other metrics to look at instead of just cash flow on the property, you're having someone pay part of your mortgage, I think is really a win. If you're having somebody live there and you know it's it's not making a done or you're going to be paying more money, then if you were to go and run somewhere, then maybe it's not worth IT for you because you're having to increase your living costs so much even though IT is a you know you're buying an asset. But if just going to be more burden on you because you are paying more every single month and if you were to go live somewhere else and maybe that's where you should reconsider, is to like known, this isn't the deal for me.

I think the other big benefit of how sacking is just the reduced level of capital that actually need to get into a deal. Like when Serena, my wife, when we bought our first home, like our first primary residents together, we got A I think was a five percent down conventional loan. And at the time we live in california, there was A A grant for first time home buyers, and the grant covered the majority of our downpayment.

And I want to say, we bought our house. The thing was like, I know just over half a million box and bat our house and the total cash out of pocket force was like thirteen thousand doors, something crazy like that, right? So we were able to control this property that's worth half a million with thirteen thousand dollars.

And it's like i've i've heard and seen that same stories so many times from so many different people. Or you can go out either buy a five bigger five bedroom house and you're renting out the other rooms, gotten by a do plus or try plus or four plus and without the other units. But the cost of capital, like the amount of capital that you need to actually get into the deal is so incredibly low, the interest rate is going to be lower than if you're doing into as a traditional investment property, the terms are going to be Better.

Like everything about the dead and the acquisition is so much easier. So how could we say that? How second is dead when that to .

look this anything to and the the point of that story isn't to say like, oh, if you have very little money, this is your way to get in. It's more of like you still want to have money so that you have reserves and you get to be more liquid. So if five of fifty thousand dollars and I went and put thirteen thousand dollars down, like tony said, I can save the rest of that.

I can put that in nine, four and half percent interest, do you know account and have deal more liquid and have more reserves on he and or use some of that to invest in something else or continue to to grow that. So um I think the opportunity of house hacking is just incredible if you are able to do IT. We just .

interviewed jeffson galloway y on the podcast. This episode may be out already, but if you go ch and listen to his episode, he bought six properties and six years, almost how second? I think I was like half of that portfolio, he, you would buy, you know, buy a property, move in living in himself, find out some additional space, move out of IT, go to that to get in somewhere else.

And he did that multiple times, and he built a cash low cashle machine, right? I think he said on my podcast had gotten two million dollars in equity cash, learning about fifty thousand box a year. And IT all started with him buying properties that he was going to live in himself. And this is recent, you know this isn't the last couple years.

right? Twenty twenty one, he ought the first one, I think.

And yeah, so IT works well.

If you're listening and you want to get more involved in the community, like all these other real state investors, you can go to bigger pocket com splash forum. Thank you guys so much for joining us. We really appreciated having you listen to us today.

Whether you're on your favorite podcast platform or on youtube, don't forget to follow or subscribe to the podcast. I'm also in his tony. We will see you next time on rookie reply.