**** Buy a property with or without a tenant? **** I dedicate the next post…
**** Buy a property with or without a tenant? ****
I dedicate the following post to all investors who are waiting for an unequivocal answer to an issue that is the most unequivocal in the universe.
Because the question of "with a tenant or without a tenant" is just like asking if you should put on red or on black in the casino.
If I take all the occupied properties that I have purchased for myself or for investors in the last 5 years and run statistics on them to see how the story ends with the tenant, I'm sure the result will be 50-50. (I'm not going to really check it out, am I? I'm bored, but not that much).
** Let's talk for a second about populated properties (at the tip of the fork) - **
On the one hand, if I buy a property with a tenant and I'm lucky - I have cash flow from DAY ONE, I do not have to pay LEASE FEE for finding a new tenant, and if I do a flip (sold to a local investor) I can return a check The property to the market and make a quick turn on it.
In addition, one of the benefits for me of buying a populated property is that most home systems probably function (otherwise it would not have been possible to live in the property) and I do not go on a renovation adventure that I do not know how and when I will get out of.
On the other hand, if I was not lucky (casino, remember?) - I find myself with a problematic tenant and not paying.
Such a tenant will leave the property at best, or I will have to take it to court in the worst case.
Evacuating a tenant can take several months, costing about $ 500, which is even before we talked about the cost of preparing the property for the next tenant, which can also reach several thousand dollars.
And if my strategy is a flip - all my flip is delayed by a few months .. and this time is known - money.
** So how do I deal with this not-so-simple issue after all? **
The guiding principle for me is that I never give up on a great deal, because of a tenant.
It may be difficult to deal with a problematic tenant, but much more difficult to find a good deal in today's market.
The decision I make at the end of the day is based on a net return calculation.
I examine what return I can generate from the property in each of the scenarios and make a decision based on that.
It is also important for me to note that my decision making is based on my investment strategy, which is flips.
If I were investing in Buy and Hold - I might have made different decisions.
** Here is an example: **
I recently purchased a duplex for $ 33,000 with one unit being rented to a completely delusional tenant for $ 500.
The tenant's unit was in reasonable condition, and the rest of the property required renovation.
I knew that if I managed to raise the tenant's rent to $ 550, renovate the property by $ 10K and rent out the empty unit for $ 650, I could sell the property for around $ 70K.
In such a situation I get a return of over 50% on the deal and finish the deal in 4 months or less.
great happiness.
In a situation where the tenant was not cooperating, I had to evict the tenant, wait two to three months, and then renovate the entire property. (Less great happiness)
The total renovation cost would have been about 20K, but now I could rent the two units for $ 650 up north.
Since my CASH FLOW was going up, and the property was completely renovated, I was able to sell the property for 75K - 80K.
I would wait 6 months (rather than 4 months), but I would still make over 35% return.
That is, in both scenarios - the potential return fits me to my criteria for examining the feasibility of a deal .. and therefore, I go for such a deal without thinking twice.
By the way, for those who are nervous about how the story ends ..
The weird tenant agreed to pay $ 550, so it's not weird to me anymore .. a guy's charm.
The property was sold at 70K. Within 4 months.
The original responses to the post can be read at the bottom of the current post page on the site or in the link to a post on Facebook and of course you are invited to join the discussion
Vered Cohen
May I ask in what area it is?
you are the best ????
Dead on you and your flowing writing ???? ⚘
Also fun to read, also enriching with knowledge and insights and also simple and clear language.
Only one puzzle I have not solved yet… How come you have not yet purchased travel insurance from me? ????????