Many investors target this area for fix-and-flips. However, many of the properties are very old (75-100 years) and require major renovations of $80K – $100K or more. These extensive rehabs demand a lot of experience, which is why I don’t recommend them for new investors, even if the numbers and profit potential look good.

The Avondale House
The investor used a hard money loan for $304,000 and put $81,000 into renovations. With his hard money payments and points, his total investment is about $400,000. Upon completion, he listed it with his agent for $430,000. After two weeks on the market, the price was reduced to $415,000.

The seller was concerned about the lack of offers and considered either rental arbitrage as a short-term rental or having me co-host the property as a short-term rental.

I reviewed the listing and ran the comps. I agree with the current price of the property and wondered why it hasn’t gone under contract. I scheduled a showing with the agent and visited the property.

The investor did a decent job on the renovations. The kitchen and bathroom upgrades look great, as do the overall finishes. However, there’s a reason the house has no offers.

Issues Found
The house, built in 1915, shows signs of settling issues with the foundation. The uneven floors are evidence of this and should have been fixed.

The house is on a busy street with a lot of road noise. Double-paned windows should have been installed. Although he replaced some windows in the kitchen, the rest are original and should have been replaced.

The exterior paint job was poor. They painted over peeling paint, and the base of the house needs at least one additional coat of paint.

They installed a gravel driveway without accounting for rainwater runoff, resulting in half the gravel washing away. Now, half the driveway is a muddy mess.

Exit Strategies

Retail Sale
For the asking price of $415,000, all these repair items should have been addressed. Otherwise, the property should sell for around $365,000. If it did, the investor would net about $340,000 after commissions and closing costs, resulting in a $60,000 loss.

Refinance
The only way to mitigate this potential loss is to refinance the property and hold it for a few years before trying to sell it again. With commercial rates at 7.5%, he would only be able to cash out 75% of the appraised value. Assuming a $430,000 appraisal, that would be $322,500 minus lender and closing costs. He would net about $307,500, just enough to pay off his $304,000 hard money loan. He still has $81,000 of renovation funds tied up in the property. However, he hasn’t lost it unless he decides to sell the property now. His monthly PITI (principal, interest, taxes, and insurance) would be about $2,754.97 on a 30-year fixed/30-year amortization.

Long-Term Rental
Rent for this property in the area averages $2,025 to $2,400. If he refinances, he would be $350 – $650 in the hole each month after debt servicing. This is not a viable option.

Short-Term Rental
After researching and crunching the numbers, the property would be about 60% occupied monthly with a $200 ADR (average daily rate) as a short-term rental. That’s 18 days x $200 = $3,600 monthly gross. The additional expenses include platform fees from Airbnb and VRBO, utilities, Internet, landscaping, monthly supplies, and maintenance. That’s about $800 in monthly costs. After debt servicing, he would have $2,800 or $44.03 net profit if he hosts it himself.

If he hires me to co-host, the 25% management fee would put him significantly in the red by about $650 monthly based on these average numbers.

Recommendation
I recommend he refinance and turn it into a short-term rental he can manage himself. Breaking even the first year after spending to furnish and stabilize the property would be the goal. He can revisit selling it again in a year or two, depending on market conditions.

Which strategy do you think he will choose? I personally think he will cut his losses and sell the property at a loss. At the very least, he will have a nice tax write-off.