Should You Keep or Sell a Rental Property That Needs Work? (Rookie Reply)

0:00Most rookie investors are not choosing between a perfect deal and a bad deal. They're choosing between imperfect options, limited capital, and the fear of making the wrong first move. Today's questions all come from the BiggerPockets forums, and we're going to talk about whether to flip or house hack first, how to think through a first out-of-state investment in 2026, and how to decide if a cash-flowing rental with major repairs is still worth keeping.

0:29This is the Real Estate Rookie Podcast. I'm Ashley Kerr. And I'm Tony J. Robinson. With that, let's get into today's first question, which comes from Ivo in the Bigger Parks forums. So Ivo says, my wife and I are looking to make our first real estate investment, and we're trying to decide the best way to start. We're currently debating between doing a house hack or going for a fix and flip that wouldn't require a major rehab, something more cosmetic. I'm personally leaning more so toward starting with a fix and flip so we can build some capital first. Then the plan would be to move into a house hack, likely a multifamily property, live there for a while, and potentially do another fix and flip while we're there.

1:05After that, we move out and keep the multifamily as a rental. Do you have any advice on the best way to approach this strategy, especially as a first investment? Great question. Honestly, I feel like you could, you know, I don't want to overwhelm you, but it almost feels that this isn't necessarily like an either or an or thing. Like depending on how much capital you have, like maybe there's an opportunity that you can do both because they're serving slightly different purposes. Now for rookies that are listening that aren't familiar with the phrase house hack, a house hack is basically when you buy a property and you live in it, in addition to renting out some additional space to generate rental income.

1:45So to Ivo's point, it's like, you know, maybe you buy a triplex and you live in one unit and you rent out the other two. Maybe you buy a duplex and you live in one side, you rent out the other. Maybe you buy a five bedroom house and you sleep in one bedroom and you rent out the other four. You can house hack in a lot of different ways, but the essential idea is that you're renting out the extra space that you're not using. If you have enough capital to cover a three and a half to a 5 % down payment, sometimes these loans, you know, I talk about NACA a lot on the podcast. Maybe you can even get into a loan with 0 % down.

2:16But the goal is that if you've got enough capital to cover a 0 % down to a 3.5 % down to a 5 % down payment, well, maybe you can go and get your house hack done immediately. And while you're doing that, take whatever additional capital you have left over and go tackle the house flip. So again, all of this depends on how much capital you have. So if you don't have a ton, then we do have to choose. But I think my first kind of gut reaction is that maybe these aren't mutually exclusive and maybe there's a path to do both of these. You do the house hack while also continuing to look for the flip. I also think that like you can basically accomplish this with one property.

2:51and I don't know if that's what you were trying to say, Tony, but like you can do the live-in flip. No, that's great. I was actually saying two separate properties, but yeah, you're right. You could combine them into one as well. So if you buy a property, you have to live in there for a year for your loan that you would get. But if you live in it for two years, you won't have to pay taxes when you sell the property because it's been your primary residence for two years. So over the course of two years, yes, it's not technically house hacking unless you're going to rent out the rooms and you're going to or you're going to get a property with another unit in it.

3:28Still your primary residence. So let's say you're going to go after a duplex. You live in one. You fix up that side. You have a tenant in the other side. And then after two years, you sell it. And hopefully it has a lot more value because you renovated it and rehabbed it. But one thing that I have seen people do, and I think this is like even maximizing it, is when they move into the property, they fix up one unit and then they end up switching units and then they go and fix up the other unit. So I've seen people do this, whether they're house hacking or not. But basically, when they purchase a property, one unit is vacant.

4:06They say to the tenant next door, hey, we're going to renovate this. We're going to let you have first dibs at this. This is what the rent will be. and then you can move into there or whatever. And like hopefully the tenant says yes and they move into that new one and then you can go to work on that other one and renovate that one the second year while you're living in it. Then at the end of those two years, go and sell the property, hopefully make a huge profit and you won't pay any taxes on it. So when you're doing just a regular fix and flip and it's not your primary, you're going to be paying a boatload of taxes on that property.

4:40So I think if you like the house hacking idea and you want to do some renovation work and do a live and flip, this might be like a good compromise for you where even if you don't make as much and it's like if you had two separate properties, maybe you could maximize more. But with this, you're going to save so much money in taxes by doing it this route too. I think the last thing I'd add to that too, Ash, is that, and I say this a lot on the podcast, is that oftentimes it also does come down to like personal preference. Like between the idea of house hacking and between the idea of flipping, which one do you just generally feel like you would enjoy more?

5:21Like which one aligns better with who you are as an investor? Which one, you know, like my wife would hate the idea of house hacking. For her, it's like there's no amount of money we can make from a rental that will make her enjoy the idea of sharing walls with our tenants. That's just not something that would excite her. Short-term rentals, on the other hand, she was very excited about that and she can see herself doing that. So I think you've got to ask yourself just of those strategies, which ones align better with who you are as a person and which one ultimately gets you closer to the goal that you've got.

5:55If the goal right now is just a big chunk of cash, Flipping didn't give you that. If the goal is, hey, can we reduce our monthly living expenses and can we start building some long-term wealth, then house hacking makes more sense. So part of it is personal preference. Both strategies work, right? You can be successful with either one. So I don't think you can necessarily go wrong with either route. Coming up, a New York investor is planning his first out-of-state rental for 2026. We'll talk about how to keep deal one simple when your long-term goals are much bigger. We'll be right back. Are you looking for a simpler way to find your next investment property?

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9:20Hi, y 'all. I am a 29-year-old male based in Manhattan looking to purchase my first investment property in 2026. I am currently eyeballing either the Orlando or Atlanta market to make my first investment with my wife. Generally speaking, this first investment will serve as strong foundation for becoming familiar with the real estate investing process and for establishing a portfolio we plan to grow. All subsequent deals will be similar up until we have enough property and equity that will allow us to pivot into larger commercial deals 10 years or out. Considering the above, we plan to take the slow burr approach where we will be looking for an opportunity that will allow for some forced equity in the midterm time horizon.

10:03With that, we're looking for homes that only need small cosmetic lifts right now, but may allow for some ADU accessory dwelling units, opportunities, or other enhancements further down the line. We currently have about$50 ,000 ready to deploy for down payment for our first investment, and we'll be contacting different lenders to see what our purchasing power is and what different debt products may be offered. My wife and I have a combined net worth of over$320 ,000 between cash, IRA, 401k, and standard brokerage accounts, and we earn over$325 ,000 annually with expectations for the income to grow.

10:39So we feel like we have a strong financial base to allow us to go out and take calculated risk. As an additional note, we have family friends in both Orlando and Atlanta. So that largely plays a big factor in narrowing down to those two markets as that will allow us trusted boots on the ground as a long distance investor. Some additional pros for each city. We used to live in Atlanta for a couple of years. So the market is not completely foreign to us. My cousins are actively participating in a rehab in Orlando. So they already have a great team to work with there that I can likely tap into. I will still do my own due diligence.

11:11Any thoughts, tips, or even just introductions would be very much appreciated. Okay, so that's awesome, Jose, that you are in a position financially and also mentally and you're ready to go. You're ready to take action and implement some real estate investing on your first deal. So it looks like really what your dilemma here is, is to which market you should pick. And I love it that you chose markets where you know that you have advantages already. You have one with boots on the ground. You have one where there's already a team in place. So the next question I would ask is, have you narrowed it down to specific neighborhoods within those cities?

11:57And how does your budget fall? Like how far does that, you know, what was it, 50K, I think, to invest? How far does that 50K get you in each of those markets? So I don't know really how much, you know, what the median home prices and either of those in the markets off the top of my head. But is one going to get you, you know, a property in a rundown area, high crime, not a great school district? And one, is it going to get you maybe a B-class property where better schools, less crime, things like that? So I would start there with, have you gone and looked at any specific neighborhoods in those cities above and beyond just what your advantages and opportunities already are there?

12:45Ash, there's one thing that I just want to call out in the question here because it's a bit of a, to me, like a contradiction. But, you know, he mentions, Jose mentions like wanting to use the Burr strategy, but then also wanting to kind of focus on properties that, quote, only need small cosmetic lifts. and I think those two are somewhat opposed. Sometimes you get lucky and you find just like a really well-priced property that really does truly just seem like a small cosmetic lift. But generally when we talk about the Burr strategy, we're trying to find properties in distress. So it generally means physical distress.

13:30Again, sometimes it can be a seller in distress and And they're willing to take a big haircut on the price because they themselves are in some form of distress. But oftentimes it's the property that's in distress. So you say slow burr, but the time of the burr doesn't really matter. It's like how cheap are we, at what discount are we buying that property in relation to what the after repair value is going to be? And the only way that we get that gap big enough is if we buy a property in distress. So I just flagged that because, Jose, I don't want you to go into this with these unrealistic expectations.

14:02You're going to find these properties that will need small cosmetic fixes and that you're able to do like any sort of truly successful burr where you're able to increase the value. Now, you didn't mention earlier in the question that you guys are more so focused on appreciation. So if by slow burr, you mean small cosmetic fixes, understanding that today is not necessarily going to increase the value, but in 10 years from now, we'll hopefully have built some equity. It's a different story, but I wouldn't necessarily call that a burr. We're just buying a property. We're banking on appreciation. A burr is, hey, we're going to force appreciation rapidly in the next three, four, five, six months.

14:37And we're doing that by buying a distressed asset. So just a distinction I feel is important for Ricky to understand. All right, guys, we're going to take a quick break. But when we're back, a Ricky landlord has a cash flowing rental with major foundation and water issues. So should you fix it? Should you keep it? Sell it? Move on. We'll cover that right after a quick break. My relationship with money has changed a lot over the years. For a while, I was laser focused on paying off debt. Then I swung the other way and started buying up rental properties left and right. Somewhere in there, I lost track of my own personal finances.

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20:34There are foundation issues, water leaks into the unfinished basement when it rains, and the basement is used for laundry, so tenants have to go down there. It's at a point that the entire interior needs to get repainted. The first floor hardwood could use refinishing. The small deck out back needs to be repaired, probably even torn down or rebuilt, and the main door needs to be replaced. This is to name the majority of the bigger cost repairs. I bought the home for$145 ,000 five years ago, and it's probably worth$200 ,000 today with a good foundation. I've been wanting to own rental properties and continue to expand my portfolio, and I was planning on taking the equity I have in this home and using it to fund the purchase of additional properties.

21:14But now that so much has to be done to this home, should I sell it and take the profits, or should I spend all this money on fixing it and keeping it? I worry because it is a 100-year-old home, and I feel the problems might never end. But it is a nice home for a rental. And in the five years that I've had it, I've never had a problem finding renters. Seeing this as my first rental, I don't have experience in this world and I'm learning as I go. I really appreciate any guidance. It's a great question. How do you decide when to keep versus when to sell? I think there's a few thought process here that I would look at.

21:53Number one is how much equity have you actually built? and what is your return, not just on your cash flow, but what is the return you're currently getting on your equity? And sometimes when we do that calculation, we realize that if I actually go redeploy this capital, all this equity that I built up into another deal, I can actually get a better return, right? Like if we just look at the cash on cash we put into the deal, that's one number. But if we look at the actual equity that's sitting in that property and we measure our cash flow against that, we get a slightly different picture. And that helps us decide if we should stay or if we should pivot.

22:27So that's one kind of calculation to go run. Because if you're like, man, I've got... Actually, I don't think you will in this situation because you bought it for$145 ,000. You said it's worth$200 ,000. So maybe there's not a ton in there. You didn't say what your loan balance is. But let's say that maybe you only owe$120 ,000 or$105 ,000, something like that. So you've got maybe$95 ,000 in equity. and if you're like barely breaking even on that$95 ,000 in equity, well, then there's a good argument to be made. If you go redeploy that somewhere else, you can potentially get a better return. So that's the first thing that I would focus on.

23:01But he also says that it's, or Tony, real quick, he says it's only worth the$200 ,000 with a good foundation. So that means he has to go in and add in all those repairs too before it's worth the$200 ,000. Yeah, that's a good point. So Maybe there's even less equity in there than what it is. But I think, and this is the other element that I was going to hit on too, is that I also think that there's just a, maybe a peace of mind component of real estate investing that we can sometimes consider as well. And if a property, even if it performs well, if it does nothing but cause you headaches and that there's like a time component that's like incredibly draining, sometimes that in of itself is a potential reason to move on from a deal.

23:46It's like, yeah, the property does great, you know, it does all these things, but man, I spend so much time thinking about it and worrying about it and doing all these things. And I've got these other rentals maybe make a little bit less, but I don't have to think about them. I would take more of the not thinking about it rentals and make a little bit less than the one that does a little bit more, but eats up more of my time. And that's a trade I would make almost every single time. So there's the calculations that we can run. But there's also the, the, just like the, the, the bandwidth calculations we can look at to see if it actually makes sense for us.

24:18I think the first thing that needs to be done is you need to get actual estimates on what these repairs will actually cost. I had a house where you would go upstairs of the house and you would put anything on the floor and it would literally roll down the slope of the house. And I was just like, I thought this was going to be so expensive, but we wanted to sell the property. It ended up being$7 ,000, which yes,$7 ,000 is a lot of money, but the value of the property from if I had showings and someone walked into it and they're literally walking downhill to get to the next bedroom, even though it's on the same floor, compared to paying that 7 ,000 where the house is now level and even, it was so worth that putting in that 7 ,000.

25:00And I thought it would be like more like$20 ,000,$30 ,000. Like I just had this kind of stigma that foundation work and stuff like that costs way more money than what it actually did. Then again, I got another property quoted and that one was$20 ,000. So it can vary, but I think like it's worth going in. Like even the deck repair is like maybe a handyman can kind of patch it together for you or, you know, get it to where it's going to last a couple more years or something like that. So you could at least go and sell the property with a functional deck. So that I would recommend as your first step is to going and getting those estimates and not actually just assuming they will be expensive because it could really go either way.