Questions: Part 3 of 4

What if you can't sell a renovated house for enough money, and need to take a loss?  This was the third question from one of our coworkers, and it is one of those things that makes the lower extremities pucker up in an involuntary cringe that is worthy of note.  The dreaded loss.  This is the part where we pause for a moment and sit back and reflect on the answer we are about to give because this isn't a simple "do this" or "do that."  This is more about rules and systems than anything else.  Let us explain.

Our rule on this is easy (most of the time), although it will mean taking an expanded view of the flip-cash-continuum.  It will alter our horizon.  We simply rent the property and reduce our cost basis over 12 months or more.  This would throw a monkey wrench into our plans to keep rolling with what we are doing at the same level, but it would not be the end of our world simply because of our cash only basis.  It would mean that our purchase-renovation pool of cash would shrink while we wait for our cost basis to reduce to an acceptable level of profit, or to a break even status.  Fortunately, we have been blessed to the point that we have not had to do this yet.  We did have a reverse of this situation, though.

What we mean by "reverse" is that we bought a property in need of work and waited for months until the existing tenant's lease expired to fix it up.  Unfortunately, in this case, the renovations took way longer than expected, needed some alterations afterwards (read the posts on State Street) and we are only now seeing daylight on this thing.  But that's okay.  We have enough diversification that it isn't a show stopper for us.  And we will sell it. (It is under contract now)  If that should fall through for some reason, we will go to our rule book and rent.  In it's fixed up state (no pun intended) we will get a decent return and generate monthly income while we wait for the market to turn in our direction.  However, again, so far we have not been in this position on a rental or sale.

We did learn a valuable lesson about 30 year old mobile homes, but that wasn't a rental situation.  Instead, we sold the property on a contract for deed.  Sounds similar, but the difference is that we are not responsible for cutting the lawn, paying any utilities, or paying the property tax.  That is a much better deal for us.  And, fortunately, that was a small amount of money VS a larger chunk of our investment pool.  

Ultimately, we would like to have more rentals than the ones we currently have in our portfolio, but that is not the business of Box Bend.  That is a business of a different corporation(s) we have set up.  Box Bend's responsibility is to buy, renovate and sell real estate of all types.  Other than the contract for deed on the mobile home, and other than the reverse "waiting for a renter to leave before renovating," we have been fortunate to have quite a few houses sell after renovations.  In one or two situations, we set the market price (new highs for the neighborhoods) due to location, and or quality of our renovations.  That's nice.

Okay, enough rambling about that.  Our best free advice to you is to set up your own rules about debt and properties that don't go quite as planned.  Those rules should be uniquely your own and not someone else's rules.  Remember, at the end of the day you are responsible for you.  

Next time we will delve into the final question, and this final question is the one we get the most:  If you were beginning today, and you didn't have any money, where would you start?  Where, indeed?

Thanks for reading, and please stay tuned.