These are the numbers on this single family real estate deal:
Purchase Price: $100,600.00
As is Value Appraisal: $146,000.00
ARV Appraisal: $185,000.00
Repair Budget: $10,371.76
Have you ever felt lucky that your parents had taught you something?
The teacher was my Father and his education came from the school of life experience. The introductory course? Practical Sense 101. Even though I didn't enjoy it at the time, my father would bring me around the house as things broke down. From plumbing to pools, and drywall to tile he always had an attitude of fixing things himself. That has always been my attitude up until recently when I decided to start investing in multifamily apartments, its near impossible to do all the work yourself when there are many units under one roof.
My first 4 single family rehabs were done with hands on experience. I had done it all: refinishing hard wood floors, drywall, painting, baseboard, crown molding, trim work, interior and exterior doors, glass repair, kitchen remodels, tile work, toilets, vanities, lights, windows, brick/patio work, tree removal, and everything in between.
There is something to be said about learning from hands on experience and I am truly blessed that I have that innate ability to figure something out. Ill admit, it can be hard at times. Especially when you build a built in breakfast nook and assume 2x4s are actually measured 2x4 inches... You should have seen the scrap pile;)
As I progress in my investing career the things my father have taught me are invaluable to the process of buying real estate. When I walk through a property now I don't notice the paint color or the make and model of the appliances. I look at quality of work, construction of materials, and does it have potential. He taught me to have an eye and focus on the final product.
All his teachings work through me in every deal and the most important was to buy right and buy something that has potential. So when walking through this project I saw the end product and not the foreclosed mess that was left behind.
By doing the work myself I was able to save on construction costs, the material cost were $10,371.76. If I had hired it out, the labor would have added another 10-15k. It would still be a profitable investment, but not as much as paying myself over $26,000 dollars at the time of the refinance.
When buying a foreclosure you typically offer cash and take the property as-is. This leaves you with two struggles. The first, you must get all your due diligence in at the time of the walkthrough. This is where my fathers lessons have come in handy but I still like to get an experts opinion because I am not a master in all those fields.
The other struggle is the financing part. Buying this property for $100,000.00 cash as a former teacher was a big problem, I didn't have nearly that amount. Actually I had borrowed all of it and even more. In return I gave my investors a return on their investment secured by the asset (1st Position for the purchase and 2nd position for the rehab) And it was also insured just in case something catastrophic happened. My total loan amount was around 117k, which is 63% of the final value. (ARV).
My golden rules for investing:
"Do what you'll say and say what you'll do."
"Protect your lender and yourself through buying right"
"Don't get emotional"
The day of the closing:
Within the matter of an hour, I was in my boots and jeans working on the exterior of the house. I believe it is important to start with the curb appeal, the neighbors will thank for it as well. Typically these houses haven't been lived in for awhile and the grass is knee high.
With just a lawn cut, tree/bush removal, power-washing, shutters, and mulch you can truly make the property pop!
Within the next 11.5 days I busted my but working around the clock to finish the bulk of the work. Another thing I was grateful for was the work ethic my father had taught me:
"Early to rise, last one to leave"
So here are some photos of the work completed during that time. The entire kitchen was outdated but the cabinets were structurally sound. New cabinets cost around $3,600 for a 10x10 kitchen. What you see here costs $40 in paint, $60 in new hardware, $150 in countertop and a full day of labor.
The appliances were bought as a package deal for $2,200.
This was my 2nd job refinishing hardwood floors. There was about 700 sq feet that needed to be done. In CT the cost to refinish floors is $2 per sq ft, and that depends on how bad they are and how many coats of poly you want on them.
For me it cost around $50 to rent the floor sander, and another $90 in materials like sand paper, rollers, and semi gloss clear.
Pool removal was not one of my specialties. So I found some contractors who were in-between jobs. Total cost was around $3,500 with permits pulled. This was by far an amazing deal for me, other quotes came in around $5,500 to $7,500.
The pool company quoted me $5,000 to repair the pool. My plan was to keep the house as a rental and didn't want the liability and upkeep that comes along with pool ownership.
Once I had completed the rehab work I put the property up for rent while I waited for the seasoning requirements in CT. Typically they want to see a year of ownership before they will give you long term debt on a house. Once that year was up I went to the bank to take 80% of the equity out. Now here is where the magic happens so follow closely:)
-I bought it for $100,600.00
-I had another $17,000 in rehab and holding costs.
-My tenants had paid the carrying costs for the first year.
-I then went to a bank to get a cash out refinance and told them I would like to pull some equity out, 80% LTV.
-The house appraised for $185,000. (185k x .8 = 148k loan) -I paid my investors the $117k for borrowing the funds.
-I got to keep the rest, minus closing costs.
-Which resulted in a $26,663 tax free check.
I know I made it sound easy, but there was countless hours of reading books, attending investor meet-ups, and hands on experience to make this deal possible. And with real estate there is always a risk. But with the right amount of knowledge and experience magic can happen.