rehab costs creeping up

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rehab costs creeping up

James H.
Investor · Fort Worth, TX · Member since 2011 · 1k+ posts · 450 votes

Hey Guys,

I recently bought a new rental property and am in the process of rehabbing it to rent it. Generally, I buy the lowest cost of whatever-it-is that I am replacing so long as it is durable. However, As I go through the house and become more familiar with it, I find more nit picky things that I just can't leave alone. Mechanical stuff is the main culprit. It seams this house has a leaky valve where ever there is one present and gas lines are piped in copper in some places!

But these are the big ticket items that I have (80 percent decided) on doing:

Central HVAC ($3,000)

Upgrade electric service ($1,000)

Replace 60 year old wall oven and cook top ($? new or good used)

Move dryer connection and install stackables to make more useable space in kitchen ($500)

Fresh light fixtures, switches and plugs throughout - old ones are only two prong.($300)

Miscellaneous - this is the one that gets me. There is a miscellaneous of like $100 to every $400 I do no matter how thoroughly I estimate ahead of time, or so if feels like it.

Paint in and out ($1,000)

So far I have gutted the bath room, installed new subfloor,underlayment and tile, sheetrock and FRP throughout, new toilet and sink vanity and shower plumbing, and purchased all the vinyl tile for the kitchen as well ($2,000 including $300 dumpster rental for garage demo).

I just can't leave this stuff alone as I do not want to crawl under the house again, or at least not any time too soon. I have the floor up in part of the kitchen and have easy (as easy as it can be) access to the crawl space. In the mean time, it is taking more time to do the work and costing more money up front. The house is 2 bdr and I only paid 12K for it. I am looking at about 8K with the HVAC, and add the kitchen appliances onto that.

I just don't feel right renting the house to someone else if I don't have a sound mind that these mechanical things are going to be reliable. I am midway though the project (labor not money) and am kind of freaking out about the money (although I am still in budget, it hurts to come out of pocket nonetheless)and I think I just need some positive words of wisdom, affirmation if deserving and general encouragement. Its my first deal. I am planning to put on market for $650/month. This is about 50/month above market for the neighborhood, but I know the house will be in better condition when I am done. Although I am doing the improvements to reduce future maintenance, it will be in better repair than most of the houses in the immediate area - so I think I can get a little higher rent - especially when it is looking all fresh.

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Account Closed
Full-Time Investor · Charlotte, NC · Member since 2009 · 2k+ posts · 1k+ votes
15y

2 prong outlets mean the wire isn't grounded... Putting 3 prong outlets won't automatically ground the wire either... Youd have to rewire or protect the circuits with GFIs. in my experience tenants won't notice and pay more for rewire, new mechanicals, or a new subfloor. I think these are important items to take care of, but will go unnoticed. Newer appliances, new floors and paint are what keeps my apartments above market rate.

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  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    15y

    You might get more rent.

    Just like flipping a property you have to recondition and get rent ready based on the type of tenant that will live in the property.

    If you are in an area with higher turnover than you don't want to put really nice stuff in there.Remember to not make it about your personal standards.What you deem acceptable and what other consider a nice place to live might be 2 different things.

    I make things functional but do not over improve.

    I can tell you that doing basic electrical and plumbing yourself will save you a ton.Stay away from contractors that make it seem like you are getting a good price and feel like you are getting over on them.

    I find the professional contractors give you a bid and if they win the work they don't complain about the low price they put forward they just get it done the right way.

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  • Jason S.
    Investor · Diamond Bar, CA · Member since 2009 · 446 posts · 233 votes
    15y

    seems like you can save some money shopping for a diff HVAC, I assume, possibly wrongly, this is a smaller home?

    the electric at $1,000 - what are you doing exactly? the switches are extra? There may or may not be some savings in that part too.

    as for the stackables - you are moving gas and electric and buying new units?

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  • Account Closed
    Full-Time Investor · Charlotte, NC · Member since 2009 · 2k+ posts · 1k+ votes
    15y

    2 prong outlets mean the wire isn't grounded... Putting 3 prong outlets won't automatically ground the wire either... Youd have to rewire or protect the circuits with GFIs. in my experience tenants won't notice and pay more for rewire, new mechanicals, or a new subfloor. I think these are important items to take care of, but will go unnoticed. Newer appliances, new floors and paint are what keeps my apartments above market rate.

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  • Steve Babiak
    Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    15y
    Originally posted by Brian Hoyt:
    ... I am planning to put on market for $650/month. This is about 50/month above market for the neighborhood, but I know the house will be in better condition when I am done. Although I am doing the improvements to reduce future maintenance, it will be in better repair than most of the houses in the immediate area - so I think I can get a little higher rent - especially when it is looking all fresh.

    Give it a only a couple of weeks when asking above market rent. If you aren't getting much interest, then put the price back to market value. When tenants are sticking to a budget, they take one look at the price, and if it is over budget (or over what the comparables are at in that area), then they probably won't even bother to look at the interior. Doesn't much matter whether things are new/fresh inside if they won't bother seeing the inside.

    The nits that you get rid of now could save you future phone calls from tenants seeking repairs to those same (probably bigger though) nits down the road.

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  • James H.
    OP
    Investor · Fort Worth, TX · Member since 2011 · 1k+ posts · 450 votes
    15y

    Thanks guys.

    Joel, I am doing the work myself. I do loose money on not getting the house rented due to only being able to work on the weekends, but I am still saving significantly more in labor than loosing in rent. I knew about rent loss rehab before starting and prepared for it as an expense. The area looks like fairly high turn over, but I am hoping to keep my tenants longer by screening and training and providing a quality dwelling. Nothing but basic fixtures. Nothing decorative. Nothing but the cheapest unless the cheapest is too flimsy. The one thing I spent a little extra on is the luxury vinyl tile. It cost about twice the cheap vinyl tile, but I am hoping it will last longer and it still wasn't much - $243 for the kitchen and bath, I do the install. Mainly I don't want tenants feeling like something needs to be added that requires them to put a hole of any size in anything. Except pictures.

    Jason S. The HVAC is dirt cheap at 3K considering its a total install (no existing components or duct work). I do save some money by installing the 220 line to the outside compressor and the gas line to the furnace (already done). The only cheaper option is window units all around and that's still about 1500 to get them in each room with heat. But than I heard window units have short lifespans and are more expensive to operate. My philosophy (hope)is that I can raise rents easier if the tenant isn't paying an arm and a leg for utilities. It could be cheaper in other regions, but this is in Fort Worth and I doubt it. The $1,000 electric service upgrade will include a new 125 or 200 amp breaker box (depending on if I decide to go electric or not with the new appliances)and breakers, a new meter box, a new riser pipe and leads and the electrician to pull the permits and do all the work (side job for my workplace's admin's husband). It would normally cost 1.5 to 2 times that. The existing service is circa 1953 and has a Federal breaker box (fire hazard). I could do the work myself but cannot get around the permits as the power needs to be shut off at the street to accomplish the work. So since the electrician will charge me for the permits anyways, its cheap to pay him to do the labor while I work on something else (that doesn't require electricity). I'll probably just put gas dryer stackable since the gas line exists. Although part of the line (copper) needs to be replaced. Gas is a lot cheaper than electric and the cost AND HASSLE of running the dedicated electric offsets the savings on the electric appliance.

    Bryan A. I know that putting 3 prong receptacles won't create a ground. But, If the plugs are not three prong, then the tenants will be plugging three prong adapters and such and creating more hazard in my thoughts. The ground wire connects to the same bar in the breaker box as does the neutral, so the system is still grounded. The third prong is like a dummy hole. The new plugs and switches I see as part of an inexpensive way to get things just a little more "right" during the painting process for not too much money. Mainly I don't like the idea of miscellaneous adapters the tenant might pick up at the dollar store. But I believe you that the tenants wouldn't really notice. I may reconsider by the time I get around to it and just put another coat of paint over those bad boys!

    Steve, That's a good point. You know, I bough this house knowing it would rent for at LEAST 450 to 550/month and even that would be profitable. But the longer I work on it and talk to people from around the area, the more value there appears to be waiting to be tapped. I will definitely drop the price down if I don't get it leased within a month after finishing the rehab. Then I'll creep the rent up as they will come to appreciate the higher quality that I provide. Hopefully!

    Well, I feel better as nobody has responded that I am crazy. Thanks a lot for your input. This site is great!

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  • James H.
    OP
    Investor · Fort Worth, TX · Member since 2011 · 1k+ posts · 450 votes
    15y

    Do y'all find that rehab miscellaneous fixtures, fittings, random tools, etc eats up more money than you anticipated, or is this something you just get good at accounting for after doing a few rehabs? I am a pretty detail oriented guy (engineer) and I am surprised at how much I did not account for.

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  • Steve M.
    Realtor · Gallatin, TN · Member since 2009 · 292 posts · 164 votes
    15y

    Things I didn't account for on my last rehab - Misc expenditures like you said.

    Anything from door hardware, to extra brushes, to a new damn hose on my pressure washer.

    all in all, i still came out ahead. I, like you, did most of the work on weekends. after about 2 months, i was done - as in - hiring out the rest :)

    came in about $2,000 over budget due to the fact I decided to replace cabinets which I wasn't originally going to do :)

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  • Dick M.
    Electrical Contractor · both, Maine & Florida · Member since 2011 · 129 posts · 53 votes
    15y

    "I know that putting 3 prong receptacles won't create a ground. But, If the plugs are not three prong, then the tenants will be plugging three prong adapters and such and creating more hazard in my thoughts"

    Putting in 3 prong receptacles without the ground wire is illegal and will flunk a housing inspection. Let them use adapters....

    1Reply
  • Jason S.
    Investor · Diamond Bar, CA · Member since 2009 · 446 posts · 233 votes
    15y
    Originally posted by Brian Hoyt:

    Jason S. The HVAC is dirt cheap at 3K considering its a total install (no existing components or duct work). I do save some money by installing the 220 line to the outside compressor and the gas line to the furnace (already done). The only cheaper option is window units all around and that's still about 1500 to get them in each room with heat. But than I heard window units have short lifespans and are more expensive to operate. My philosophy (hope)is that I can raise rents easier if the tenant isn't paying an arm and a leg for utilities. It could be cheaper in other regions, but this is in Fort Worth and I doubt it.

    I think everything you are doing is great and impressive - especially as a side job. I was only chiming in because I thought you could save on the A/C. I just had a 2.5ton AC put in, with permits (I pulled) so it is the new energy rated etc, with ducts etc, the whole nine yards, $1500. Maybe yours is bigger, maybe you house is bigger, there are many factors, maybe your is top of roof and mine is inside attic, I have no idea - just a number to compare. Not saying you can get the same deal because I have a long term relationship with this guy, but you may be able to shave $500+ off - but then again I do no know your system. Maybe yours is huge and my small system you could get for $1,000. Who knows.

    Originally posted by Brian Hoyt:
    Bryan A. I know that putting 3 prong receptacles won't create a ground. But, If the plugs are not three prong, then the tenants will be plugging three prong adapters and such and creating more hazard in my thoughts. The ground wire connects to the same bar in the breaker box as does the neutral, so the system is still grounded. The third prong is like a dummy hole. The new plugs and switches I see as part of an inexpensive way to get things just a little more "right" during the painting process for not too much money. Mainly I don't like the idea of miscellaneous adapters the tenant might pick up at the dollar store. But I believe you that the tenants wouldn't really notice. I may reconsider by the time I get around to it and just put another coat of paint over those bad boys!

    I am not certain on this - maybe you are, and I will admit to not being an electrician. But I think that there is a reason for 3 prongs over the 2 prongs and I think you are exposing yourself to a lot of liability by doing this.

    Really, I would rethink this and either do it right or not at all. Way, way too much liability - at least that is my gut feeling. You are taking the time to do this great project and you are doing a great job at it - I would rethink this or at least verify it.

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  • Chris Martin
    Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
    15y

    Regarding "I just had a 2.5ton AC put in, with permits (I pulled) so it is the new energy rated etc, with ducts etc, the whole nine yards, $1500." That price sounds like it's below material cost. Is this just for the compressor? For air handler and compressor? This is 13 seer, right? And with duct work installed? Please let me know the vendor. I'm always interested in saving $ for HVAC systems.

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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    15y

    And that's why you should hire a licensed electrician to do electrical work. Wow!

    Either do this right or leave it alone. Current code requires three prong outlets with proper grounds. That is NOT!!! a dummy hole, its an alternative path to ground when a failure break the neutral path. An alternative to the current flowing through a PERSON. Current code, which is what applies as soon as you start messing around with the wiring, also ground fault interrupters in outlets in the kitchen and bath and arc fault interrupters in the outlets in the bedrooms.

    You're taking a bad, but acceptable situation (acceptable because the shortcomings are obvious) and turning it into a truly hazardous one. Do it right or hire an electrician to do it right or leave it alone.

    1Reply
  • James H.
    OP
    Investor · Fort Worth, TX · Member since 2011 · 1k+ posts · 450 votes
    15y

    Jason, 1500 is the price (a good price) for the materials only for the system. That would include a 2 ton compressor and a 2 ton gas heater in the attic and all the duct work. The house is small and is only 750 sf. The tonnage is a little high for the small space, but it is poorly insulated and this was recommended by the at least 3 HVAC gusy that I got bids from. As I said, there is no existing HVAC so I need a new plennum, condensor, compressor, air handler, heater, the WHOLE nine yards. I was quoted over $4,000 by the other two guys and the guy that will do it for $3,000 is giving me a deal because one of my investor friends referred him to me. But maybe I am still paying too much. Even with a long term relationship, $1,500 is WAY cheaper than $3,000.

    Dick, In regards to the three prong, I will look into it. I myself live in a 1953 house with old two wire copper romex throughout but with an upgraded 200 amp serivce that has the additional ground outside to the earth (not the water line) as required by modern code. I had the house inspected and financed it through FHA. Maybe the laws are different in Maine than in Texas? Maybe it's okay as long as the service is properly grounded to new code requirements? I will look into it for sure. I will ask the guy who is replacing the service about it. There is already one 3 prong plug that was installed for the window unit and another random one in the living room. When we pull the permit for the electric it will be for the service. If I had to replace broken outlets in the future, I am not even sure I could find two prong plugs. Although I have never looked...

    I know the service will likely be inspected after the install, but who is going to inspect the rest of the house? I know this might sound like a stupid question, but I have not heard of mandatory inspections of rental properties by any particular entity where the house is located. There is a voluntary registration with the city for fire notificatins, and other city communications that would otherwise go directly to the residence and not to my home address, and there would be if I go Section 8. But I don't know that Section 8 inspectors would pull electric plugs out to see the wiring behind them. But maybe they do. I am undecided on Section 8 at this time. I prefer to try the free market first. Again, this is new territory for me, so your input is greatly appreciated.

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  • James H.
    OP
    Investor · Fort Worth, TX · Member since 2011 · 1k+ posts · 450 votes
    15y

    Johm,
    You posted as I was writing. If I am exposing myself to more than existing liability, than I need to carefully consider my plans. I need to also check to see if I upgrade the service, will I need to rewire the house? I will consult with my electrician with what code and legal requirements are and adhere to them. I have worked as an electician's helper in the past, however, and I know the ground follows the same path throughout the circuit and connects to the same bar in the breaker box as does the neutral wire. The third prong is not necessarily a "dummy hole", but it is a redundancy. It would not create more actual danger, but apparently more liablity of existing danger. If you use an adapter you are doing the same thing, except the "dummy hole" protrudes from the wall in the adapter rather than sitting flush in the plug, also connected to nothing (in my case). I do take mechanical systems seriously and am not operating by the seat of my pants. I will definitely look into the code requirements as I am now concerned about it. Thank you for sharing your alarm with me. This is another example of how this website has helped me!

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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    15y

    Brian, this statement "I know the ground follows the same path throughout the circuit and connects to the same bar in the breaker box as does the neutral wire" is only half right. The ground wire and neutral wire do indeed connect to the same bar in your MAIN panel. This would not be the case in a subpanel (e.g., in a garage) where these would be connected to two separate, unconnected bars. Each of these bars would have their own separate path back to the main panel.

    Where you're incorrect is the "ground follows the same path". It does not. It provide a SEPARATE, independent path back to ground. Recall that in the main panel, the bars the ground and neutrals connect to is connected to a copper rod driven into the ground. It is, literally, the ground. The hot (black) wire, OTOH, is connected to the power supply. It there is any situation where the hot can get to the physical ground, and that path is the lowest resistance, it will take that path.

    The dangerous sitaution the ground wire and that thrid prong is intended to mitigate is when something goes wrong with the neutral connection. A broken wire, a lose screw, a bad connection in something plugged into the circuit. Whatever. In most modern devices, such as electric hand mixer, the metal part of the body is connected to that ground wire. If a short occurs in the mixer, the ground provides a low resistance path to ground. The breaker will pop. Without that connection, a short can energize parts of the mixer that aren't supposed to be hot. As long as its isolated, not a problem. But now the user reaches over to get some water. Water pipes are almost always a good connection to ground. ZAP! That hot mixer forms a path to ground through the user.

    This systems isn't perfect, which is why GFCIs and AFCIs have been introduced and are now required when you start changing anything. People get killed by this stuff. I do not want to be the cause of someone getting killed.

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  • Carlos Flores
    Commercial Real Estate Lender / Syndicator · Dallas, TX · Member since 2011 · 888 posts · 309 votes
    15y

    I view some of this stuff like insurance. You pay to move the risk or liability off yourself. Other than switching out like for like, or very simple stuff that won't get you in trouble, I'd hire a licensed electrician.

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  • Jeff Coga
    Developer · Hollywood, CA · Member since 2011 · 81 posts · 29 votes
    15y

    Don't mess with the property unless you do it up to code and w/ permits..... if you do mess with it... you loose non conforming rights to the building... and you will be liable for it...

    I still don't see the question... unless you just want input...

    My opinion is this... if you're holding it... all you really care about is the NOI... if so.. you have literally only 2 ways to increase that...

    #1 to increase income (duh)
    #2 to decrease expense (duh 2 - i know not rocket science)

    SO... your future NOI maybe a lot higher because you took care of things right now...

    Plus... inflation is going to go up... if you know that... fix stuff now... at a lower cost... then when materials sky rocket...

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  • James H.
    OP
    Investor · Fort Worth, TX · Member since 2011 · 1k+ posts · 450 votes
    15y

    Thanks Jeff. No, not too much of a question, but just putting my stuff out there to get feedback on anything that sticks out to anybody and just share my experience with my current deal as well. Already I have recieved a lot of feedback on some electical stuff that I hadn't really thought about until now.

    The main thing I am taking away from everybody so far is that the repairs I am doing now are not unreasonalble for future considerations (which relieves some anxiety) and that I need to consult with my electrician before doing any modifications to the systmen - regardless of good intentions! Jon and some others laid that down, for sure.

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