I thought I would share my experience so far as a newbie. Closed 3 weeks ago on 3/1.5 SFR. The house next door came up for rent about 45 days ago and is still vacant. They lowered the rent $125 below what I was targeting. (Not great for me, but theirs looks like a rental. Needs some work, dated bathroom, very plain) I am hoping my new LVP wood flooring, high definition laminate counter tops, new vanities, fresh paint, and more attractive exterior bring me higher rent.
We are currently rehabbing with the help of a skilled worker from a big contracting company taking us on as a side job. My wife and I removed all the flooring and completed most of the required demo. The original appliances were old and ugly. Putting them on the curb was all it took to get rid of them. Two loads to the dump got rid of the rest.
This week we spend a few days shopping for the best deal on flooring, vanities, paint, lights, interior doors, appliances, and miscellaneous supplies for our contractor.
I also spend a few days working on my entities and getting the LLC's, and C-corp signed and filed with the registrar of deeds. (Thanks to Anderson Business Consultants for answering so many questions and preparing a very complete plan.)
Still to do, get the books set up for all of my entities.
My takeaways so far:
-rehabbing, even light rehab such as flooring and paint takes more time and effort than I planned.
-budget for hidden repairs. The HVAC was bad and the inspection did not discover the cracked heat exchanger. (roughly $5,000). We also discovered 3 more windows that need replaced. (Also missed on inspection.)
-Properties in my area, so far, are not attainable at 80% of value given my inability to dedicate more time to marketing and locating distressed sellers.
- Cash on Cash returns are going to be tighter than planned, especially if I have to reduce rent. I still should be close to $200 a month and can plan for lower cap ex and maintenance since I am replacing everything buy the hot water heater. (roof is 3yrs old)
-The education is worth it. We have learned a lot and continue to learn. No need to pay a guru, thanks bigger pockets.
-Building a local team is progressing. Realtor, Contractor, and Property Manager are either working for us or have been interviewed. I also have a referral for a local lender for my next loan.
-Given the amount of effort and time, while working full time with 90% travel out of town, I will investigate a turn key provider for my next purchase.
-We are happy to be moving towards our "retirement goal". However the time horizon with this strategy will take too long. (Buy, rehab, rent.) Going to look at turnkey.
I hope this helps someone starting out.
Key question is what is the pay back time period on the cosmetic work.... LVP, laminate count tops and vanities based on the higher rent you will get.
Cosmetic work must translate directly into higher rent otherwise it is wasted time and money. You need the higher rent it warrants to cover your costs in about a 2 year time frame to be worth the expense.
Always keep income as the driving factor when making decisions on cosmetic upgrades in a rental. If it dosn't make a desent payback it is not worth the expense. Looking "nice" is often secondary to making a profit.
If you want to speed up your investment plans stay clear of SFHs. They generally cash flow very poorly and are subject to market shifts due to home owner whim. Equity is here today and gone tomorrow.
I agree. Thanks for weighing in. This property was not in rentable condition when I bought it. Flooring was nasty, walls and doors had damage, appliances on their last leg. I factored in a conservative rehab budget on purchase. I have learned a lot and will leverage that on the next project. I would like to find a fourplex or small apartment building versus SFR.