Good morning! I recently completed my first major REI (buy and hold) rehab and thought I would share my experience; mishaps, disasters and all, with everyone.
My husband and I bought a 90 year old estate sale house in a middle-class suburb in NJ (an A neighborhood). It's a two-family (2/1 and 2/1.5) that we bought for $315 with a 5% down FHA 5/1 ARM at 3.75% in August. The appraisal for the house came in at $335 when we bought it, and we conducted what we thought, was an extensive inspection (including a separate termite inspection). We obtained a few construction bids beforehand and were estimating a max construction budget of $60k. We had about $20k in cash, a $25k personal bank loan at 6.25% and planned to put anything additional on 0% interest for 12 months credit cards that we would pay back with the rental income after construction was completed. We had a construction timeline of 6-8 weeks.
The project scope included:
Upstairs, a gut remodel of the kitchen, including adding a dishwasher, and opening up a wall to make an open living room/kitchen, updating the bathroom, adding a washer/dryer hook-up, and new paint/carpet.
Downstairs: gutting and opening up the kitchen, adding a dishwasher, gutting and enlarging the main bathroom and gutting the 1/2 bath, enlarging the master bedroom closet, adding laminate floors and new paint. We planned to live in the upstairs unit while we remodeled and then move downstairs to reside in the larger unit for 3-5 years while we rent the upstairs unit.
Once we started construction, we ran into several major problems including a steam pipe running through a kitchen wall that we were planning to open up, a huge leak inside a couple of walls that required the replacing of a whole exterior wall, damaged subfloors, major termite damage that resulted in a replacement of the sill plate in the master bedroom, needing to upgrade full electrical service (and split it into two separate panels) and a corroded water line that required emergency replacement all the way to the street in the middle of winter during record setting cold temps and a snow storm. We also had issues with our general contractor who's subs weren't fully licensed and were careless, which resulted in several delays and several failed inspections. Construction started in early September with an estimated completion of mid to late November. Finished construction (mostly) in mid-February, 2.5 months late, and more than $40k over budget.
Here are some before pictures:
And here are some "afters":
The main problem with the delays is that it has been really hard to get a tenant for the upstairs apartment this time of year, hopefully that will be resolved in the next few weeks though. We hope to be able to get about $1500/m for the rental and we anticipate that when we move out in a few years, we will be able to get at least $2200/m for the downstairs unit. We also had our realtor run a CMA and she estimates that our house is currently worth approximately $415k, and will likely increase at least $10k in the next 6 months. This information was music to our ears because it means that despite all the stress and financial overages, we are not underwater on our house...and to me that is success!
Here are our current monthly numbers:
Current Mortgage with PMI, taxes, and insurance: $2485
Upstairs rental: $1500, so we are paying $985 "rent"
Conservative projected numbers within 5 years:
Mortgage (after refinancing out of ARM and PMI: approximately $2200
Monthly profit: $1700-1750
Despite all the challenges, stress, and struggles I feel like this project was well worth it, we learned SO much, and for the most part, really enjoyed the experience. The next year or so will be spent paying off our bills and rebuilding some cash, but then I can't wait to start looking for our next project! I would love any feedback you may have, and to hear about your own struggles getting started with REI. Thanks for reading!
I LOVE LOVE LOVE THIS POST!!! Congratilations and good job!!!
Great job with the rehab
@Laura Levine , fantastic work! Keep at it!
Great looking rehab!
Thanks everyone! It's so encouraging to get some positive feedback!!
very good. i would not have done dark floors with dark cabs though. it makes it look smaller. i love the look, but in a LARGER house. not for a rental.
despite the struggles, you got it done. that's a great feeling, huh? dont settle for any tenant. the one that wwants it will come along. never settle!
Well done, your rehab looks fantastic!
Nice. You have good rental numbers.
I am doing something very similar to you in Weehawken, NJ.
Bought a 2 family for 615k. Rehab is roughly 100k.
But my rents are 2k for the upstairs 2/1
Hopefully, 3k when we move out and rent out the "owners unit" of a 3/2.
Renovation looks great! Not sure if you mentioned in your post, but have you guys looked into refinancing now that your value is closer to $415K? Or do you plan to refi down the road?
Sounds like you guys put a lot of capital into the project and seems like you could recoup some of that cost through refinancing. I think my next investment will be a heavy lift like your guys' and would love to get your thoughts on refi strategy once done. Good luck with everything!
@George P. Thanks for your feedback. We went back and forth (multiple times! :P) about the floors with the cabinets. We eventually settled on a darker floor as we thought it looked more modern and we felt that it would balance with the white counters, and we plan to do a white backsplash eventually too. Plus, since the whole living area is open-plan with high (10') ceilings we thought we could get away with it.
@Sant S. Congrats, sounds like you found a winner!
@Holden Latimer I actually submitted another post trying to get some feedback on this very issue! We are trying to figure out our best course of action at this point...here's the post if you're interested.
Great job @Laura Levine !!!! Very happy for the both of you. That's a nice monthly dinger coming in for the rest of your life. Way to go!!
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