2nd Buy and Hold - Residential Property

Buying & Selling Real Estate
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2nd Buy and Hold - Residential Property

Jeffrey Gignac
Investor · Danville, VA · Member since 2016 · 26 posts · 11 votes

I've successfully owned and managed a cash-flow positive residential property since 2012. After paying down personal and mortgage debt and getting my financial ducks in a row, I have begun the hunt for another house in the same general area as my 1st house. I am looking for similar specs in size, amenities, purchase price, etc. so that I may duplicate the blueprint from my 1st house as close as possible. My ideal property is a 3/2 or 3/1.5 that could be easily converted to a 2 full bath house. Both a small university and a reputable elementary school are within walking distance of my first property. Like everyone, I am interested in getting a deal (it is investing after all), but my largest concern is the speed with which I can turn a new purchase into a cash producing property. 

I've seen one property that meets this criteria that has been on the MLS for over 500 days!!! It is a classic victim of having been bought right before the bubble popped and the owners have 0% chance of selling the house and getting what they paid for it. To boot, the owners have not lived in town for several years and long distance landlording has not gone well for them. This is information gleaned from neighbors and close associates who know the owners.

Rents for the area in question are trending up and comps are being rented for over $1,100. My first property is on the same street and is renting for $900, which I will use as my assumption of rents for conservative estimates on the project. Paint, wood floor refinishing, and a small section of water damaged ceiling are the repairs noted from my first walk through with my agent. My realtor is currently doing homework to learn more about the property for things I would not see on first glance. I'll be giving this property my 2nd walkthrough next week and after nailing down renovation costs, would like to make an offer. I will keep this post updated and any thoughts, comments, or questions are appreciated!

JDG

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  • Jeffrey Gignac
    OP
    Investor · Danville, VA · Member since 2016 · 26 posts · 11 votes
    10y

    UPDATE #1:

    I've gone back through the potential property for a 2nd visit that was mentioned in the first post. Upon my second walk through with an experienced GC, I am going to be making an offer on the property this week with the following assumed renovations needed. 

    Necessary repairs before filling the house with a renter will include a wood floor treatment (not full on refinishing with polyurethane), touch up trim paint in each room, selectively touch up wall paint in certain rooms, repair a portion of ceiling from water damage (source of damage identified and repaired by owners), as well as general cleaning of Full Bath tub and tile surround. Plumbing and other electrical components have been updated and maintained, but will still be scrutinized during inspection.

    Comparable rents in the area are reaching as high as $1,350-1,400 for 4/2's and 3/1.5's that will be upfit to the same degree. I plan on asking $1,100 for this property with a purchase price not to exceed $100,000. After mortgage, taxes, insurance, and allowances, for repair and property management (I will self manage), I am budgeted to net $250/ month. This comes with an underestimation of potential rent and an over estimation of expected repairs and other routine and non routine costs.

    My second property purchase will be through my own personal name with proceeds and expenses running through an established S-Corp that houses the earnings from my first rental unit just down the street.

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  • Jeffrey Gignac
    OP
    Investor · Danville, VA · Member since 2016 · 26 posts · 11 votes
    10y

    UPDATE #2:

    I made an initial offer of $100K on this property with the MLS asking price of $129,900. The sellers countered at $126,900 to which I re countered at $105K. The seller did not take the offer and I was not willing to pay more than that for the property in question. I am moving onto other houses on my list that show good potential. Fortunately my realtor understands what I am looking to acheive and has been flexible and accomodating putting in offers and showing me lots of property. She could be one of the few in my area that understands what investors are looking for and can take alot of the screening process into her own hands which saves me time on the front end.

    My current rental property has a tenant looking to break their lease early. Sorting out these issues and finding another tenant has been a bump in the road towards locating and bidding on my next potential purchase.

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  • Jeffrey Gignac
    OP
    Investor · Danville, VA · Member since 2016 · 26 posts · 11 votes
    10y

    UPDATE #3:

    No reasonable agreement could be reached for potential property mentioned above. I have gone into several more houses, none of which would really work with the model that I am comfortable with.

    The next potential property on my list is a 3BR/2BA home that is a few streets away from my existing rental property. This house is currently listed at $105K, down from $115K when first listed. To get this house rent ready, I will need to refinish floors, repaint many of the rooms, and update the electrical system from knob and tube, The largest unknown is an uneven floor upstairs from an addition but there are no indications that these problems are foundations or structural in nature. Various items will be taken care of outside to clean up the appearance of use of it's yard. 

    I submitted an offer for $90K and settled on a contracted price of $94K with the seller paying closing costs. Worst case scenario would entail investing $25K and having around $115K all in. This home will rent for between $1,100 and $1,200 monthly. I expect to close within a month and begin work immediately afterward. Wish me luck on my 2nd buy and hold property.

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  • Jeffrey Gignac
    OP
    Investor · Danville, VA · Member since 2016 · 26 posts · 11 votes
    10y

    UPDATE #4:

    I am closing on this 3/2 property tomorrow, 8/25/2016. An electrician has come in to quote the upgrade of service from an old fuse box to a modern box with switches. This is quoted at $2,300 which was below budget for this line item. Electrician is scheduled for week of Labor Day. Following are steps to take during and after Electrician;

    2nd Story: Pull up all existing floor coverings to determine source of floor lean. The sliding door to the deck will also be adjusted so it fits flush against the door frame and is not exposed to the outside. Flooring will be replaced upstairs and minor painting will be completed in the playroom, family room, and bedroom. Leaks in Master Bath faucet will be addressed at this time. I will probably replace this vanity as the current vanity looks trashy. 

    1st Story:  Replace kitchen sink (rotted) with new sink and add garbage disposal. Fix leaky faucets and nozzles in bathroom near shower. Repaint entire downstairs more neutral gray color. Clean up and repaint/replace wood boards on porch in disrepair. Replace fan with "Outdoor" fan. Screened-in porch is structurally sound. Determine whether refrigerator works and find inexpensive replacement (potentially extra from house).

    Exterior: Stabilize and treat lumber for deck of Master Bedroom. Tear down pergola due to dry rotted wood. Repaint shutters to a more acceptable color. Determine best course of action for back yard where little grass will grow.

    I am quite excited to begin work on my 2nd buy-and-hold. The numbers are looking to have tons of upside with very little risk. I expect to have a tenant in this house by the end of September. Rental demand is surging in my area so finding a tenant should not prove to difficult, despite the time of year.

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  • Jeffrey Gignac
    OP
    Investor · Danville, VA · Member since 2016 · 26 posts · 11 votes
    9y

    UPDATE #5:

    I officially closed on this home on Friday, 8/26/2016. I am in the home stretch of renovations with things taking longer than anticipated, but not agonizingly so. The process for this house looks something like this:

    Upon closing on the home, I immediately started tearing EVERYTHING out of the house that was not ultimately going to be used. This included old and broken ceiling fans, light fixtures, non-working appliances, all flooring, all electrical outlets, vanities, etc. While this was happening, my electrician had come through and completed an update on the electrical box and installed new ceiling fans. I kept hardwood flooring and trim in rooms that had it.

    With tear down complete, I began identifying work that I would complete myself and work that I would need assistance from a contractor on. I tend to sub out the vast majority of the work since I work full time and primarily have nights and weekends. All of the walls and trim needed to be painted which has been happening for the past 4 weeks. New kitchen counter tops were installed after kitchen cabinets had been painted. New vinyl floor is going in the kitchen and master bathroom this week with carpet upstairs happening at the beginning of next week. Following the completion of counter tops and floors, final plumbing will occur with the installation of new vanities in both the guest and master bathrooms will take place. An HVAC repair man will also be coming as the downstairs unit will crank on but not begin blowing throughout the house. Upstairs unit works as normal.

    Once these items are complete, I will be going back through the house to check for surfaces that need touch up paint from construction damage in addition to verifying all lights, outlets, switches, and appliances are up and running. I will be beefing up the structural sturdiness of the back deck off the master bedroom and resealing this structure for protection moving forward. I plan to clean up the front yard for a bit more curb appeal but it is in generally presentable condition.

    This unit will fetch between $1,000 - $1,200 in monthly rents with my mortgage payment beginning in October at a total of $494.66 (PITI, 30 yr. amortization). Tenants will pay utilities and any other monthly recurring expenses associated with the property besides taxes and insurance.

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  • Jeffrey Gignac
    OP
    Investor · Danville, VA · Member since 2016 · 26 posts · 11 votes
    9y

    UPDATE #6:

    Through miscommunication with the vendor ordering the carpet, only a portion of the total carpet needed was ordered. The remainder of the carpet is set to be delivered Thanksgiving week with installation to take place the following week. The installer properly measured the carpeted area, with Lowe's not ordering the correct quantity of carpet. This has been about the only hiccup in the renovation process thus far. I was unrealistic about the turnaround time from the home, but part of the blame goes to my laziness. Alot of the odds and ends I find myself working on right now could have been completed much sooner, but work, recreation, and life have managed to jump in the way of my progress. Must stay diligent to the END!!

    Remaining items to be addressed before listing this home for rental:

    • Remove and replace downstairs bath vanity and medicine cabinet.
    • Ensure all light switches, receptacles, and plates are uniform white throughout.
    • Ensure working condition of all tubs, sinks, and faucets.
    • Replace old/broken/dirty light fixtures inside and outside the house.
    • Replace motion-sensor light outside back of kitchen.
    • Replace/repair tube lighting in kitchen. (Buy covers for lights)
    • Continue to tidy up front and back yard. (Remove leaves, ivy, other vines)
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  • Timmi Ryerson
    Property Manager · Ketchum, ID · Member since 2016 · 277 posts · 132 votes
    9y

    I have only two suggestions for you.  If I had seen this thread before I would have suggested that you check to see if the addition had been permitted.  Check inspection approvals to see what might be causing the lean.  The second is to use rentometer.com to check comps on your rents.  You will get to know which vendors you can trust and which ones cause you more problems.  There should be some compensation in pricing for errors made by Lowe's in the ordering....and you realize that the carpets may be from different dye lots so be careful.  Good luck.

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  • Jeffrey Gignac
    OP
    Investor · Danville, VA · Member since 2016 · 26 posts · 11 votes
    9y

    UPDATE #7:

    RENOVATION COMPLETE AND TENANT SECURED!!! 

    The GOOD NEWS:

    A common theme throughout the Bigger Pockets podcast has been to tell people about what you do with real estate. It can lead to finding better contractors, building relationships with other investors and to help secure tenants. Without advertising my house and before the renovation was complete, an excellent potential tenant was forwarded to me by an acquaintance who knew I owned rental property from chatting at the bar. Not only did I not have to spend money advertising, but I incurred no vacancy at the end of the renovation process. This individual has already enrolled through my Cozy.co portal and has a clean credit check, background check, and income to rent ratio. I am receiving all rent payments through ACH so rent collection is automatic. Thank you BP Podcast!!

    NUMBERS (Monthly):

    • Purchase Price: $94,000.00 (20% down using LOC on my first rental property)
    • Renovations: $23,875.60 (Entirely out of LOC mentioned above)
    • ALL IN:             $117,875.60
    • Rent:                $1,225 ($25/ monthly for small dog)
    • Mortgage:           $494.66 (including Ins. at $615 annually and Taxes)
    • Utilities:               $0.00 (tenant is responsible for utilities and yard work)
    • Maintenance:      $245.00 (20% of gross rent is moved to separate bank account for                                          cap ex. monthly)
    • LOC Interest: $190.00 (20% down payment and all renovation cost paid through LOC on my first rental property)
    • Net:                      $295.35 or about $3,500 annually (1,225/117,875.60 = 1.04% property)

    TIME TO PAY DOWN SOME DEBT WHILE I HUNT FOR THE NEXT OPPORTUNITY!!!!

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  • Kerry BairdPro Member
    Rental Property Investor · Melbourne, FL · Member since 2011 · 3k+ posts · 2k+ votes
    9y

    Well done!  

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