$7,000 purchase, now the rehab

Buying & Selling Real Estate
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$7,000 purchase, now the rehab

Derrick E.
Investor · The Creek, WV · Member since 2014 · 890 posts · 1k+ votes

Some of you may have read my post and/or watched the video of my $11,000 house. That is all in after all rehabbing. Currently rented out for $500/month. Could have easily gotten $550/month.

Well we are now rehabbing another house. Initial purchase price is also $7,000 (same as the $11,000 house.) I wanted to show some videos of this house as we update and go through the rehab process. Please keep in mind that I am a small timer still starting out. I do most of the work myself and I contract out some of the work through a local handyman that I use. 

I also invest strictly for cash flow and plan to keep my properties for a long long time. 

Anyways. I started on this house this week and here are the videos I made from this week with my phone. Also please remember I am not into film and such, just a guy with a phone who films stuff when I think about it and also have a few minutes to do so.

This house had a tenant in it for $441/month with around 2 months left on the lease when we bought it.

1st Video

2nd Video

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Account Closed
Rental Property Investor · Torrance, CA · Member since 2016 · 724 posts · 1k+ votes
8y
I’m looking in Birmingham at houses that cost $20,000-$40,000. The rental demand in these areas is strong and always will be. To put it bluntly, poor people rent, they don’t buy. There will never be a shortage of people living paycheck to paycheck that need a roof over their head. The way things are headed with income inequality I think catering to the lower income is a safer bet. I read that 75% of America will be renters by 2050. The middle class are a shrinking demographic. Why would I build my business around a customer base that is decreasing? The property I own now is in a less than desirable part of town in Seattle. I would call it a C+. It’s not a “war zone” but there is a higher rate of crime and even some gang activity. I’ve had it four years and it’s been fine. My property manager is good at what he does. I think management is the key to the low income puzzle.
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  • Derrick E.
    OP
    Investor · The Creek, WV · Member since 2014 · 890 posts · 1k+ votes
    8y

    @Ed L. I recommend just paying cash for a cheap house and diving in my man. I didn't know any of those things either but took the leap of faith. It's much easier than cars imo. I always check for plumbing, roof, electrical, and hvac unit. Those are the most expensive things. If you can get by without replacing those things and/or doing it yourself then you can save a lot of money. I do plumbing myself for most part because its pretty simple to do what I have to do. I could plumb a whole house from scratch but I can fix busted water lines and or lines that have been cut etc.

    If you walk in to a place that has good bones then I get excited. Paint, flooring, and light fixtures will change an entire house. Believe that. 

    0Reply
  • Jonathan R.
    Investor · Wichita, KS · Member since 2017 · 584 posts · 813 votes
    8y

    I like it @Derrick E.! Keep grinding it and financial freedom will be here soon. The snowball is coming. We certainly have a similar strategy. My first was 18k, then 22k for #2 and 19k for #3. I'm starting to think I'm overpaying. Lol. 7k and 11k, wow! I'm also learning cash or unsecured loans are almost the only way to do this. I tried to get a portfolio lender to loan on my first deal to brrrr it out on the property now worth maybe 45k on paper and the lender doesn't want to put loans in low income areas, he said it less bluntly, but I knew what he meant. Seemed like red lining to me. I'll keep saving and searching for even better deals. Cheers.

    3Reply
  • Liz Cole
    Camano Island, WA · Member since 2017 · 91 posts · 42 votes
    8y

    @Jason Cory

    One of my brothers lives in Northern South Bend area. Neat and clean area, but he told me that the investors buy and then rent out a lot of the properties. It is changing the area. The house across from him is vacant and the owners daughter is going to sell it. She originally told him $14K because it needs work-the family has owned it for over 70 years. 

    My brothers house value estimate is $105K. I thought about buying it and doing a reasonable reno and flipping it. But the house has so many considerations I decided it might not be a good first house flip for me and don't even know if there would be enough room for a decent profit. 

    But my brother and the neighbors are all really concerned another rental is going to invade the area. 

    So, each time that happens the owner-occupied houses value decreases, correct?

    0Reply
  • Derrick E.
    OP
    Investor · The Creek, WV · Member since 2014 · 890 posts · 1k+ votes
    8y
    Originally posted by @Jonathan R.:

    I like it @Derrick E.! Keep grinding it and financial freedom will be here soon. The snowball is coming. We certainly have a similar strategy. My first was 18k, then 22k for #2 and 19k for #3. I'm starting to think I'm overpaying. Lol. 7k and 11k, wow! I'm also learning cash or unsecured loans are almost the only way to do this. I tried to get a portfolio lender to loan on my first deal to brrrr it out on the property now worth maybe 45k on paper and the lender doesn't want to put loans in low income areas, he said it less bluntly, but I knew what he meant. Seemed like red lining to me. I'll keep saving and searching for even better deals. Cheers.

    My local Community Trust Bank will do a HELOC on low income investment properties. I haven't done it yet but I have had the conversation. They do it as a commercial loan because it is not owner occupied. Fine by me.

    What kind of unsecured loans have you gotten? I have thought about that as well but haven't done it yet either. 

    0Reply
  • Jason CoryPro Member
    Real Estate Broker · Birmingham, AL · Member since 2018 · 264 posts · 381 votes
    8y
    Originally posted by @Liz Cole:

    @Jason Cory

    One of my brothers lives in Northern South Bend area. Neat and clean area, but he told me that the investors buy and then rent out a lot of the properties. It is changing the area. The house across from him is vacant and the owners daughter is going to sell it. She originally told him $14K because it needs work-the family has owned it for over 70 years. 

    My brothers house value estimate is $105K. I thought about buying it and doing a reasonable reno and flipping it. But the house has so many considerations I decided it might not be a good first house flip for me and don't even know if there would be enough room for a decent profit. 

    But my brother and the neighbors are all really concerned another rental is going to invade the area. 

    So, each time that happens the owner-occupied houses value decreases, correct?

     The easiest way to think about it is, do you want renters living next door to you? 

    Owners have a vested financial interest in protecting their value. Investors have a vested financial interest in keeping rent & returns high. 

    Invest for the purpose/goal. 

    0Reply
  • Derrick E.
    OP
    Investor · The Creek, WV · Member since 2014 · 890 posts · 1k+ votes
    8y

    @Liz Cole I would go check out the home in person and or look at it on google maps and hope for a recent street view. Guessing that would be best case for OOS I have no idea. 

    If it has updated wiring/breaker box, a good roof, intact kitchen and is solid when you walk through it then I would be interested in it if it was located in my area. How many bedrooms is the house? 

    0Reply
  • Liz Cole
    Camano Island, WA · Member since 2017 · 91 posts · 42 votes
    8y

    @Ed L.

    Maybe you should be flipping cars! (Maybe you do)... don't ignore your natural gifts to finance something like RE.

    1Reply
  • Liz Cole
    Camano Island, WA · Member since 2017 · 91 posts · 42 votes
    8y
    Originally posted by @Derrick E.:

    @Liz Cole I would go check out the home in person and or look at it on google maps and hope for a recent street view. Guessing that would be best case for OOS I have no idea. 

    If it has updated wiring/breaker box, a good roof, intact kitchen and is solid when you walk through it then I would be interested in it if it was located in my area. How many bedrooms is the house? 

     Derrick, I'm actually seriously considering moving there, so I wouldn't be OOS for long. :) The house by my brother has lot's of hidden issues.

    1. It is a 1926, 900-1000 sqft. 3br/1ba/detached garage with a breezeway. Second lot is fenced and landscaped but across an alley creating an L shape.
    2. The second lot is across a no-purpose alley and that has a secondary septic system on it they added when they added to the house a few decades back. It would be a code violation now. 
    3. Has mold of some amount and not sure what kind. 
    4. The old lady had bed bugs and they were never fully eradicated. (They winterized the pipes and such and then let the house stay unheated, attempting to freeze and starve them). I'm not convinced that really works. They can get in your walls, baseboards, etc and cause havoc once humans move back in.
    5. Out-dated heat is kerosene and I think it needs to be replaced.
    6. There is a big maple tree super close to the house and likely needs to come down for various reasons. 
    7. The kitchen and bath have never been updated really, and she didn't take care of it over the last decade or more (after the hubby passed). 
    8. It's a chopped up floor plan. The house pretty much sits on 3 lot lines. 
    9. Electric was "updated" 35 years ago, but would need to be updated again. 
    10. Plumbing is a mess.
    11. Who knows but I would not be surprised if there is asbestos and no insulation and window, lol.
    12. The roof is good! and doesn't sag. lol

    Scary and so much work that I'm sure it would eat up the profit. She would need to basically give it to me!

    0Reply
  • Mark Hughes
    Rental Property Investor · Aurora, CO · Member since 2018 · 288 posts · 117 votes
    8y
    Great update. Love the videos. Keep us posted how it’s going
    1Reply
  • Shawn Pottschmidt
    Rental Property Investor · South Bend, IN · Member since 2016 · 74 posts · 29 votes
    8y
    Bigger pockets needs to give awards out to people. You should get something.
    3Reply
  • Derrick E.
    OP
    Investor · The Creek, WV · Member since 2014 · 890 posts · 1k+ votes
    8y
    Originally posted by @Liz Cole:
    Originally posted by @Derrick E.:

    @Liz Cole I would go check out the home in person and or look at it on google maps and hope for a recent street view. Guessing that would be best case for OOS I have no idea. 

    If it has updated wiring/breaker box, a good roof, intact kitchen and is solid when you walk through it then I would be interested in it if it was located in my area. How many bedrooms is the house? 

     Derrick, I'm actually seriously considering moving there, so I wouldn't be OOS for long. :) The house by my brother has lot's of hidden issues.

    1. It is a 1926, 900-1000 sqft. 3br/1ba/detached garage with a breezeway. Second lot is fenced and landscaped but across an alley creating an L shape.
    2. The second lot is across a no-purpose alley and that has a secondary septic system on it they added when they added to the house a few decades back. It would be a code violation now. 
    3. Has mold of some amount and not sure what kind. 
    4. The old lady had bed bugs and they were never fully eradicated. (They winterized the pipes and such and then let the house stay unheated, attempting to freeze and starve them). I'm not convinced that really works. They can get in your walls, baseboards, etc and cause havoc once humans move back in. 
    5. There is a big maple tree super close to the house and likely needs to come down for various reasons. 
    6. The kitchen and bath have never been updated really, and she didn't take care of it over the last decade or more (after the hubby passed). 
    7. It's a chopped up floor plan. The house pretty much sits on 3 lot lines. 
    8. Electric was "updated" 35 years ago, but would need to be updated again. 
    9. Plumbing is a mess.
    10. Who knows but I would not be surprised if there is asbestos and no insulation, lol.

    Scary and so much work that I'm sure it would eat up the profit. She would need to basically give it to me!

    Sounds pretty typical for that price range to be honest lol.

    Also sounds like multiple reasons to offer around $5k for the house and see what they say. You don't have to do all those updates right now. How long has it been vacant?

    Cut out the mold and replace with new stuff. Probably from an old leak in roof or plumbing. Could also just be mildew. Bed bugs are not that big of a deal. Call Terminix and have them come spray the house for like $130 or so. You should plan to do this for all the houses in this price range actually.  Does the tree have to come down immediately or could it wait another year or so? Is the kitchen still intact/functional? If so just clean it up and possibly change the faucet and maybe the hardware (handles on cabinets) and throw down some new linoleum. Voila. 

    Most old houses have chopped up floor plans. Back in the day men and women had different social rooms. Also most old homes have just been built on however it was cheapest and easiest to do so. If you have 100 amp fuse box then you are fine for a while but yes you would def want to update it in time. Plumbing is relatively easy to do and isn't THAT expensive if you do it yourself. It doesn't have to be the best insulation for this price range of tenant. 

    Do not go over the top. Fix this up to where it is clean, safe, and functional. No reason to start going over the top with it. Save that money for the next deal.

    3Reply
  • Liz Cole
    Camano Island, WA · Member since 2017 · 91 posts · 42 votes
    8y

    @Derrick E.

    Actually, NONE of it scared me until the septic issue. In order to fix that, the old septic in the front would have to come out and a new septic system put in and all new plumbing. I think the kitchen and bath need to be renovated, but I could actually do all of that myself. 

    On the electric, I'm concerned that when it was "updated" before that they tied into the old knob and tube. I could be wrong and haven't gone there to look. 

    I'm pretty sure the plumbing needs a complete re-do because over the years it got piece-mealed together by a DIY homeowner. Now there are issues. 

    My brother might shoot me if I rent it instead of sell it! lol 

    Awesome feedback! Thank you.

    1Reply
  • Diane G.
    CA · Member since 2016 · 1k+ posts · 1k+ votes
    8y

    @Derrick E. - I read every single one of your posts... I am one of those "coast people", and it is very interesting to read about your local RE market... I would have never thought that one could make money of a $7K house....THank you

    3Reply
  • Derrick E.
    OP
    Investor · The Creek, WV · Member since 2014 · 890 posts · 1k+ votes
    8y
    Originally posted by @Diane G.:

    @Derrick E. - I read every single one of your posts... I am one of those "coast people", and it is very interesting to read about your local RE market... I would have never thought that one could make money of a $7K house....THank you

    Thanks for reading. My brother in law lives in San Diego. He could take two months of his rent payment and paid for this house lol. 

    I am impressed with how quick homes appreciate out there. It's scary to think about getting left with the bag but my goodness, you can make some serious cash in just a few years. That doesn't happen in my area.

    1Reply
  • Account Closed
    Investor · Saskatchewan , Saskatchewan · Member since 2017 · 311 posts · 233 votes
    8y
    @derrickE not everything is that expensive, but any lot in Regina or Saskatoon is minimum $135. Even knock downs are $150 on a 25’ lot now. Beautiful province, stop by some time!
    1Reply
  • Jamie Engledow
    Boca Raton, FL · Member since 2015 · 249 posts · 52 votes
    8y
    Liz, even if the area is stagnant, his return on investment as a rental is astronomical! You don't even have to worry if the property is worth zero after 2 or 3 years!
    2Reply
  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    8y
    Derrick E. He’s an interesting question for you. Do you insure a 7k house? Or just get minimum liability type insurance? When I visited up in Cleveland last year I heard about a local landlord who owned about 180 of these cheap type properties (think 15- 25k each) and he often didn’t insure a lot of them or just did the absolute minimum. If it burns down he just goes and buys another one.
    2Reply
  • Jonathan R.
    Investor · Wichita, KS · Member since 2017 · 584 posts · 813 votes
    8y

    @Derrick E. I am sure there are commercial lenders out there that will do it. BP would have taught be to keep driving down the street until someone wrote a loan it, but the rogue warrior inside of me tells me the banks need me more than I need them. :)

    1Reply
  • Jim K.
    Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes
    8y

    @Caleb Heimsoth

    There are two problems with having no liability insurance on a rental property: it's very hard to borrow money on the property without insurance on it and when you get sued for something that happened on the property, the lawyer does not have a policy to go after and will have to go after all your combined assets.

    A lot of inexperienced rental owners believe that as long as they have the property in an LLC, they've kept themselves safe, because that's what a lot of salesmen tell them, a whole lot of baloney about not "piercing the corporate veil." It sounds good when the salesmen push it over the phone, but believe you me, there's no judge in American who won't hesitate to rule against you if you as a landlord obviously caused the tenant some form of injury and the LLC is obviously just there to confuse the issue of who owns the property and is liable for any overlooked maintenance that caused the tenant's broken leg, etc.

    An LLC is not an insurance policy. If you have a policy on the property, and the lawyer has an obvious target, the low-hanging fruit is to go after the policy's liability limits. It's hard for a lawyer to argue to a judge and harder for a ruling to stand on appeal that insurance policy limits shouldn't apply to a particular case. If you don't have an insurance policy, the lawyer has to go after something, and will therefore try to justify going after a judgment on you and all your assets. This opens you up to very expensive risk, because in order to fight this kind of lawsuit, well, the tenant's lawyer is working on a contingency, while you have to pay your own lawyers. A policy fight can be settled in minutes, a judgment against you could strip your of other assets. I am not a lawyer and this is only my understanding of it from a rental property investor's standpoint.

    To sum up, our lawyer's advice was very simple, and also echoed by our CPA. They are both specialists in working with rental property owners. "Do whatever you have to do, pay whatever you have to pay, to get liability insurance on a rental property."

    4Reply
  • Sam Shueh
    Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes
    8y

    Try to put camera on a tripod and provide more lighting. Good job.

    You also need disclose the amount of money and time spent to get a feel of the scope of the project.

    Cheers,

    Sam Shueh

    1Reply
  • RJ Garcia
    Realtor · Newark, NJ · Member since 2018 · 4 posts · 0 votes
    8y
    How you found that 11 thousand dollars home?
    0Reply
  • Mary Jay
    Glendale, AZ · Member since 2017 · 1k+ posts · 238 votes
    8y
    Originally posted by @Derrick E.:

    Some of you may have read my post and/or watched the video of my $11,000 house. That is all in after all rehabbing. Currently rented out for $500/month. Could have easily gotten $550/month.

    Well we are now rehabbing another house. Initial purchase price is also $7,000 (same as the $11,000 house.) I wanted to show some videos of this house as we update and go through the rehab process. Please keep in mind that I am a small timer still starting out. I do most of the work myself and I contract out some of the work through a local handyman that I use. 

    I also invest strictly for cash flow and plan to keep my properties for a long long time. 

    Anyways. I started on this house this week and here are the videos I made from this week with my phone. Also please remember I am not into film and such, just a guy with a phone who films stuff when I think about it and also have a few minutes to do so.

    This house had a tenant in it for $441/month with around 2 months left on the lease when we bought it.

    1st Video

    2nd Video

     You are doing an amazing job! I am so proud of you!

    1Reply
  • Storm S.
    Real Estate Agent · Santa Barbara, CA · Member since 2016 · 518 posts · 283 votes
    8y
    Your lucky in my area a home in a high crime area that needs major renovations would be around 700,000
    1Reply
  • Liz Cole
    Camano Island, WA · Member since 2017 · 91 posts · 42 votes
    8y

    @Caleb Heimsoth

    I can't imagine a landlord not having insurance on a property. What if the house burns down WITH the tenant in it? And, what about replacement value? I don't get that thinking at all..

    1Reply
  • Michael Beeman
    Casey, IL · Member since 2017 · 175 posts · 308 votes
    8y
    we do more multifamily, But Ive bought 3 SFH's like this.. Although ours are more like purchase price and rehab total is 20k, and ours rent for 650-725/mnth.. Very similar stuff.. Good job doing this.. You will make buckets of money if u keep this up.
    1Reply
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