$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
    Originally posted by @Caleb Heimsoth:

    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.

    I have a local insurance guy that I use. I have been going back and forth on insurance as well. Right now I do have insurance on them and actually have this particular house insured for $15k as it currently sits. 

    I have a buddy who buys same type of properties around here and he doesn't have insurance on any of them. 

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

    How you found that 11 thousand dollars home?

    Craigslist. I spent $7,000 on the purchase and then $4,000 rehabbing the home. 

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

    Your lucky in my area a home in a high crime area that needs major renovations would be around 700,000

    I agree I am lucky. I seriously thank the good Lord every single day. Those kind of prices have always been mind blowing to me. No idea what I'd do if I lived out there.

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

    I have some in my area in this price range as well. I have one house I spent $32k on (after rehab and everything) and it rents for $800/month.

    Been debating on whether or not I should upgrade in to this market or keep buying the cheap homes. It's a tough decision no joke lol.

    0Reply
  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    8y

    @Jim K. @Liz Cole to be clear I’m not advocating you don’t have insurance.  I think it’s very important that you do.  I was just saying in this situation, if you owned a bunch of these type of homes out right it may be best to just have liability.  

    1Reply
  • Ian WalshBusiness Member
    Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
    8y

    That is pretty wild.  Interesting.

    1Reply
  • Samuel Pascal
    New to Real Estate · New York, NY · Member since 2017 · 40 posts · 12 votes
    8y
    Hey man. thanks for sharing this. it keeps us folks trying to get in motivated!
    1Reply
  • Jim K.
    Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes
    8y

    @Caleb Heimsoth

    I fully agree with you, then.

    @Derrick E.

    Blessed are we who live in the land of s---shacks, I always say. The situation up here in the Paris of Appalachia isn't exactly the same. But it's close enough when it comes to low-cost rentals.

    2Reply
  • Diane G.
    CA · Member since 2016 · 1k+ posts · 1k+ votes
    8y

    @ Derrick E. - what is the profile of your tenant like? How do you screen them? Thanks

    0Reply
  • Carl Pickens
    Griffin, GA · Member since 2017 · 63 posts · 82 votes
    8y

    i do the same thing in Georgia but my numbers are more like 15-25k for single family rent 450-550 or 30-35k duplex rent 425-450 per side... post rehab if any is needed 

    1Reply
  • Jason CoryPro Member
    Real Estate Broker · Birmingham, AL · Member since 2018 · 264 posts · 381 votes
    8y
    Originally posted by @Diane G.:

    @ Derrick E. - what is the profile of your tenant like? How do you screen them? Thanks

     If you rent in these areas always get Section 8 tenants. The housing authority does background checks, criminal checks, & credit checks. If they are on the program they passed all of the checks.

    Rents are guaranteed for a year with the housing authority. They renew on an annual not monthly basis. 

    If a tenant decides to move they can't have a new voucher if they have an outstanding balance with a utility company or the landlord. The housing authority checks this & if they have a balance they have to stay until it's paid off in full.

    Rent is direct deposit every month so no chasing rent. 

    If the tenant gets out of line in any way notify the case worker. They straighten up quick for fear of losing their assistance. 

    Always rent to a housing authority tenants. Never rent to straight pay tenants. 

    3 bedroom houses rent for a minimum of $750 in Birmingham. It's easy to get 3 houses for a $100k investment in Birmingham. That's  $2,250 gross rent compared to buying one house that rents for $1,000 for $100k because it's in the suburbs.

    Treat them with respect & they stay forever. Treat them like trash & they'll leave. 

    I've had house in the past that had 70's carpet without a stain anywhere. The tenant was fine & didn't want it changed. Her rent was only $450 but she had been there 20 years & it was spotless inside & out. I left her rent at $450 to keep her at the house. 

    Horror stories about these areas come from slumlords that don't fix anything & think they are better than the people paying their bills. 

    4Reply
  • Derrick E.
    OP
    Investor · The Creek, WV · Member since 2014 · 890 posts · 1k+ votes
    8y
    Originally posted by @Samuel Pascal:
    Hey man. thanks for sharing this. it keeps us folks trying to get in motivated!

    Thanks. That's one of the main reasons I'm trying to share this info. Most info found out there would require a lot of money or just a lot of luck or both to get started. Not everyone has great credit, great DTI ratio, good W2 paying job etc. I think that what I'm doing is much more practical for the average joe to logically think "heck, I could do that."

    I thought it would be much more complicated and sat on the fence for a few years because there wasn't anyone really doing things this cheap so I wasn't sure. I'm not a contractor or carpenter so I honestly wasn't sure if I could even fix the first house that I bought in this price range. 

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

    @ Derrick E. - what is the profile of your tenant like? How do you screen them? Thanks

    So far so good on tenants to be honest. My more expensive house which was $32k rents for $800/month. I have a single grandmother who has worked for the local school system for the last 11 years. 

    My others rent from $500-$600/month and tenants seem to be more based on street/neighborhood as opposed to price range for me so far.

    I have a young couple who will be moving out in the next month or so. They just got married and bought their own house which I kind of helped them with in terms of pointing them in the right direction and recommending FHA Loan etc. Husband works at local steel mill making $50k/year and wife is finishing up college to become a medical coder but is pregnant now so who knows.

    Have another tenant with same situation except mom now has another job as their kids are older and a more established family. They actually pay me the 28th-30th the month before every single time.

    My latest tenant in the $11k house works at a local factory making around $14/hr. He is going through a divorce. I think I got lucky with this one or I at least feel like I got lucky. I was worried about the type of person I would get in this particular house. 

    I openly advertise to responsible pet owners. All of my tenants have pets and it hasn't been an issue yet. Nothing serious anyways. I also rent a little below market rent to get more applicants. 

    I can afford to do all these things because I own the properties out right 100%. Takes so much stress out of the equation. 

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

    i do the same thing in Georgia but my numbers are more like 15-25k for single family rent 450-550 or 30-35k duplex rent 425-450 per side... post rehab if any is needed 

    That's what I'm talking about. I feel like that is the normal MLS price for our area but market is currently about as low as it could go for my immediate are. I'm using the opportunity to low ball the crap out of people lol.

    Glad to know this is also being done in Georgia. 

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

    @Jason Cory Believe it or not I haven't rented any of these particular homes out to Section 8 Tenants yet. All of mine have so far been cash paying tenants.

    I do have one Section 8 house but it is out in the country. It would only rent for about $450-$500 to a cash paying tenant because a lack of renters in the area but Section 8 is paying me $650/month right now so it was worth it on that particular house lol.

    I have thought about going with Section 8 in these cheap homes but haven't done this yet. I love all the good points you bring up as to why I should strongly consider this option. 

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

    Hello guys,

    Just wanted to give an update. I did my final video on the house today. 

    Link to video.

    I'm all in for $10,500 and have it rented for $550/month to the last couple that looked at it today. Had 5 people look at it and 4 of them wanted the place. I'm tickled to death right now. Still have some minor things to do such as trimming out a window, new outlet covers, and have to sand down some of the interior doors to help them shut better.

    I did videos throughout the whole process so you can watch the progression if you want to. I'm not a carpenter or anything. Just a regular guy who is self learning as I go. 

    Thanks for watching!

    3Reply
  • Jim K.
    Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes
    8y

    @Derrick E.

    6-inch block plane usually works great on sticky door problems. Cheap beater one for that and shaving studs down.

    https://www.lowes.com/pd/Kobalt-6-25-in-Adjustable-Block-Plane/4777021

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

    @Derrick E.

    6-inch block plane usually works great on sticky door problems. Cheap beater one for that and shaving studs down.

    https://www.lowes.com/pd/Kobalt-6-25-in-Adjustable...

    So glad I checked this site this morning before I left. One of the guys who works for me is running a little late so it freed up some time.

    Thank you so much for the info and link. I'm definitely getting that today and going to town lol.

    1Reply
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