“High risk high reward” they said...
Well it’s been nearly five months since we closed escrow on our quadplex located in San Luis Obispo, Ca. I can’t even begin to tell you what a learning process it’s all been. Honestly I’m not sure we would’ve gone through with the deal had we known the obstacles we’d be up against, everything from the hurdles in lending, contractors not meeting deadlines, incomplete units that are still un-rentable, etc.
Fortunately we’re resilient, a trait that’s an absolute must for any investor who’s going the high risk high reward route. It’s most certainly been a pressure filled endeavor that’s tested our strength. The two greatest lessons we’ve learned are around lending and working with contractors.
We anticipated closing escrow and then securing a HELOC for about $250k to complete the renovations. We knew going into the deal that just the foundation alone was shot and would be at least $100k. We sadly discovered that lending on a four unit property was a completely different ball game than lending on a SFR. Our safety net was our investments which we did not want to dip into.
I ended up having to apply to multiple institutions for lending and although it’s been tricky, five months later, we were finally able to access capital. PLEASE NOTE: the single greatest tool we have as investors is our intuition, it’s guided me the entire time and has never steered me wrong. Once I discovered lending on a multi unit was going to be a challenge, I switched all of my focus to getting the front unit renovated and rentable.
It was a fairly simple renovation since the kitchen was in great shape and the flooring had been updated. We updated the bathroom, painted throughout, updated the lighting, and then furnished the unit. Right at the same time I began renovating, I started the air B and B permit process, all of which was completely divinely guided.
Fortunately, with all of the updates we made to the front unit, we found ourselves in a different position and in about one week received word from three lending institutions that we qualified for funding. Lesson number one investors: make sure you secure your capitol before you close on your deals and if you plan to secure it after closing, be sure you’ve got a back up source to fund your renovations. Also be sure to account for unforeseen repairs that may come out of left field.
The second greatest lesson we learned is around contractors, contracts, and timelines. We made plans to cash flow before the end of the year, our foundation was supposed to be completed on July 14th and the entire deal was going to work based on the cash flow timeline. Unfortunately, the foundation repair didn’t begin until the second week in August and is supposed to be an eight week job. We were advised not to renovate the upstairs units until after the completion of the foundation. I think it’s safe to say though that with the way the foundation repairs have gone, it really won’t have much of an effect on the home shifting and we can now begin to tackle the upstairs units.
The foundation situation was super layered. We budgeted $100k and the city came back and required that we add in a French drain (++$10K). We were told by our architect that we could legally build out our basement which is a MASSIVE financial gain and the best part is that our foundation guy quoted us $20k to dig out and pour the slab now putting the foundation bill at $130k. We’ll be adding about 700 feet of additional living space and that’ll be used as an unofficial fifth unit. It’s a massive financial gain being that rentals in this area are priced sky high and if we ever go to sell, that adds a massive gain to the equation with the current median pricing at $494 per square foot. The fifth unit will not be counted on title as a fifth unit because we don’t want to be deemed a commercial building.
It’s been interesting being a female in this business. I’ve learned that sometimes in order to get what you want, you need to play the firm ***** card and hold people accountable to their word. It’s quite empowering playing in a man’s world. I think I’ve been most surprised by the foundation repair, I mean, all things in construction have been a surprise to be honest. I think as a little girl, construction work seemed like it was only for men because it was hard and complex. I definitely think a lot of the things that scare most buyers away from closing a deal are no longer as terrifying especially after you have first hand experience seeing the processes and procedures involved. YouTube university can teach anybody how to become a general contractor, a plumber, an electrician, etc.
Ladies, one of the best discoveries came to me when we were selling our last house and I received the termite repair bill. It was $3500 and I challenged myself to do as much of the work myself that was humanly possible. It literally consisted of one trip to Home Depot for lumber which cost me about $300 in materials, $200 to pay my handyman to help with the work this 5” tall gal couldn’t physically muster, and about $150 for the termite company to come back and spray and inspect. After that, it became very clear; be your own general and hire out the things you’re not able to do physically or legally.
We definitely bit off a big chunk with this project and now after about five months in, we have most definitely grown and learned a lot. I’ve made it my mission to focus my real estate business on supporting female investors to begin getting in the game. I can see how women would feel overwhelmed at the prospect of developing a property like this. Like with anything in life and business, high risk can yield even higher rewards.
I’d say we made a pretty damn great decision on the purchase of this behemoth of a project. I’ve become quite obsessed with the world of real estate investing and wish more women decide to jump in and earn their wings on the way down.
