Aaaaaaaaaaaaaaaaaaaaaahhhhhhhhhhhhhhhhhhhhhhhh mmmmmmmmmaaaaaaaaaaaaaaaaaaaaaaaaaaaaannnnnnnn.......that sucks. Glad you caught now and not in 6 months after the tenants have been there for a while.
@Tim Bradley It sounds like the seller disclosure sheet didn't list this one! I'd guess the work over the active septic tank was not permitted. If seller said he didn't do any work without a permit and you can prove work was done without one, he may be liable for some of this tab.
Final Post, with numbers, April 17th, 2020
Time for the final numbers post. Cashflow wise I'm doing great. However, I wound up leaving about 20% of ARV in the deal so not exactly a home run there. But I didn't lose money, it was a MAJOR rehab considering it was my first one and as everyone else says I learned a ton. And that is how I would love to wrap up my last post for this rehab. But of course, that's not going to happen. Mr. Murphy and I became really good friends during this adventure and he feels he should have the last word.
Numbers on the day I refinanced and tenants had moved in:
Cashflow = $310/month WOO HOO!!! ($706/month before vacancy, repairs, capex, management fees)
Money left in deal = $42,000 (20% of ARV) Booooooo
ARV = $210,000 (also less than my initial estimate) Booooooooo
And now for Mr. Murphy to bring it all home. When the tenants moved in and I was refinanced and life was good those were indeed my numbers. For about 3 weeks. 3 glorious weeks where I was making money and wasn't getting any phone calls. The cement was ripped up and a new drain line laid without further incident. I had a whole 3 glorious weeks and then bam, we're back to normal. I get a call and the tenants have no water. I kind of knew what it was, I figured the sand filter was full and sent my well guy out to empty it. My well is bringing up very sandy water so I had a fancy (read expensive) sand filter installed. It was supposed to need emptying every 3 months or so and that would eventually trickle down to almost never as the well settled. It has been 3 weeks since last emptied0. Now this filter is about 5 ft tall and a foot wide. When you empty it you empty a lot of sand. Sand that has been pulled up from underground. In florida. On a much more frequent basis than originally planned. Can anyone else see the issue here? Sinkholes people, sinkholes. My very own, self inflicted sinkhole. Hey maybe I can name it if I cause it. Anyway a potential sinkhole was always in my head anyway and now it is for sure a big concern. And apparently not just my concern. As my well guy was emptying the sand my neighbor came out and caused a hard time. He saw all the sand and was also concerned. Happy friendly words like "sue" and "liable" were brought out and things went downhill fast. Long story long I had ANOTHER well drilled. Its fitting really. 3 wells on the property to go with the 3 septic tanks. That was an additional $4,300. Im saying since I was already refinanced and had done my numbers that this is just a very early on CAPEX expense. The well has been drilled and Im finally done with the house.
BAHAHAHAHAHAHHA, done. Never! Literally as I was writing this I got a call from my insurance company. They said that they noticed on my 4-point inspection that one of my water heaters is really old. I said ok, cool story bro, thanks for noticing. Well they would like me to replace it. Huh? Replace my perfectly fine water heater b/c its old? The water heaters were literally the ONLY thing in the house I didn’t replace. Oh well, its one of the smaller 20ish gallon ones. Not the end of the world to replace right? But unfortunately it is. Of course it is. Why wouldn’t it be. The previous owner installed the water heater and then built the closet around it. And in his infinite wisdom he installed a door that is smaller than the water heater! I told the insurance company no. Well I told my insurance broker no. She is going to go back and fight with the company. We will see. I also told my broker that I will change companies before I rip out a closet to swap out a perfectly good hot water heater. This will be my last post. There will always be more but the house is essentially done and I think that’s enough follies for now. Hmmmm, tankless, I could do a tankless!!! No closet ripout. Thanks for the help guys!
Thanks for the entertaining updates and the blow by painful blow! I really enjoyed reading your humorous updates and your BRRR journey. I just started this REI journey a few months ago when I discovered BP podcasts and Brandon and David Green's books.....I've been reading and learning all I can and am looking for my first BRRR deal...made an offer on a foreclosure last week, but it wasn't accepted...hoping there will be some good deals to pick from over the next couple months. Best of luck and happy REI!!
Thank you for sharing your journey @Tim Bradley ! Very exciting and inspiring indeed. Would you dive in a little more into the financial aspect of the deal, the rehab, and then the refinancing? some things I'd definitely find very educational to learn about are:
1. Deal: How did you finance the purchase? what kind of mortgage did you use, what rate and size of down payment? When the seller said no to $100K and set his foot on $108K, do you wish you had pushed further on this? maybe to offset the cost of some of the expensive surprises the house came with? Are there any lessons on this?
2. Rehab: you've told us you went above budget, what was the final number? Did any of the inspections and your own previous experience actually help you estimate something close to actual rehabbing costs or you find you were way too off? How about the holding costs for those 5 months you had the house unrented (insurance, security, lost rent. Any lessons here for next time so you can price that into your purchase offer next time? ... Also, I know you decided not to use a contractor, but what do you consider is the net effect (savings/cost) of not having one and doing it all yourself when considering (potentially) lost months worth of rent and other stuff. What kind of financing terms were you offered when you took the hard money funding for this rehabbing project?
3. Refinancing: How did it go? Was the ARV you were you offered exactly as anticipated? How was the process of navigating this? How much equity did you have in the deal at the time of the second closing? Did you have any room to haggle? Did you recoup the money from your cash-out refinance on your primary home plus the rehabbing costs of this one and then some more (profit)? For some reason when looking at your numbers it seems you were $5k short but I'm more inclined to think that's just my appreciation at the surface level.
Once again, thank you so much for sharing all these valuable lessons with the rest of us! =)
Good questions. Here you go
Deal: I paid cash through a cash out refi on my primary. I did the rehab through a private money loan through family @10% APR. When the seller said no to the 100k it was a pretty hard no. The email back from the seller was pretty rude so there was for sure no wiggle room. Also I saw on the final closing docs that the seller only got around 5K back so if they had reduced to what I wanted then they would have paid to sell the house. It was a relatively good deal.
Rehab: final rehab budget was 80K. The big hitters that totally screwed me were the well, roof and septic. The rest was pretty much within estimates. My estimates came mostly from the BP book on estimating rehabs and some personal experience. I have never dealt with a well before and this one was just the worst and waaaay off my estimate. Like 10x over. Even my well guy couldn’t believe all the issues I had. Just a fluke there. The roof had a partial flat roof which added to the cost as new code says it needs to be slanted a few degrees. Also it already had 2 roofs on it and my front patio couldn’t be salvaged and had to get a new roof built. All these combined added around 5k to my estimate. I probably should have known something was up with the septic/plumbing for the 3rd bathroom. The sink was completely removed from the bathroom and that should have been a red flag for me to dig into further. Lesson learned here is that if you hear a voice in your head saying something is probably wrong then listen to it. I accounted for the holding costs in my budget which were just power, insurance and interest on private loan. This is very important to include in your budget though as it can be a really big number if you have a large hard money loan. I saved about 10K or more doing the work myself I figure. I would say if I had a Rockstar contractor I could have saved maybe a month in the timeline and if it was a bad contractor lost a month or three. So lets call that one a wash timeline wise. However I will never do that much work again. Good learning experience but working 80-100hr weeks for 4 months is awful.
Refinance: My ARV was around 20k lower than expected. But after re-evaluating my expected ARV I agree with the ARV I got. At the end I left 42K in the deal after all loan fees, interest payments and rehab costs. I cash flow really well at over $300/month. I have 60K equity in the deal, 210K appraisal
Thank you for sharing all those valuable lessons @Tim Bradley ! I'm sure you must feel really pumped and prepared for the next one!
Wow, Just came into this post so got to binge the whole thing. I got so much from it, thanks for documenting this in such detail @Tim Bradley
@Tim Bradley you have a talent for writing! I laughed all the way through. But, seriously, I have had a similar “easy” remodel that turned into EVERYTHING needing to be re-done. It took 2+yrs because I can’t find the people to hire. And half what I did hire done was done wrong and had to be pulled out and re-done. As you can imagine...NOT a good investment. But I will live here several years and will no doubt recoup that money. Live and learn!
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