2nd Buy and Hold Rehab - Kennesaw, GA

34 Replies

We closed on our second buy and hold this past Monday, December 29.  Here are the vitals:

4/2 split level, single car garage, 1968 sq. ft.  

Purchase price: $87,000 (all cash)

Closing Costs: $1,000 

Estimated Rehab Cost: $18,000 (base estimate plus 20% contingency)

ARV: $125K - $130K

Estimated Rent based on Rental Comps: $1,100 - $1,150

Numbers are very similar to our first property that we purchased in November, with the purchase price $5K less but the rehab cost $5K - $7K more.

We found this property on the MLS. We made our offer the day after it came on the market. Asking price was $100K, we offered $85K with 7-day DD and quick closing. They countered at $95K and we ended up settling on $90K, but after the inspection we asked for concessions because of the needed roof replacement, so the final purchase price was $87K. There was a competing cash offer of $95K but the buyer was unable to show proof of funds immediately so they went with our offer.

Here are pics.  I'll update as we go.

Exterior: Replace roof, repair exterior siding/trim and paint, replace front stairs, replace front porch railing, repair front porch deck and replace garage door (and trim those bushes so the front porch isn't hidden).  Exterior paint color: SW Keystone Grey.  Thinking of painting the door red??

Living Room: Replace ceiling fan, remove ugly white trim above fireplace, install laminate (using laminate throughout house except for kitchen and bathrooms).  Big plus - the entire interior, including trim and doors, was just painted by previous owner so there will be minimal interior painting required.

View from LR.  Dining area on the left.  Sorry the picture is blurry.  I was holding my dog while taking pictures so quality isn't the best :)

Kitchen: Remove (decorative???) posts on left and right and cut back half wall at entrance to kitchen to open things up a little.  Paint cabinets (white?), update hardware, install vinyl tile flooring, install laminate countertops and possibly tile backsplash.  Replace light fixture.

3 upper level bedrooms.  Install laminate, replace ceiling fans.

Hall bath: Replace Vanity top, paint vanity base, frame mirror, replace toilet, update vanity hardware, faucet and light fixture and install vinyl tile flooring.

Master bath: replace vanity, replace toilet, install vinyl tile flooring, update light fixture, frame mirror.

Lower level bedroom: possibly replace ceiling fan.  No other plans for this room.

Garage: Small drywall repair, paint garage interior, install electrical outlet on ceiling for garage door opener.  One negative to this house - W/D hookup is in the garage.  Has anyone found this to be a big issue with tenants?

Deck: Paint and replace a few boards.

Estimated completion date - end of January.

Probably want to power wash the deck first and then paint and seal.

Sometimes you can just flip the boards over and they look like new underneath and

re-install. I like deck screws versus nails. Nails grab at first but then start popping up with the heat and cold over the years. Can cause a trip hazard for tenants. Deck screws are a little more expensive but the boards tend to stay in place.

While you have carpet up in the house and vinyl floors now is a good time to check for floor squeaks which can drive some people nuts. This is from the nails becoming loose or they drove the nails in at an angle for the sub floor versus straight. You can knock them back down but they will get loose and squeak again. Putting some screw in will sink the floor back down tight to help get rid of any squeaks.

The goal is when a quality tenant walks in the place to give them no reasons to not rent the place.

If you have a popped deck, squeaky floors inside, blocked kitchen to dining room all those things start adding up for negatives and they start overlooking all the great stuff.

Congrats on your second.    

one of our rentals has WD hook ups in garage and we had no issues renting it out.

Will you be refinancing to leverage  it or do you stick with the free and clear?

Congrats.

Elliot

@Joel Owens  - that's a ton of great info - thanks!  

@Elliot Smith - glad to hear that you haven't had any trouble with the W/D in the garage.  Our original strategy was to stay free and clear as we invest.  Although I definitely see value in using leverage, we are big Dave Ramsey fans and the thought of having debt (even if it's "good" debt) drives me crazy.  As we get more experience under our belt, though, we may utilize leverage conservatively to grow our portfolio faster.  

Originally posted by @Julie Kern :

@Elliot Smith - glad to hear that you haven't had any trouble with the W/D in the garage.  Our original strategy was to stay free and clear as we invest.  Although I definitely see value in using leverage, we are big Dave Ramsey fans and the thought of having debt (even if it's "good" debt) drives me crazy.  As we get more experience under our belt, though, we may utilize leverage conservatively to grow our portfolio faster.  

 We are Dave Ramsey fans as well. We are Debt free besides our properties and have been since we got married. I always think to myself, Dave would yell at me. However we are still trying to buy what we can now with any resource so we can grow as quick as possible. 

Originally posted by @Elliot Smith:

 We are Dave Ramsey fans as well. We are Debt free besides our properties and have been since we got married. I always think to myself, Dave would yell at me. However we are still trying to buy what we can now with any resource so we can grow as quick as possible. 

 Ha!  That's so funny - it's exactly the way I feel.  Great job on being debt free! The day we paid off our last debt a few years ago I practically floated out of the bank.  It's an awesome feeling!

Nice job Julie!

Keep your eyes on subdivisions up Baker Road in the 30144 zip code. Near Pie in the Sky Pizza. I had a rental in Winterset that was a cash cow for us. Bought it for $115k, rented a year for $1300 a year, almost turnkey, and sold for $165k a year later. The deals aren't quite as good in there anymore but I feel like rents are high because of the KSU crowd. 

Winterset is one n'hood, and I think Summer Stream might be the other.

Update: We're putting this property on the (rental) market tomorrow.  Here are the after pics:

Living Room:

Living Room/Dining Room

Kitchen:

View from kitchen;

Master Bedroom:

Master Bath:

Bedroom 2:

Bedroom 3:

Bedroom 4:

Hall Bath:

Back deck still hasn't been painted due to weather.  Should be done within the next week or two:

Backyard:

Great job.

Were you able to stick to your original rehab budget?

I have a couple of rentals not to far from there and they are easy to rent.

Don't worry about Ramsey.  He is preaching his "no debt" to the masses that have proven they can't handle debt.  A rental house is a business. Businesses borrow money. Don't be afraid of a little debt. If it keeps you up at night then don't do it.  

Good luck.

Thanks @Bob B.  .   I wish I could say we stuck 100% to our rehab budget, but we surpassed it by about 15%.  The numbers are still ok because we tend to be conservative from the beginning, but we're still learning that it's not the big stuff that gets you, it's the little things (we call it scope creep in software development).  

For instance - we didn't even notice until the rehab was almost over that there wasn't a door on the lower level bedroom - duh :) Just one small example.  Another example - we decided to do porcelain tile in the kitchen and bathrooms instead of vinyl tile - I'm glad we did, but obviously the cost is more and we didn't budget for that up front.

We started out with our base estimate and added 20% contingency.  After two rehabs, I would say 40% contingency is more accurate (for us anyway - I'm sure the initial estimates get better with experience).

We have learned a ton on these first two rehabs and obviously still have a ton left to learn (like make sure all the bedrooms have doors!)

@Julie Kern    Umm and why aren't you flipping that fantastic looking house?

If you are skeptical about debt and there are tens of thousands of investors who lost everything because of Debt so there is a good reason to be, then flipping 3-4 and buying one with the proceeds can be a great strategy.    

On another point- as you've learned keeping yourself from adding upgrades while rehabbing is difficult.  

I really have to say that you have done an amazing job on polishing this property. Well done. Always a pleasure to see people who are accomplishing what you are accomplishing.

Also I would have to add that if debt is not your thing, then well done for sticking by your guns at this point and recognizing that in yourself. It is powerful to recognize how it is that you want to do things and then to not be swayed by family friends etc who believe that they know best how you should do things. Very few people are capable of doing that and so I tip my hat to you. The best part is that should you later realize that you both want to do things differently, you will be in a great position to start leveraging any properties you may want to. The options and choices that you will have will be powerful.

Congrats,

Ryan

Thanks @Cal C.   :) We've actually been talking about that strategy recently - using flips to build up capital for more buy and holds.  

@Ryan Keough - thank you! Yeah, not using leverage isn't too popular around here. And I get it and certainly understand that millions have been made using leverage and definitely see the benefits and almost WISH that I didn't have such an aversion to any kind of debt. For us, it just comes down to the fact that we can grow pretty steadily - at least at this point - using our W-2 incomes with minimal risk. Yes, we could take $100K and buy 4 properties instead of 1 and get a better CoC return, etc. But at least for now that's not the plan. And like you said, we can always use leverage down the road and have more of a comfort level doing it if we have some free and clear properties in our portfolio. I'm almost a little jealous of everyone on here talking about their creative finance deals and how fast they are growing, etc. and we're like the tortoise just plodding along, saving money and paying cash :) Slow and steady, I guess!

@Emily Du Plessis  , thank you! I will definitely update once we get it rented.

Julie, The house turned out great!  I am assuming you now have it rented.  Did you get your expected rent price?

Also do you hire out local contractors or do the work yourself?  I noticed your turn around time was just over 3 months so I can imagine you may be doing a lot of the work yourself. 

Good luck on your next property!

Ronny

Hey @Ronny Crawford .  Thanks!  And yes, we have had tenants in since since April 1st.   We had a nice selection of tenants and ended up renting it for $1,180, a little above our initial projection.  And in hindsight, we could have probably easily gotten $1,200.

We did use a contractor and didn't do the work ourselves.  Because we bought the property in late December and quite a bit of the work was on the exterior (roof, siding repairs, porch reconstruction and painting the entire house, porch and deck), we had to contend with the weather so it pushed things out a bit.  The main issue was painting - since in Georgia we apparently have cold winters these days :)

Looks great have you since turned the property over? If so how did that go? Are you still investing in Kennesaw I know the prices have gone up substantially in the last 2 years. I'm looking to move back to Kennesaw and start investing there Jiles Rd area. Just trying to get a feel for the market.

Hi @John Powell .  We still have the same tenants in the property. Lease is up at the end of March (year 2) so we'll see what happens. Yes, we're still investing in Kennesaw/Acworth. We're finishing up a rehab on our 5th property now. And yes, prices have gone up. So has the rent, and it's so easy to rent a property around here, especially if it's a nice rehab. I have a post on BP about our last 2 rentals (#3 and 4) with the numbers. 

It is very tough to find good deals in this area. We bought our last 3 properties from wholesalers and none were screamin' deals but they worked for us. Rent to price+rehab ratios are more like .9% - 1% where I would like for them to be more like 1.1-1.2% but we are also hitting a lot of capex stuff on the front end (roofs, HVAC, etc) and we typically don't use any carpet, which costs more upfront but hopefully will save $$ in the long run. 

We are ending up with at least $10-$20k in equity on our rehabs, FWIW. 

Jiles Rd area is great for rentals - if you can find anything where the #'s make sense. 

Let me know if there's anything I can do to help you out!

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