My basic strategy at the moment is to purchase run-down properties in Pueblo (Colorado), fix them up, refinance my cash back out and turn them over to a property manager. In 2014, I completed two of these projects which took me six months each and which I wasn't able to fully get my cash back out. The first property I left about $10,000 in after the refinance and the second one about $5,000 after the rehab. But they are both cash-flowing now and I learned a ton.
So late last year I went hunting for another deal on the MLS. I found nothing. But then a wholesaler mentioned a vacant property he was offering for $15,000. I walked it the next day. My handyman and roofer both gave me bids the same day. We signed that day and closed two days later.
Here is what she looked like...
Not great. The roof was obviously bad and leaking into the house. Almost everything was needed on the inside. But my numbers looked promising...
We ended up taking about three months and paying about $21,000 for a new roof, new furnace, new hot water heater, new kitchen appliances, new exterior siding on one side, new interior paint, new laminate flooring, lots of plumbing and a dumpster full of trash being hauled away. I don't do any of the work myself, other than managing the contractors.
Nothing fancy, but a simple, clean house ready to rent.
I purchased it for $15,000. I put almost $21,000 into it. After renovations, it appraised for $46,000 and a I just took out a portfolio loan for $36,800. Loan fees were about about $1000, so I was about $1000 out-of-pocket on this one. It will rent for $625 and cash flow about $150. Not great, but not bad. Three months was half the time as my first two renovations.
My one major flaw on this one was not being able to add third bedroom. It would have helped my appraisal and monthly rent. I thought I was just going to add a wall back where there used to be a wall to return this humble 2-bedroom house back to its 3-bedroom glory. I was very wrong. My roofer didn't pull a permit and regional showed up not happy about the roof. Moments later they found my handyman (not a GC) inside with a half-completed wall. At this point they became very not happy. We tore it down and had a GC bid just the bedroom. They came back with an $8000 bid and we decided it wasn't worth it.
So that is renovation number 3. Number 4 is in process and Number 5 will be purchased next Tuesday. Probability says that I eventually get my numbers right and get all my money back out of one these properties.
Thanks for sharing that cautionary tale. Once the dust settles, it might still be worth applying to get that original extra bedroom back again (I didn't even know that you would need to ask permission for that)! Cheers...
PS. Nice job, but I'm not a big fan of dark pine-lined, or spotty textured ceilings - especially when someone purposely does it now...
@Michael Wentzel $8K to add a wall. You were being punked for the brain damage of dealing with the building department after you made them mad. Did you get three estimates or was it one guy. If you really plan on doing this long term, get your own license. It's not hard for SFH. Working on residential (SFH) does not require much paperwork and there are classes to help you pass the test. The test really isn't that hard either from what I'm told.
Glad you are getting the kinks worked out. Nice job adding value to the neighborhood as well. You are able to do lots of work for $21K as well. I'm sure once you start involving the building officials your costs will go up as they always fee the need to "contribute" by making you do more work. At least, that's my experience.
@Michael Wentzel - "get your own license. It's not hard for SFH. Working on residential (SFH) does not require much paperwork and there are classes to help you pass the test."
Are you talking about becoming a General Contractor? Can you help the rest of us understand this better? Thanks!
@Sam Dangremond I'm not sure about your situation. In Colorado, each city licenses contractor's in addition to and apart from the state. Go figure. Anyway, I can get a license from the City to work on residential properties (SRH) without getting a state issued general contractor's license. In fact, I don't think the state license means you can get a City license with the exception being the specialty trades of electrical and plumbing. It is my understanding that even if I have a state issued GC license I still have to jump through the City's licensing hoops to hang a single sheet of drywall. Obviously your situation in another state may vary.
Thank you @Bill S. - I am also in Colorado these days. (I should update my profile here.)
Specifically, I'm also in Pueblo CO.
I hadn't heard of an investor becoming their own GC before. Any links/search terms I should use to find where to do this in my local city?
@Sam Dangremond you should contact the City of Pueblo and see what they say. Look online as well. Go down to the building department and ask in person. Usually they are helpful. Start out with, I want to work on my own home and pull permits. Then after they describe the process to you then ask what it takes to work on someone else's. There maybe an annual fee for your license. The other thing to ask is about any requirements for those working on the project. Around here they add a level by requiring a supervisors license. The supervisor has to have experience and be licensed. The GC can just be licensed. It's how they keep a lid on things or so they think.
In a pinch, there are also people who will rent you a license. You have to network a bit but there will be someone that will take a fee and let you pull permits in their company name. Be careful because that is something they really frown on.
@Bill S. Looking back on it, I'm not sure why I only received a bid from one GC. I almost always do three bids to find a good one. I think I was a bit frustrated/ worn down by dealing with with the building code guys for the first time.
But just to give an example of the difference of working with my "handyman" vs working with a General Contractor... here is a story. The house had a "breaker box" for the electricity, but we couldn't find the front cover for it. We hauled a dumpster full of garbage off the property, but never stumbled upon the cover. We knew it was an issue. The GC looked at it, brought his electrician in and said, "The box is too old to find a new cover and building codes don't allow us to fabricate a new one, so it will be $2000 to replace the entire panel." My handyman spent hours tracing down every lead in town and eventually came up with a replacement. Total charge was $140.
Nothing wrong with what the GC did. It is his responsibility to get everything up to code. But that is a pretty major price difference just to get a safe, functional breaker box.
No interest in getting a GC license since I live 40-min a way and may be moving back overseas this year. But I'll eventually need to find a good, reasonably priced GC in the area.
@Sam Dangremond Send me a PM and I'll get you the contact of my portfolio lender in Colorado Springs and I'll share the list of other potential portfolio lenders in the area that have been recommended to me by other investors.
@Michael Wentzel why not get your GC license and continue using your handyman for the work? To be a GC is no more local than being a landlord means you have to be local.
Free eBook from BiggerPockets!
Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!
- Actionable advice for getting started,
- Discover the 10 Most Lucrative Real Estate Niches,
- Learn how to get started with or without money,
- Explore Real-Life Strategies for Building Wealth,
- And a LOT more.
Sign up below to download the eBook for FREE today!
We hate spam just as much as you
Create Lasting Wealth Through Real Estate
Join the millions of people achieving financial freedom through the power of real estate investing