First Rehab to Rent Property

Real Estate Deal Analysis & Advice
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First Rehab to Rent Property

Chris Vail
Investor · Sacramento, CA · Member since 2014 · 308 posts · 94 votes

Hello BP,

I am going to do this thread as a thank you to all the help I have recieved from others on this site, and I am hoping it will help others to see me go through this process.

Intitial closing and lessons learned here : http://www.biggerpockets.com/forums/311/topics/153...

Now for the rehab since I am now the owner of this 1960's 3 bed / 1.5 bath home.

( I am hoping that the picture is rightside up as it is showing upside down currently as I am typing)

This is a rough mock up of the layout of the house https://drive.google.com/file/d/0Bw4tlga09RSJN3hyU...

And here are some initial pictures of the inside of the house.

Living room (pictures are upside down again, if you open in a new window they are right side up though)

Kitchen

Dinning room (opposite of kitchen)

Bedroom #1

Full bath

2nd bedroom

half bath (jack and jill to bedroom 2 and 3)

Bedroom 3 (master or at least biggest)

Dinning room to living room with partial kitchen

back of house with a shot of the covered porch.

So that's how this project started, I went out to contractors with the following SOW

https://drive.google.com/file/d/0Bw4tlga09RSJX0VBL...

This was my first experience going to to bid for contractors and I saw the range of contractors from folks that were professional to those that well were not.  I was thinking about doing most of the work on my first rental my self ( I really enjoy the process of fixing up property, and working with my hands) but after having our first baby 3 months ago, my time is better spent with my new family.  I never thought what I did as a hobby for friends would cost so much to have someone else do!!!  I got bids that were all over the place but finally selected one that quoted the labor (minus a couple of the items in the SOW for 7,800) and a 2 week time line weather permitting.

Next post will be progress on the rehab.

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Minka Sha
Investor · San Diego, CA · Member since 2014 · 79 posts · 17 votes
11y
This looks great! What area of Sacramento is this?
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  • Pat McGrath
    Real Estate Agent · Lincoln, CA · Member since 2014 · 225 posts · 43 votes
    11y

    nice job. Whats left to do? Were you really up at 2am posting these? Floors are awesome. I gotta ask if they are glued or floating, i need to do the floors in my house. 

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  • Chris Vail
    OP
    Investor · Sacramento, CA · Member since 2014 · 308 posts · 94 votes
    11y

    @Pat McGrath Yup up until 3 something and than back up at 7:30 this morning when my son woke up.  Today I am planing on a lot of cleaning, installing the vertical blinds for the back yard slider, painting the inside of the hall storage cabinets, putting the mirrors up in the new master bath, installing a storm door for the front of the house, and then some landscaping in the front yard if there is time.  If I accomplish all of that I will also take some better pictures

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  • Chris Vail
    OP
    Investor · Sacramento, CA · Member since 2014 · 308 posts · 94 votes
    11y

    Well I am just about at the end of the rehab stage and will be putting up an ad to get this place rented by March 1st.  Here are some final pictures:

    Front of the house:

    Kitchen:

    Shot from dinning room to family room:

    Family room / living room and front door:

    Front bedroom:

    Original full bath updated:

    Second bedroom:

    Third Bedroom (Master bedroom)

    New Master bath (originally a Jack and Jill bathroom between second bedroom and now master)

    I will post final numbers in another post later in the week, rough numbers though are as follows:

    Purchase price 125k (down payment and closing costs ~30k), rehab and carrying costs to date 37k, Will be getting 1350-1400 for rent, Tenant will pay all utilities.  Around June / July I plan on refinancing and the property should appraise conservatively at 190,000.  Which will allow me to pull ~45k - 50k out of the property which will leave me with ~ 15k - 20k of my money still in the property but will allow me to go and look for my next project.  I had an investor friend of mine come by and take a look at the property today and he said I just think about selling it due to the job I did on the rehab, so maybe I will think about that.  Curious what the other Sacramento area investors think? 

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  • Chase Gochnauer
    Investor · Des Moines, IA · Member since 2015 · 380 posts · 201 votes
    11y

    List it and give yourself(or realtor) a deadline of 30-60 days if it doesn't sell, rent it. Worst case you're out $1300-$2600 in potential rent, best case you just made a nice chunk of change and can move on to the next deal.

    1Reply
  • David Hutson
    Rental Property Investor · Tampa, FL · Member since 2013 · 404 posts · 421 votes
    11y

    @Chris Vail 

    Looks great.  You have it done.  Now go find another.

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  • Dennis Lanni
    Investor · Sacramento, CA · Member since 2012 · 144 posts · 65 votes
    11y

    Great job!

    If you can replace the house with another for 125K or less you might want to sell it. I would list it high 199k since you really want to rent it. If you don't get bits with 2 weeks just pull it off the MLS & rent it. Get the real estate agent to take the listing for 4% commission.

    Good luck

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  • Bob Dreher
    Novato, CA · Member since 2013 · 52 posts · 28 votes
    11y

    Nice job...the benefit of selling now is that it is basically a "new" home (cosmetically)...which should enable you to command a premium to other like product. If you can get close to your number, it may make sense to sell and do it again.

    Worse case, you are generating a nice rental on your 'all in' number! Good luck!

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  • Chris Vail
    OP
    Investor · Sacramento, CA · Member since 2014 · 308 posts · 94 votes
    11y

    Any pointers on the listing would be appreciated:

    Craigslist post

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  • Shakara Pittman
    Washington, DC · Member since 2015 · 24 posts · 7 votes
    11y

    Nice thread and Craigslist Post. However, on the craigslist post "Good rental history (no evections)". Evictions is misspelled. Not a big deal though... Good Luck @chris 

    @Chris Vail undefined

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  • Chris Vail
    OP
    Investor · Sacramento, CA · Member since 2014 · 308 posts · 94 votes
    11y

    @Shakara Pittman 

     Thanks for the heads up on the miss spelling, I have updated the post.

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  • Chris Vail
    OP
    Investor · Sacramento, CA · Member since 2014 · 308 posts · 94 votes
    11y

    Update: (which is way over due)

    House is rented with tenants moving in on Tuesday.  I have installed an brand new HVAC through the Ygrene program the City of Sac offers.  I was going to wait on this until the summer time but since the tenants were not moving in util the end of March it allowed me some time to get it completed and the Ygrene program only had me out of pocket around $700 and the rest of it gets paid through property tax which I will be able to take a tax deduction on.  I had the wall heater removed (which luckily I was able to return to Home Depot for a full refund, THANK you HD). Got the electrical panel replaced during the HVAC install, and I am currently finishing up the network drops for the bedrooms and living rooms this week, and have the house scheduled for a final professional cleaning on Monday, day before the renters move in.  I had over 40 people contact me inquiring about the rental and went through all of the weeding out criteria and found what I believe will be excellent tenants.  There have been some long sleepless nights over the last 3-4 months but I can safely say that it was worth it.

    Recap of the numbers (Rounding for simplicity):

    Purchase Price 125,000

    Down payment  25,000

    Closing costs 4,000

    Rehab/Carrying costs 40,000

    Rent: 1415 / 16,980

    Vacancy: 8% (-113 /-1358)

    Total income: 1,302  / 15,622

    -Expenses-

    Property Management: (10% even though I am managing it) -141.5 / -1698

    Repairs and Maintenance: -100  / -1,200

    CapEx: -122 / -1464 (even though everything is brand new in the house, based on average life spans of mechanical's and appliance's this should cover replacement costs when things happen. I am curious how other investors look at this, as I am thinking about once I get to 10,000 k reserves then moving the cash flow towards other investments, thoughts?)

    Insurance: -52.33 / -628

    Net Operating Income (NOI): 885.97 / 10,631.60

    P.I.T.: -566.09 / -6,259.77

    Net cash flow: 319.88 / 3,838.56

    (note this does not take into account the Ygrene charges which will basically zero out my monthly cash flow for the first five years (the loan term I picked was 5 years at 5.99%) on an upfront operating cost but when taking into account the tax deduction I end up with a negative interest rate of around 2%.) then after year five it will be like the property gets an instant raise.

    So I am into the project for about 69,000 (down payment, closing costs, rehab, and carrying costs) and the 100,000 loan for a total of 169,000.  

    I believe that I could get the house re-appraised in a couple of months for 200,000-210,000 , possibly more based on what is for sale right now within a .5-1 mile radius.  Which I will think about doing so that I can pull out a majority of my invested capital pay off the Ygrene loan and then go start looking for the next one.  Doing this will bring  the cash flow to around 130 / 1,560 with around 15,000 of my initial investment still in the property.

    1Reply
  • Chris Vail
    OP
    Investor · Sacramento, CA · Member since 2014 · 308 posts · 94 votes
    11y

    Lessons learned: 

    I have learned a ton through this process and I believe it will make the next one smother and faster.  

    -Contractor can make or break your experience. Mine broke my experience but I am chalking it up to a lesson learned.

    -Paper work, setting up all of the documents which I did not realize how long it would take but now that I have set up all of my documents to be ready made docs, I just need to change a couple of things on the next one to allow repeated use of them.  Upfront time spent for future ease of use.

    -I really enjoy the transformation process and will be looking forward to the next rehab/design process.  After what I learned on this one I should be able to do it more seamlessly and for less money on the next one.

    Thank you for the comments and encouragement from all of those that have posted here or on the site in general.  This is the basis of what makes this site great.

    1Reply
  • Chris Vail
    OP
    Investor · Sacramento, CA · Member since 2014 · 308 posts · 94 votes
    11y

    Update on this property:

    I am most of the way through refinancing the property, I estimated the value at 195k when I went in to get the refinance and it was approved at 195k on Tuesday after the appraisal.  Once the loan closes I will have ~ 15,000 left in the property of my initial cash, 39,000 of equity still sitting in the property (loan will be 80% of value), and the itch to go find the next one.

    The tenants have been great and it is nice to see the property filled with folks that are doing such a good job with the place and making memories.

    Thank you to everyone that has helped with this process, and a big thanks to BP for being such a great resource that has helped me on this journey.

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