First rental acquisition since joining BP

First rental acquisition since joining BP

James MasottiPro Member
Rental Property Investor · Washington Township, NJ · Member since 2015 · 1k+ posts · 976 votes

So historically I've been terrible at keeping these sort of deal diaries, but I'm hoping the BP community will help keep me honest...and updating. 

Back on February 22 I closed on my first rental property since joining BP and deciding I'm going to get more serious about my real estate investing.

This was an off market property...which I found here from another BP Member, in the Marketplace! So those of you who think it's only the people on the Podcasts who have these kind of things happen to them...you're wrong. If you want to get serious about your real estate investing, I'd strongly suggest you go Pro and set alerts for your market so you can also try to take advantage of these types of opportunities. 

I was definitely nervous on the transaction as it was my first time using private money...and the owner needed to sell fast. I did my initial inspection of the property and things looked to be in pretty solid shape requiring only cosmetic work to be done. I crunched the numbers as best as could from research I have been doing on BP and from reading J Scott's books for the properties I've been looking at to do flips. I called my private money lender and we reviewed the deal...both agreed it made sense and we closed about 10 days later. 

I'm now in the process of brining contractors through the property to get bids and hope that I'm at least close to what I planned for the repairs to be...which have already gone up quite a bit more than my original estimates. 

I'll provide more details in a future post, as I have some work to do for my W2 tonight...but wanted to get this started so that BP can keep me honest and keeping this updated throughout the process for others to be able to learn from.

Property is located in Wilmington, Delaware

Purchase price $35,000

Original repair estimate $10,000

Current repair estimate $20,000

ARV $90,000

Expected Rent $1150

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Member since 2018 · 25 posts · 21 votes
6y

@James Masotti I'm suppperrrrr late but I just read through your posts and it was extremely entertaining. I laughed, I cried, I empathized but all in all it sounds like it was an amazing educational experience and I'm glad you had a happy ending. I am getting ready to start renovations on my first BRRR property located in Philly this Friday so I'm praying I dont have a 1/10th of the issues you had lol Glad to see you were able to persevere and keep smiling through it all!

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  • Investor · Pinckney, MI · Member since 2015 · 95 posts · 24 votes
    10y

    @James Masotti Congratulations. Good luck on the rehab. Is the plan to BRRR ?

  • Gino BarbaroPro Member
    Rental Property Investor · St Augustine, FL · Member since 2014 · 2k+ posts · 1k+ votes
    10y

    @James Masotti

    Hi James

    Looks like a great deal.  Nice rent.  You could cash flow nicely on this property

    Gino

  • Cathy HallPro Member
    Investor · St. Louis, MO · Member since 2015 · 8 posts · 0 votes
    10y

    Congrats!  Please keep us posted!

  • James MasottiPro Member
    OP
    Rental Property Investor · Washington Township, NJ · Member since 2015 · 1k+ posts · 976 votes
    10y

    @John Clark- You are correct the plan is indeed to BRRR this property. The only thing I'm not sure on is do I pull out the max equity, ie cash out and apply that to future acquisitions...or just up to what I have in the property and keep the note lower and cashflow higher.

    The goal would be to have the note paid off within the 5 year ballon window for the commercial loan that this will rolled into after the work is completed. 

    @Gino Barbaro- I'll include a PDF of the output analysis from the BP Rental tool calculator later. 

  • Professional · Wilmington, DE · Member since 2015 · 165 posts · 29 votes
    10y
  • James MasottiPro Member
    OP
    Rental Property Investor · Washington Township, NJ · Member since 2015 · 1k+ posts · 976 votes
    10y

    Alrighty...So some time to provide some more detail...

    I have had pretty much all the contractors come through at this point and have put a deadline on bids by the end of the day tomorrow so that I can ask any questions I might have before moving forward with my contractor of choice. 

    My goal is to have work start next week. 

    Baring any crazy situations that come up the work should be completed by the middle of second week of April. This will give me plenty of time to start marketing the property, with the goal of having it rented May 1. 

    We'll see as things get started how close I am with these estimates. I'm also still anxious to see how close I come on my budget..once all the bids come back. 

    The concrete work, has already thrown me through a loop... and been much more than I expected. Still waiting on one quote to come back...but I've been very surprised by what the costs there were. 

    Originally budgeted $3500 and quotes are coming back from $6500-$13000 so far. It's definitely a good thing that there's room in this project to shuffle some things around. And the floors look like they're in good enough shape that I can justify keeping them rather than having to replace them...so I've basically just transferred this budget item to the concrete. 

    The good news too is that the house immediately next to this property was flipped last year and the owner paid $117,000. The level of work was a bit better than what I'll be putting into this rental, but not by much...so I could possibly get a higher appraisal...which doesn't impact much since I wont be pulling any extra money out in order to preserve cash flow...but it should help my position with the bank when securing long term financing on this deal as well as the next deal.

    Also here are some photos so everyone can see what I'm starting with...Sorry they are all sideways I can't figure out why they're uploading that way...since that's not the way I took them or the way the look on my computer. I'm also providing a link to the rental analysis as promised.

  • James MasottiPro Member
    OP
    Rental Property Investor · Washington Township, NJ · Member since 2015 · 1k+ posts · 976 votes
    10y
    Originally posted by @Jeffrey Giffin:

     This property is in Wilmington. I plan to keep all my rentals in Wilmington as I actually really like the market...and for the neighborhoods that I'm looking to invest in there's a decent amount of redevelopment trying to happen and I like the idea of being able to contribute back to the revitalization of an area that's at-risk for going to the dark side. @Glen Beringer's realtor friend is also an awesome guy and knows a lot about the city. Anyone looking for a realtor in Wilmington, should definitely use him. I'm hoping to buy most of my properties off market, so I wont necessarily need him...but for the ones that pop up on the market that I am interested in...he will be my go to guy for sure.

    Regarding the private money lender, I'd be happy to answer questions. If they're generic and to the benefit of all members, I'm happy to answer them here. If you'd rather discuss more privately shoot me a PM.

  • Wilmington , DE · Member since 2015 · 35 posts · 3 votes
    10y

    This looks like a great pick up.... Congrats ..

    I'm looking at a couple of multi's in Wilmington myself. Have you seen any that looks to be in a fairly decent neighborhood? Trying to stay away from the East side of town at the moment though. Looking at a door price beneath $50,000 per unit.

  • Investor · Wilmington, DE · Member since 2015 · 68 posts · 35 votes
    10y
    Originally posted by @James Masotti:

    Alrighty...So some time to provide some more detail...

    I have had pretty much all the contractors come through at this point and have put a deadline on bids by the end of the day tomorrow so that I can ask any questions I might have before moving forward with my contractor of choice. 

    My goal is to have work start next week. 

    Baring any crazy situations that come up the work should be completed by the middle of second week of April. This will give me plenty of time to start marketing the property, with the goal of having it rented May 1. 

    We'll see as things get started how close I am with these estimates. I'm also still anxious to see how close I come on my budget..once all the bids come back. 

    The concrete work, has already thrown me through a loop... and been much more than I expected. Still waiting on one quote to come back...but I've been very surprised by what the costs there were. 

    Originally budgeted $3500 and quotes are coming back from $6500-$13000 so far. It's definitely a good thing that there's room in this project to shuffle some things around. And the floors look like they're in good enough shape that I can justify keeping them rather than having to replace them...so I've basically just transferred this budget item to the concrete. 

    The good news too is that the house immediately next to this property was flipped last year and the owner paid $117,000. The level of work was a bit better than what I'll be putting into this rental, but not by much...so I could possibly get a higher appraisal...which doesn't impact much since I wont be pulling any extra money out in order to preserve cash flow...but it should help my position with the bank when securing long term financing on this deal as well as the next deal.

    Also here are some photos so everyone can see what I'm starting with...Sorry they are all sideways I can't figure out why they're uploading that way...since that's not the way I took them or the way the look on my computer. I'm also providing a link to the rental analysis as promised.

     I've got a guy that does masonry work for me that may be able to do it for cheaper.  He is kind of shady though so I am somewhat hesitant to give him my "recommendation."  

    Also- I have a guy that does full rehabs but started his company as a roofing and chimney company.  The chimney part of this is what makes me think he may be able to help you out.  His full kitchen gut rehab price was 10K lower than anywhere else I got quotes and he did a great job and warranties the work.  He charged me a flat labor price and billed through the exact materials price from home depot.  

  • James MasottiPro Member
    OP
    Rental Property Investor · Washington Township, NJ · Member since 2015 · 1k+ posts · 976 votes
    10y
    Originally posted by @Damian Howard:

    This looks like a great pick up.... Congrats ..

    I'm looking at a couple of multi's in Wilmington myself. Have you seen any that looks to be in a fairly decent neighborhood? Trying to stay away from the East side of town at the moment though. Looking at a door price beneath $50,000 per unit.

     The only one I've come across recently is in Landlith. House is in decent shape...just wasn't going to be a good fit for me. Listed through commercial broker. PM me if you'd like me to send you the link

  • James MasottiPro Member
    OP
    Rental Property Investor · Washington Township, NJ · Member since 2015 · 1k+ posts · 976 votes
    10y
    Originally posted by @Glen Beringer:

     I've got a guy that does masonry work for me that may be able to do it for cheaper.  He is kind of shady though so I am somewhat hesitant to give him my "recommendation."  

    Also- I have a guy that does full rehabs but started his company as a roofing and chimney company.  The chimney part of this is what makes me think he may be able to help you out.  His full kitchen gut rehab price was 10K lower than anywhere else I got quotes and he did a great job and warranties the work.  He charged me a flat labor price and billed through the exact materials price from home depot.  

    I have another concrete guy I'm going to call in for a quote if the third one I'm expecting doesn't come in a bit lower. With 5-6 days worth of work I was thinking that $4800 would be a more reasonable number...but there is some work needing to be done to support structure while the new front patio is being poured and such that I'm probably getting billed more for.

    As for the quote on the main portion of the work... I should be getting a quote on the work from John tonight. I appreciate you connecting me with him. We'll see how his bid comes in compared to the others. 

  • Queens, NY · Member since 2015 · 130 posts · 34 votes
    10y

    Congratulations @James Masotti and thanks for sharing your experience. Sorry if you already mentioned this, but do you plan on using a property manager?

  • James MasottiPro Member
    OP
    Rental Property Investor · Washington Township, NJ · Member since 2015 · 1k+ posts · 976 votes
    10y

    @Sean Tracey - Yes I will be using a property manager. My intention is keep all my rentals under property management since they're about an hour or so away. 

    And as for another update. Work started on the property just this week. There were some changes to scope and it looks like I'm going to end up even more over budget than what I called out in my original post. The little things can add up pretty quickly. Current target completion date for the work is April 15 with the goal being to have it rented May 1. Work will be pretty slow into next week due to the holiday and part of my contractors team being on vacation, but I'll try to provide some photo updates and such next week.

  • Queens, NY · Member since 2015 · 130 posts · 34 votes
    10y

    @James Masotti the place looks like it has potential, and your focus and drive are apparent. I'll be following your progress on this. Is there any reason in particular you're not doing a more traditional 15-30 yr loan with a bank? How did you connect with your private money lender? 

  • James MasottiPro Member
    OP
    Rental Property Investor · Washington Township, NJ · Member since 2015 · 1k+ posts · 976 votes
    10y

    @Sean Tracey - Another investor needed out ASAP, we closed 10 days after seeing the property for the first time. So the "cash" transaction was needed to close the deal. Once all the renovations are complete I will be refinancing the property into a 20 year commercial loan. 

    As for how did I connect with my private money lender. He's been a close friend for 20+ years. We've talked for at least a few years now about the opportunity to do real estate together, but nothing really ever got traction. This past year when I decided to start getting more serious about it, and found a property that I thought the numbers worked on to flip, I called him up to see if he would be interested in a joint venture, where he'd bring the money to the table and I'd handle the work on the ground. He opted instead to just be the bank, so we had the attorney's draft up some agreements regarding the note and mortgage, and he now has a 1st position lien on this property until I refinance out of it (or the note is due...which isn't until February 2017...if I can't get financing by then I have bigger issues)

  • Real Estate Investment Attorney · Kingsville, MD · Member since 2016 · 643 posts · 408 votes
    10y

    James,

        Your numbers seem fine. However, I wish to remind you that when you renovate for rental it is essential that you also must renovate to prevent liability. An insurance policy simply will not cover you for everything. All your people must be licensed (Plumber, Electrician, etc.,). You need to do a lead test or you are going to get hit renting to a family (or not). Lead remediation is costly. I am doing one in Baltimore now that will cost me $15,000. You will need proper permits. Smoke detectors and carbon monoxide detectors are a must. Inside and outside railings need to be in place. Your furnace (and AC) needs to be inspected. There are plenty of things that add up that should be placed into your calculations.

    Rich Baer, Attorney

  • James MasottiPro Member
    OP
    Rental Property Investor · Washington Township, NJ · Member since 2015 · 1k+ posts · 976 votes
    10y

    Alrighty...so I've been absent from BP for quite a bit a few weeks now because work and this project have been keeping me way more than busy. This post will probably be a lengthy one since there's a lot to update on. 

    So contractors get in there March 28 to get started on the demo and concrete work.

    During demo we discover a few jems...of course this is to be expected right? What are they exactly you ask? Well...

    Under the deck in the backyard there is a hugh concrete slab. We'd have to break it up and then reseed the backyard. At the time this was a possibility...but as you read on you'll realize I think this is being delayed for a bit. 

    This of course is the easy thing! We also discover that while the knob and tube was already upgraded that there are no ground wires anywhere in the house. On top of that they only used 14 gauge wire in the kitchen. So what's this mean? We get to rewire the whole house! That was definitely something I was looking forward to. 

    Oh but wait...that's not all! The soft landing on the stairs to the second floor...it's not just a piece of subflooring that needs to be replaced...the entire landing box needs to be rebuilt because the joists are actually rotted out. (The one joist actually came off when the subflooring was being pulled up! Excellent!)

    So that's the only issue with the floor I had right? Nope not even close. We notice that the back part of the kitchen has a slope to it...and when we look more closely we realize the back 4 feet of the house aren't actually over the basement...peculiar right? So we need to find out what's causing this but it's not over the basement...which means there's something else...and the only way to get to it is to take the floor up. Well we were going to do this anyway to put the hardybacker down for the new tiles, so it's just a few extra pieces of plywood to replace the subfloor...no big deal...except wait...there's actually 5 floors in the kitchen! Yup that's right it was 3 inches thick of flooring...before you even got to the sub floor. Sweet I just gained a few extra inches of ceiling height! But hold the party...we still have to see why the floor is sloping...cut into the sub floor and what do we find? Nothing! Well that's only partially true...There was part of a floor joist there...just not all of it...and the stone foundation wall...wasn't actually siting on a concrete slab...just dirt...and part of the wall started to crumble causing what floor joist there were remaining to splinter and crack. Hurray for a kitchen with a 2 inch drop in it!

    Oh by the way did I mention the load bearing wall in the basement that had been cut 18 inches from the ground? I didn't...oh good let me tell that story too! Well actually not much of a story here...I'm doing a walk through with the contractor to look at the basement after the walls had been parged...and I asked when they would be coming back to do the floor where the washer and dryer will be going...We talked about how to replace the crappy mechanicals that were there and where they'd get run and putting cement board up behind it and as we're looking at the wall that's there...the contractor realizes it's actually the load bearing wall supporting the butler staircase to the kitchen from the second floor. So this means we have to now dig a footer into the basement in order to re-support these walls.

    Few...I think I'm in the clear...

    Haha...just kidding...wouldn't that be nice...

    The sub-floor in the bathroom has a soft spot in it...and what's this...there's no subfloor underneath the bathtub? Imagine a tenant taking a shower and all of a sudden they find themselves in the livingroom on the couch...I wish it was because they learned how to apparate...but no this would be a result of the bathtub falling through the floor.

    So...there has to be some good news here right...Sorta...maybe... we have to run all new electrical and pull down the ceilings now...so installing recessed lighting all throughout the first floor is a no brainer at this point. Also since the ceiling was out they were actually able to reinforce the tub from underneath so that the whole bathroom didn't need to be gutted. 

    So here we are...demo started...and a bunch more problems that we need to fix...my budget just got completely blown out of the water with another $8500 in work that needs to be done. 

    So for the past two weeks we've been rewiring the house...pouring the new front patio...get a visit from the city inspector...who for the most part is pleased with the work we've done minus a few little things here and there. 

    I swing down to the property today to check in on the progress and snap a few pictures of the work they've been doing so far. Thinking this was going to be a painless and quick visit just to check in on the progress of how things were going. I mean what more could possibly happen right?

    Haha...if only that were the case...

    So the morning starts of with me forgetting my checkbook at home (an hour away) and having to call the contractor and ask if they'll take a starter check issued by the bank...he says no problem...but by the way someone kicked in your basement windows last night...doesn't look like they stole anything but would you like us to file a police report...I tell him I'm 15 minutes away and to hold on until I can get there to assess what's going on. 

    Good news is (and for the record this is the last bit of good news, so if you're looking for a happy ending I suggest you just stop reading here)...nothing was taken and the glass can be fixed pretty cheaply. Someone must just be cranky I'm trying to improve home values in the area or something. 

    As we're walking through the house for the GC to explain and show what they've got going on...he points out a joist in the ceiling in the kitchen that is rotted...huh...this is odd...but we thought there might have been a water stain on the ceiling...so maybe there is a water problem somewhere?

    We go to the bedroom that's above the kitchen and he points out that the flashing was actually installed before the window was put in...so there's actually a gap between the window and the house for water to get in...So you'd think we found the problem right? Well you'd only be half correct. The window is in the middle of the room, the soft spot on the floor where the joist is rotted out is on the corner of the room...the house is sloped that direction so how could the water have gotten there to cause so much damage. Well...lets go up on the roof and see what's going on!

    Apparently my neighbor's drain spout was clogged and there was a pool of water just sitting on the back corner of their roof where our two houses meet. We managed to unclog the spout pretty quickly and get the water to flow through...but now we need to find out how the water got into my house in the first place. 

    What's this mean? Well of course it means taking the flooring out of the second floor bedroom and opening up the wall to fix the window. Great I say thanks to the GC for the walk through...snap my pictures and head off to Lowes to order my interior and exterior doors as well as cabinets for the kitchen...since we're hoping to have that cleaned up by early next week and start laying tile.

    I'm on my way home on the bridge when the GC calls me and says "Are you still in the area?" and of course I tell him I'm on my way home and about to cross over the bridge. He says...can you come back? I"m like oh crap now what...

    Well apparently they started ripping out the dry wall and tearing up the floor to get to the root cause of the water problem while I was at Lowe's. After all these guys were supposed to be done 4/15 and here we are 4/14 and still doing demo work. Not their fault as we've had lots of surprises...but they're definitely ready to move onto their next job. 

    Well wouldn't you know...there was 4 layers of drywall in the kitchen on the back wall and two layers of foam insulation. We're actually talking about 3+ inches of drywall. It was actually helping hold the house up...because when they took out the last of the pieces one of the studs actually came off with the drywall.  But wait that's not all folks! You can see through the wall in the upstairs bedroom! I know what you're thinking...I've inhaled so much saw dust that I've developed a superpower and I can now see through walls...but sadly this is not true. The water damage from the roof and the window have together actually completely rotted away parts of the shething. The GC actually showed me all the massive wasp/hornets nests that were inside the wall in the bedroom. Pretty neat stuff huh? 

    Oh but what's this...the windows are framed by 1x3's and only heald in place by two nails each...huh...that sounds like a pretty good thing to me right?

    EEEERRRR - Wrong again! Need to take the windows out and completely reframe the windows...but since there's actually no load bearing post on the back corner of the house, due to it literally having completely rotted away...we're not just going to remove the window on the back of the house...we're going to remove the entire wall and have to reframe the back side of the house so that you know...the house doesn't collapse and all. 

    No idea what this is going to cost to fix yet...and of course we had to tear the laminate flooring up in the bedroom because if we could see that the subfloor was rotted out from looking up at it in the kitchen ceiling that we would probably need to trash the laminate in there too. 

    So now I'm going to need to put down a new floor in that bedroom...and I hate when flooring doesn't match...so I'm really struggling between keeping the flooring on the second floor...or just replacing it in that one room. Decision...decisions...decision.

    Anyway...that's the end of today's escapades...

    Needless to say we're still about 2-3 weeks away from being able to complete the house...

    So what started out as a $10k budget and 2 week time frame is now north of $35k and is turning out to be closer to 5-6 weeks. Of course if we had known about a lot of this stuff up front we would have approached the whole project differently and the timeline would have been closer to 3-4 week from the start rather than the 5-6 weeks we're at now.

    Anyway...I figured I was long over due for an update on this...since I promised to chronicle how this BRRRR was going.

    I guess that the one final strand of hope is that win this extra work being done...I'm anticipating an appraisal closer to $100k which means I'll be able to refinance at $70k...I imagine there's still more things we'll find so while I'll be able to get most of my money back out on this one...some of it will have to stay in the deal. For a first time project...that's not a terrible thing I guess...and since we're already making so many upgrades and changes...I shouldn't have repair bills be very high...unless of course I get a tenant from...well you know what I mean... If I'm lucky I'll be able to recoup my costs in 3 years and that still wont be too bad given many people make 20% down payments if purchasing traditionally...and then often need to make repairs on top of that. 

    Work should be a little less crazy in the up coming week or two, so I hope to be able to provide another update next Thursday at the latest when I get back down to the property to check on the progress again...in the mean time...here are some more pictures I took today of the progress that's been made. By the way these are in order of my walk through...so you'll get to see things as I did.

    Windows kicked in last night. and new cement patio

    Ceiling removed in the living room. Those recessed lights are just in that location temporarily so that the room has some light to it. When it's all done there will be several more and put in better locations. You can also see the wall in the back left that was demoed due to a leaking wax ring in the bathroom. ( I didn't even mention that above...)

    So this wall in the dining rom was actually 1/3 lathe and plaster, 1/3 drywall, and 1/3 chicken wire, rebar, and cement...GC says that's a first for him. #Winning

     Recessed lighting in the dinning room is going to look awesome. 

    The guys working their way through the subflooring removal in the kitchen.

    Notice how there is all that drywall in the ground? Yeah there are supposed to be floor joists there...this is the back part of the kitchen where the foundation needed to be fixed. 

    This is the corner in the bedroom above the kitchen that is showing the signed of water damage. More to come of that later.

    Removed the trim and doors upstairs.

    These next few shots are just of the concrete work in the basement. They still need to drylock the walls once everything is cleaned out and completed, so it's still only part way completed.

    This is the cement pad that was poured where the load bearing wall had been cut in the basement and is where the washer and dryer will end up.

    The beautiful (high hint of sarcasm) cement patio that was found under the deck in the back yard. 

    Now at this point I've left for the day to go to Lowes...the rest of these pictures are what I find when I get called back.

    Apparently BP forums doesn't like pictures taken vertically...but you can actually see all the layers of drywall that they pulled away in the corner near the door. Also...we're pretty sure that those lighter colors on the sheathing are actually termite damage...yippee!

    While it's not quite as obvious from this picture...you can actually see daylight coming in on the left side of the wall.

    Bye bye laminate flooring. My bank account misses you already.

    Again BP doesn't like vertical pictures...But if you were to look at this in it's normal orientation...you'd notice the wood starts half way up the wall in that corner...it's supposed to be in the whole picture. 

  • Investor · San Francisco, CA · Member since 2016 · 77 posts · 41 votes
    10y

    Wow! I kept waiting for the problems to be over! They kept coming!

    @James Masotti how could you have prevented some of these out of budget issues? I didn't see anywhere about an inspector, did you bring one in beforehand?

  • James MasottiPro Member
    OP
    Rental Property Investor · Washington Township, NJ · Member since 2015 · 1k+ posts · 976 votes
    10y

    @Brad Cogswell - You are correct that I did not have an inspector.  It's possible that some of this could have been caught by an inspector...but since some of it took the contractors a few weeks after several walk throughs to catch...I honestly don't know how much of it would have been caught. Hindsight is 20/20.

    The good news though is that so far my contractor has been pretty awesome...and has said that in the future if there's something I'd like to look at they'd be willing to do a walk through with me and try to give me a better idea of what the repairs might be. 

    I think I did a pretty good job estimating the cost of the things I know...but it would be really hard for me to estimate things like the foundation work and and the concrete...those will take me some more time and experience to get a hang of. 

  • Investor · San Francisco, CA · Member since 2016 · 77 posts · 41 votes
    10y

    Yeah @James Masotti makes sense. Great write-up, looking forward to following along as it seems the worst has to be behind you!

  • Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    10y

    Since you stated there was no subfloor beneath the bathtub, that could mean that the bathtub is not level - and if the tub is not level you might find that water does not flow to the drain as it properly should.  So make sure you check that; you might end up taking existing tub out if it is not going to become level. 

  • Covington, GA · Member since 2015 · 99 posts · 33 votes
    10y

    Man! I feel bad for you. But still, you kept me laughing through the whole post! How does that old song go...."Keep on smiling".

  • James MasottiPro Member
    OP
    Rental Property Investor · Washington Township, NJ · Member since 2015 · 1k+ posts · 976 votes
    10y

    Alright...so between work and this project I haven't posted anything on BP in forever..so lets recap... what has happened over the last 5 month...

    Since my last update we removed the subfloor in the kitchen. And guess what we find? more rotted out floor joists in the secondary basement foundation that I didn't notice during my original inspection. This secondary foundation also had a stone wall foundation, except that it was done right on the dirt with no cement slab under it. So as many of you may have already started to figure out...water + dirt floor + stone wall foundation = sinking/crumbing foundation wall. 

    We call in the mason to re-sure up the foundation wall and then dig cement footers with pylons to help support the backside of the house further.

    Once this is done we need to rebuild the entire backside wall of the house...since once we got all the debris gone finally there was so much damage to the wood that it could not be salvaged. 

    Hold on there's a problem...(of course there is...this is the project from hell after all)...The utility company so very kindly attached the high voltage power line supporting the entire street to the backside of my house, which of course now needs to be removed so that we can rebuild the back of the house.  So we do of course the most logical thing and we call the utility company and ask them to come out and move the line. For this they would like to charge me the very nominal fee of $8000 

    Now I wasn't there but I'm pretty sure my contractor all but had to pick up his jaw from the ground. He asked them what they were going to do which was basically just dig a whole in the yard and then put a temporary wooden 4x4 into the ground to support the power line. Well my contract basically said he could do the same thing for $800 and then just have the utility company connect the lines to the pole. We coordinate with the utility company the day that all of this is going to happen so that they can contact all the residence about taking the power off line so they can move the line to our "temporary" structure. 

    So we of course get this all done over the course of like a week or so...and then what happens the month of May. Why does the month of May matter...well anyone who was ever tried to do construction knows that rain is a total buzz kill. Well according to my good friends at NOAA (http://bit.ly/2bM6JgP) the month of May saw a 150% increase in average rainfall. Is this because we had one or two massive storms? Nope...it's because it rained something like 19 out of 31 days in the month of May (http://bit.ly/2bNkOI6). 

    So June rolls around and we can finally start getting to work on finishing the backside of the house. Very little work has happened on the inside at this point because well...when you're trying to keep a tarp up on the back of the house you can't really finish the electrical, nor can you cover up any of the floors or dry wall areas when you still need access to them. 

    Now you would think with all that rain we had in May that if there were any remaining issues with water damage that we would have found them right? Haha...at this point you already know the answer to that. One day in June I swing by the house after looking at a few potential new projects and what do I find? A shower in the basement! You might be thinking...sweet he added an extra bathroom...but alas this is not the case. I have instead sprung a new leak in the basement ceiling below the window in the dining room. Apparently it just took months for the water to work its way through the cracks in the cement and completely rot out the support beam above the rear basement door.

    Well as you can imagine I'm sure...we do eventually start making some progress. However this largely comes to a screeching halt again (hopefully you're no longer surprised at this point) when my granite contractor does one of the absolute worst granite installs ever, and then completely yanks my chain on getting it fixed. So here we lose two more weeks before I finally call in someone else who's able to give me higher quality granite at a lower cost...and does a much better job. In the middle of this though I've already scheduled the final appraisal of the house because with the exception of the counter and backsplash going in into the kitchen my contractor assures me that everything will be completed by the end of June. So I schedule the appraisal for July 7. 

    The credit union calls me and is quite concerned because they appraisal that they received came back at $66k. Now I remind you that I originally thought it would appraise at $90k and then with the additional improvements we were adding was hoping for $100k. So of course I go over to the house to get some updated pictures to send over to the credit union to petition the appraisal...and we'll just say the condition of the house left a lot to be desired. To start off with the basement window was still boarded up from when it got kicked in. Having boarded up windows is usually a great way to increase your appraisal when trying to refinance incase anyone was trying to figure out the secret sauce. (please not sarcasm here and do not board up your windows before having an appraisal done). I call my contractor who up until this point has been absolutely fantastic, and just give him a complete earful. Apparently he had hired a new project manager who was feeding him bad information about the condition of the property and the stat of completion it was in. He promises me that he will fix it and get it taken care of and then pay to have another appraisal done. 

    In the mean time I am pulling my scope of work, all the pictures of the work being completed to date. The comps I had originally used when purchasing the property, as well as additional recent comps in the area which I felt justified a higher appraisal value ( there had been mostly distressed sales to investors in this area over the past 6 months so I understand why they used some lower comps) 

    In the mean time I'm now freaking out because I have way too much money in this project now and just need to get it finished but with the appraisal that low I'd never be able to pull all my money out. I cross my fingers and hope the petition goes well. 

    So here we are in mid-July at this point and my wife and I are leaving for an 18 day trip to Europe. It was for the record absolutely fantastic...if only I could convince her to move there. 

    About 3 days before we come back from Europe I get an email from the credit union that the appraise was in fact successfully challenged and came back at $90k. I breathe a sigh of relief. 

    Good news is I can now recover enough of my funds to ensure I'm able to payoff my original investor and the contractor in full. 

    Some other great things that happen though ( because of course we're not done yet!) The water heater decides to spring a leak. Lucky for me the contractor has a spare water heater sitting in his warehouse...but guess what once we get it installed...it doesn't work! So now we have to buy a new water heater and get that installed. 

    At this point...the house is finally done (well we need to find a washer and dryer that will fit in the basement because the openings are too narrow to allow for the ones previously purchased. ) It's listed for rent (link to follow ) and I've refinanced out my investor and put the property into long term financing. 

    All said...what was supposed to be a 2 week project at 10k...and turned into a 3-4 week project at 20k...then a 5-6 week timeline at $35k...ultimately ended up being 6 months long and cost nearly $62k in renovations. 

    My contractor has taken to calling this project "Albatross" because it has been such a problem and been so rare that quite literally everything has gone wrong. An absolutely horror story that very easily could have bankrupted me. Fortunately...I was able to find ways to get the money...and the cashflows should be strong to help me pay down my newly acquired debt. And as crazy as it sounds...I'm hungry for more. I've got a much better team in place now than when I purchased this house, and I've learned a lot along the way. I'm not buying anything without first walking the property with my contractor to make sure I'm not missing any surprises, and will have a much better picture of the risk involved and the budget required. The more houses I can buy up and get rented the more quickly I can eliminate the debt and risk I've taken on with this project in order to get to a point where my portfolio is generating positive returns. 

    Well that just about sums up the story...I've been writing this update for quite awhile now. I'll circle back and post updated photos a bit later. 

  • Investor · Glassboro, NJ · Member since 2013 · 41 posts · 11 votes
    10y
    Let me first say congrats! I am a new investor in New Jersey. I am looking to buy and hold. You are an inspiration to me, as your a new investor do what I plan to do. So please keep posting the updates. And keep inspiring! Happy investing!!!
  • Real Estate Agent · Saddle Brook, NJ · Member since 2016 · 49 posts · 17 votes
    10y
    Murphy's law paid you a visit and didn't want to leave! As I was reading your posts..... I felt your pain. It's motivational... For newbies like me. I am glad you persevered and accomplished your goal. Can't wait for the renovation pictures!
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