Our First Rehab

There are a good many people who are on this site who do not post very often.  That is the case with my partner and myself.  We found this site and were able to answer numerous questions we had in the area of investing that we chose, specifically Short sales.

We have been performing short sales now for over a year, but we never deviated from the short sale/flip model until recently.  We closed on a property on December 30, 2009 and decided to keep this property and become landlords.  Our main focus is still short sale/flips, but when a good deal comes along in an area that is good for rentals, we believe it would be good to diversify our business.

Before we go any farther, we want to give a tremendous thanks to James Ward of Crosswind Properties, who has been our mentor since we started our business.  He is a tireless mentor and has been willing to answer all questions, whether they were intelligent or not.

Now, to the meat of this post.  The property we bought was worth $65,000 FMV at closing. It had a 1st and 2nd mortgage.  The 1st was owed $118,000 and the 2nd $12,000.  We were able to negotiate the 1st down to $29,250 and the 2nd to $2,750 for a purchase price of $32,000.  Unfortunately, since this was our first rehab/rental, we did not take any pictures/video of the property before we renovated, but in the two videos below, we show the property after renovation and go over some of the mistakes we made, as well as where we were able to save money.  Don't worry, I'll recap after the videos to give a better idea of the prices we paid.

 We apologize in advance for the quality of the video and the dry delivery.  The narrator (me) is not very good when talking to a camera.  :o)

Now, to the nuts and bolts, the prices.  We already stated that the property cost $32,000 and was worth FMV $65,000.  Well, the property is now worth approximately $75,000 and our total outlay was just over $3,000, which also included the tools we needed to rehab.

The biggest expense in the property was the carpet.  We spent $1,016.00 on new berber carpet.  We got it from Home Depot for $0.54/sq ft and the padding for $0.48/sq ft and it took 907 sq ft to cover the areas we decided to carpet.  It cost $97.00 to install using Home Depot installers.

The paint was where we lost some money.  We wanted to go inexpensive, so we bought 10 gallons of America's Finest brand paint for around $180.00.  That was a nightmare.  We used it for one room and it took over 5 coats to cover the previous paint.  At that point, we decided to buy a different brand.  We took the advice of the Home Depot (we used them for almost all of our rehab) and got 10 gallons of Behr paint for $200.00, which we used to paint the hallway, living room and middle bedroom.

 We also discovered that they have paint which was mixed incorrectly that they sell called OOPS paint.  This paint can be any brand (ours were all Behr), but it was mixed incorrectly and was not the shade that the original customer wanted.They sell this OOPS paint, which was normally $40/gal for $5/gal.  We used two cans to do the master bedroom, while we used a different color and on can to do another bedroom.  The bathrooms were done in a thrid color and used one can between them, so between two bedrooms and both baths, we were able to get them painted for $20.00.

There were two windows that were broken and the frames were not standard.  We thought we would have to replace both of them for a total cost of $400.00 plus installation, but were found a way to replace just the broken glass.  This cost $9.72.

We replaced the hot water heater for $200.00.  We also called out a plumber because the main water shutoff valve was broken.  He replaced it, then checked all of the faucets.  During this time, we could hear what appeared to be a leak somewhere.  He stated that it was in the slab under one of the bathrooms and the whole house would have to be re-plumbed.  He stated he could do it for $2,800.00.  We decided to call in a different plumber as we stated in the videos.  He found that the problem was in the toilets and it cost, parts and labor, $150.00 to fix.

There were drywall issues, but luckily, the person we purcahsed the property from was a drywaller by trade, so he had drywall sheets in the garage that we were able to use to fix the holes, so it only cost us for drywall tape and the drywall compound.

 We replaced the stove for a cost of $100.00.  We found one in a yard sale that we tested and it worked perfectly.  It is actually better than the one in my home (but that's a different story).  In the video, it stated that the stove is all we replaced, but the refrigerator just died.  We will be purchasing a refrigerator today for $175.00 to replace the existing one.

 We purchased two ceiling fans, one for the living room and one for the kitchen, for a cost of $80,00.  The dining room light fixture was regularly $160.00, but we got it for $30.00, while the hallway fixture was normally $60.00 and we got it for $8.80.  These were closeouts at Home Depot.

 Other than the carpet and the plumbing, we did all of the work, so that saved us quite a bit in labor.  The entire job took approximately two weeks, but that was more due to the carpet not being in stock at Home Depot than anything else.  Our new tenants moved in on January 21, 2010 and we are getting right at 2% in rent on this deal.

 We welcome any comments and if you have any suggestions that might help us or any other new rehabber, they would be appreciated.  As I stated in the opening paragraph, our main focus is on short sales and negotiations.  But, when we find a poperty that we can reach or exceed the 2% rule, we will most likely use it to diversify and expand our real estate business.