2nd Deal: Tenant Moved Into 2 Bed/1Bath Unit in Backyard in ATL

[Rodney Burayidi]

The last time I posted was after recently purchasing a single family home that has a 2 bedroom/1 bathroom guest house in the backyard (Previous post: https://www.biggerpockets.com/...). Today my tenant is moving into that 2 bedroom/1 bathroom guest house. Every time I post, I seem to come back having learnednew lessons, some the hard way, more confident and with greater passion for investing. Also,since the last time I posted, I became a licensed Realtor with Keller Williams Signature Partners in the Atlanta, GA suburbs. Continually learning the new skill set of being a Realtor has allowed me to understand what is going on in the real estate world from two perspectives, which is really helpful in this current market. I must start out by highlighting the fact that the current market does not allow for a normal 7 day inspection. This phenomenon stretches back even to the fall of 2020 in certain cases. I believe a 3-day inspection is enough time to get an inspector into the property, but getting all the additional contractors, such as plumbers, roofers, electricians, and HVAC, can prove to be difficult, especially for anyone with a full-time job. You may have experienced the same thing and been surprised by the condition of your recent purchase after taking a deeper look. It’s only right that we start off where I left off last time.

My wife and I noticed rat droppings all over the house the day we moved into our new home. We did not notice them on the walkthrough or see it reported on the inspection report, so we were quite shocked. We were more shocked to hear rats running around our kitchen and living room every night. We also had cockroaches so we called up a local bug guy to deal with the cockroaches. I mentioned the rats to him and he jumped right up and said he could get rid of those for us too. My first red flag should have been the fact he isn’t a “rodent/wildlife” contractor. But instead, I thought it was just great luck that the bug guy could also get rid of the rats. Fast forward 2 weeks and $800 later, we still had rats. We called a national exterminating company, and they were going to charge us $13,000 to seal our crawl space. Not only was that more than we could afford, it also seemed like an excessive price. We then called a local company, not a random guy who can “do that too,” and were given a more reasonable price to get rid of the rats, seal our crawl space, clean the crawl space, and lay material to protect the floor. They also referred us to a roofing contractor that provided services for a quarter of the price of the national company. They told us their process, and how long it would take, and be delivered. I wish I could say this was resolved within a month but the process was much longer due to our inexperience dealing with the issue.

Unfortunately, the first few weeks included more than just rats. Two days after moving in, I noticed water leaking from the fridge that was left in the house by the previous owner. Not a little water; a lot of water leaking from underneath the fridge. Enough for me to think the carpet and flooring would eventually rot. The fridge had a water hookup from the sink to the back of it for ice and water dispensing. My wife and I decided to get a new fridge, not only to solve the issue, but because we wanted a new one anyway. The floor continued to leak even after having the new fridge installed, so we called in a plumber. The plumber informed us the way the tube was going from the sink to the back of the fridge was “creative”. That “creative” configuration was causing the leak. The plumber requested having a look at all the plumbing in the home to see if any additional work needed to be done. After 15 minutes the plumber came back with a laundry list of “creative” configurations that had been done throughout the home. Safe to say the previous owners allowed a handyman to fix the plumbing. Eight hours later, I said goodbye to the plumber and let him know I hoped to not see him again for a few years. This issue was resolved within the first 2 weeks.

Now that the water issue was fixed, it was on to the next water issue: the downstairs Jacuzzi. We knew the Jacuzzi would need to be replaced, so we reached out to a contractor I had met through the agent who helped me buy the home. The contractor was well connected, and his rates were good. He had his plumber give us an estimate on what it would cost to replace the Jacuzzi prior to closing, so this was not an unexpected cost. The plumber suggested replacing the Jacuzzi with a regular bathtub because the previous Jacuzzi was so old that the style couldn’t be matched. We agreed, and he started to work. I’d heard that you don’t know what is going on behind the walls of your home until you knock them down. That rings true for underneath Jacuzzis as well. Underneath the Jacuzzi was old, rotted wood all the way down to the crawl space, which meant more work than expected. Five days later we had new wood on the floor, a new bathtub, and a fancier-looking bathroom. I’ll be honest, I felt drained and tired from working a lot and managing the rehab, but I could see the end result: a comfortable home for me, and a happy tenant in the other unit. It was now time to focus on the outside of the property and the second unit. I tried my hand at some landscaping as well and built a fire pit during the rehab. It was a lot of work and gave me a newfound respect for those who self-rehab properties.

We once again used the services of the contractor to rehab the outside of the property. I read the book Long-Distance Real Estate Investing by David Greene in 2019 and utilized his section about working with contractors. One crucial detail I failed to utilize was the date the contractor needed to finish the job. I had used this contractor for a couple of easy jobs and everything had gone smoothly, so I convinced myself the larger rehab would go along the same lines, but the contractor had actually subcontracted the work to another person. That subcontractor turned out to not be reliable. His work was good, prices were low, but the job took more than 4 weeks. I know if I had put the specific date everything needed to be done by, I would have had a quick turnaround or paid the contractor less for not meeting the requirements of the job. With the rehab finished, the second unit painted, carpet replaced, and not smelling like smoke, it was time to get professional pictures taken and start marketing it.

Prior to marketing the property, we read the book on Managing Rental Properties by Heather and Brandon Turner. It completely prepared us for marketing the property and screening the tenants. We settled on the earliest move-in date and qualification standards, then listed the rental at my brokerage. That’s when the floodgate of calls and excuses came in: “Can I pay 6 months up front?”, “Can I move in even if I don’t meet the requirements?”, “I know it says no pets, but can I bring my indoor dogs? They never go outside.”. The most memorable call was one person who didn’t have a job but still thought they should get to move in. We did not adjust our criteria or price. We knew we had to protect ourselves as landlords. COVID-19 has hurt a lot of investors, and we needed to make sure we accepted a tenant that was highly likely to consistently make payments. We believed it was better to have a vacant unit than a tenant who needs to get evicted. The other interesting aspect of finding a tenant was showing the unit. We did one group showing that had 25% turnout. Our second group showing had even less. We eventually stopped having group showings and only showed the property to people who had already applied. It cut out a lot of people who were “window shopping”. We finally got a qualified tenant who did everything they said they would do. Today that person is moving into the unit. I learned a lot from house hacking this property and will utilize it with my future projects. What’s next?

We decided that we want to start investing in commercial multifamily properties, 5-units and up. The only caveat would be if a 4-unit multifamily property in the Atlanta area with 1 unit vacant crosses our path. We are willing to do some rehab and evict tenants if needed. But before purchasing any more properties, we will be building capital as one of the steps to reach our goal. This will be a lot easier now that we have a tenant. The other step to achieving our goal is learning the underwriting process for commercial multifamily. I’ve started watching and listening to Ashley Wilson’s multifamily content on BiggerPockets to lay the foundation. I’ve also decided to host a monthly zoom meet-up for anyone else who is interested in getting into commercial multifamily. The August meeting will be Thursday, August 26th at 8 PM ET. Please send me a message on BiggerPockets if interested. As stated in the beginning of this article, I am a Realtor at Keller Williams Signature Partners in the Atlanta suburbs, so please do reach out if you are looking to invest or know someone looking toinvest in the area and is looking for an agent who can help them reach their goals.