Buy, Rehab, Refinance & Hold

[Michael Wentzel]

So I'm still relatively new to the game and I'm just finishing my first rehab. My "new" strategy is to purchase run-down properties, rehab them, refinance my rehab costs back out (and hopefully my down payment) and then add the cash-flowing property to my portfolio. I'm sure I'm not the first one to try this, but I haven't come across many others doing it.

Back in January I bought a house and cottage for $32,000. I put $8,000 down and my regional bank gave me a 15-year portfolio loan for $24,000. I bought this without walking through it, which was probably my first and last time doing that. I estimated my rehab costs at $18,000, but I'm going to be closer to $23,000 when I'm done. The appraisal came back at $65,000. My bank is now loaning me 75% of that $65,000 ($48,750) on a 20-year portfolio loan at 5%.

I basically get all my rehab cash back and paid about $7000 out of pocket for two renovated houses sitting on the same property. The gross rents should be about $1150 per month and my cash flow after all expenses should be $280.

Pros-

-I would guess my maintenance costs will be lower over the next 5 years due to the rehab.

-I paid about 10% as a down payment on an investment property instead of 20% or 25%.

-I learned a lot about rehab costs and contractors.

Cons-

-It took of ton of time, work and stress.

-My loan is only fixed at 5% for five years.

My hope is that I can get my rehab costs and ARV numbers down so that I could do more deals like this and actually recoup all of my down payment and rehab costs.

Any advice or insight from those who are more experienced than me?

Mike