Property Manager · Livonia, MI · Member since 2011 · 4k+ posts · 1k+ votes
this is a continuation of my previous thread about the deal i am working on. want your opinions, please.
details:
asking price - 80k
accepted - 63k
75% LTV
cash to the table - ~$18k
rent(good condition) - 1,150-1,250
to get it to that condition, we are talking about 17-20k(max).
mostly outdoor stuff like roof, windows, trim, gutters,insulation.
Indoor - paint, carpet, doors. Bath needs update, but not full gut (around 2k at most).Just cosmetic stuff indoors
so, trying to determine if it's good idea to spend under 20k to get renters for $1,150/month.
The big items are capital investments, so once i change them, i'd not have to change it for many may years.
feedback is appreciated, plz.
:mrgreen:
house is worth easily 100 in great condition. easy.
SFR Investor · Orange County, CA · Member since 2009 · 1k+ posts · 1k+ votes
15y
Originally posted by Homer S.:
The roof is not leaking, but it has 3 layers of shingles. it might start leaking soon. the steel windows dont open and look horrible on the inside... that's why i'd rather change the plumbing to pex before a tenant moves in than to get a call that the water is rusty.
Homer, I can appreciate the fact you want to make your rental nice so it'll attract a good tenant. That's in my rule book as well. But I see you're trying to fix problems that don't exist, yet.
The roof MIGHT start leaking soon? According to who? A call that the water is "rusty"? Is it not rusty now?
I would concentrate on getting the place cleaned up, looking nice, and everything working properly. If that means new windows because the old ones won't open, so be it. However, I would still check into repairing them before replacement (new rollers and a good track cleaning). I would also look at inexpensive no-frills windows instead of premium high-dollar low-e exotic glazing. I would leave the roof alone until I had a real problem. One of my property managers was told his roof had 5 years left on it. That was 13 years ago! If the plumbing is iron, I would definitely plan on repiping at some point, but not before it started tainting the water or springing monthly leaks. Who knows when that'll happen?
I'd keep the money for these "repairs" in reserve. Who knows, the furnace or water heater may blow up before the roof or plumbing starts causing problems and you want to have the funds available for that.
Real Estate Investor · Atlanta, GA · Member since 2011 · 13 posts · 1 vote
15y
Hey at $1,150 you're getting a nice cash on cash return if you only brought 18k to the table and let's assume you're shelling out the cash for the rehab it's still nice. As a result going for the capital improvements now like the roof or windows may be ideal for the fact that the prices on materials are low and contractors are pretty hungry right now so that may be a difference in about 1-3k in total cost for a roof 2 years from now. Also renters are picky nowadays because they have many alternate choices in this market and will look for energy efficient stuff like newer windows in the home to help their monthly bill. If you make these changes now you could probably command the max $1250 off of perceived value of the improvements alone. When you're showing the place point the improvements out.
Property Manager · Livonia, MI · Member since 2011 · 4k+ posts · 1k+ votes
15y
Originally posted by Mitch Kronowit:
I can understand a new roof if it's leaking, but why replace the windows (unless they're broken)?
$20k for fixing up a rental sounds like a lot to me unless the house is really a wreck to start with.
mitch,
20k is enough to make all the upgrades, not just the repairs. The roof is not leaking, but it has 3 layers of shingles. it might start leaking soon. the steel windows dont open and look horrible on the inside.
i always feel that the condition of the property dictates the tenants i get. that's why i'd rather change the plumbing to pex before a tenant moves in than to get a call that the water is rusty.
Real Estate Investor · Salem, OR · Member since 2011 · 422 posts · 149 votes
15y
Wouldn't the answer be just enough, but not to much? ;-)... if your planning on renting it for a long time than avoid trendy high end finishes. Get things that wont look tacky in a few years. 20k seems like a lot to me. What will be your ROI if you put that much into it?
Real Estate Investor · Salem, OR · Member since 2011 · 422 posts · 149 votes
15y
The numbers do seems strange to me... here you could never get anything in a neighborhood that rents for 1200 for 70k that is listed on the MLS. But each market is different.
Property Manager · Livonia, MI · Member since 2011 · 4k+ posts · 1k+ votes
15y
i do plan on keeping it for a long time. i really dont want to spend that much after closing to get it rented. but it will need a new roof soon. that is at least 5-6k. even if i can convince a tenant to rent it with the current windows, those will have to be changed since they dont open well (some dont open at all). That's another 4. just that is 10k. the gutters are in bad shape. might as well change the trim. that's 2k. it adds up quick.
rusty, from the spreadsheed i downloaded on here, it appears that the cash ROI is around 14%. and that's at 1150 per month rent rate.
Property Management · Memphis, TN · Member since 2009 · 667 posts · 362 votes
15y
I don't want to be redundant, but 20 seems high to me also. It sounds to me that you know what needs to happen to this property to get the rent that you want. Because we are rehabbing every month, I have found differ place in my city that I can get all my material new, but at close out prices. This is how I am able to save on rehab cost, for instance I can get new builders grade window for $50 each no matter what size. That is how they sell their products. I went and got business license to buy floor covering from the dealers. Carpet that would normally cost me $15 a yard I pay $7.50 a yard,same for tile and hardwood, and lastly I buy my shingles from a yard that sell open pack shingles. I use to pay $60 a square for 3 tab but now pay $35 a square. That is how i am able to get my rehab cost down, that and paying my guys by the hour and not by the job!
SFR Investor · Orange County, CA · Member since 2009 · 1k+ posts · 1k+ votes
15y
Originally posted by Homer S.:
The roof is not leaking, but it has 3 layers of shingles. it might start leaking soon. the steel windows dont open and look horrible on the inside... that's why i'd rather change the plumbing to pex before a tenant moves in than to get a call that the water is rusty.
Homer, I can appreciate the fact you want to make your rental nice so it'll attract a good tenant. That's in my rule book as well. But I see you're trying to fix problems that don't exist, yet.
The roof MIGHT start leaking soon? According to who? A call that the water is "rusty"? Is it not rusty now?
I would concentrate on getting the place cleaned up, looking nice, and everything working properly. If that means new windows because the old ones won't open, so be it. However, I would still check into repairing them before replacement (new rollers and a good track cleaning). I would also look at inexpensive no-frills windows instead of premium high-dollar low-e exotic glazing. I would leave the roof alone until I had a real problem. One of my property managers was told his roof had 5 years left on it. That was 13 years ago! If the plumbing is iron, I would definitely plan on repiping at some point, but not before it started tainting the water or springing monthly leaks. Who knows when that'll happen?
I'd keep the money for these "repairs" in reserve. Who knows, the furnace or water heater may blow up before the roof or plumbing starts causing problems and you want to have the funds available for that.
Investor · -, IL · Member since 2010 · 409 posts · 616 votes
15y
Right now my area has a strong rental market. I only do what will make the rental clean and safe,in addition I also do new paint. I just picked up a 3 bed for $27k, put $250 in paint and misc., and rented it out in two days for $550. Total out of pocket was about $4500 including down payment and everything.
The roof leaked in a couple spots, I spent $40 on some roof tar instead of replacing the roof. I could have spent the extra $3k for a new roof at this time but it would not have added any extra to the rent. I am satisfied with saving that money for now and replacing stuff only when it is needed.
Property Manager · Livonia, MI · Member since 2011 · 4k+ posts · 1k+ votes
15y
wow, thinking more about this, you guys are right. i will definetely have to do all those things i listed, but you are right. it can last a few more years before they crap out. i have to get the bare minimum done and get the cash flowing. i can always replace the roof next year.
james, where and how did you find those places? i'd love to have the access to those types of places around me.
Property Management · Memphis, TN · Member since 2009 · 667 posts · 362 votes
15y
I found these places early in the game when I was really broke. Basically, we have a few second-hand shops in memphis that buy close outs material like doors, windows, wood,cabinets, countertops etc. They may have a minor defect, but nothing that affects the workmanship of the product.When the high end homeowners in Memphis do a renovations, they donate their old materials to him or to habitat for humanity. Also, my crew pointed me to other places that they were getting material from. I thought I was getting new shingles before I caught on. Now that you are on the construction side, these places will find you.
Real Estate Agent · Winter haven, FL · Member since 2011 · 572 posts · 336 votes
15y
$20,000 ouch! At that price sounds like you would spend 2 years trying to recoup your repair investment a loan. If it is not broke don't fix it. While working as a carpenter for a developer I have found that most tents don't pay higher rent for amenities, they usually just want more space or quiet neighborhoods. Fix any thing structural only.
All ways design on a dime just because you have the money does not mean you have to use it.
Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
15y
Sounds like it has galvanized water supply pipes since you say water might be rusty. Galvanized can become blocked on the inside from the rust. So replacing galvanized piping while already doing a rehab effort is probably not too bad of an idea. If it's not galvanized, but copper, then leave the copper alone.
The roof isn't leaking, so for a rental that should just stay. Only exception to that is the fact that you say it is already 3 layers - in many places only 2 layers are permitted by code. Might not pass a code inspection with 3 layers. Might get grief from your insurance company with 3 layers.
Property Manager · Livonia, MI · Member since 2011 · 4k+ posts · 1k+ votes
15y
yeah, the piping is galvanized, but i do plumbing myself and would cost me $200-300 to change it over. 3 hrs and it's done. so no big deal.
agree on the roof idea. will keep it as is and replace it when i notice degradation. will patch up the gutters and fix them up when the roof is replaced. i like to make it nice and not get calls for things that are not working right. but you guys have given me food for thought. keep the money until it needs to be spend. then spend it.
Property Management · Memphis, TN · Member since 2009 · 667 posts · 362 votes
15y
I would find me a great handy man that can handle almost any job and put him in one of your units rent free. This way he can handle all of your miscellaneous calls, and repairs for rent payment. This guy also can handle any evictions, moving refrigerators from apt to apt, getting units rent ready. You will get your money out of him.
Property Manager · Livonia, MI · Member since 2011 · 4k+ posts · 1k+ votes
15y
all great ideas. i make my house really nice. people come in and they are in awe and 95% of the people say "it's the nicest house i have seen, and i have seen lots of houses".
it's amazing that there are some landlords that show their houses in crappy condition and expect the tenants to take care of the property.
Property Manager · Livonia, MI · Member since 2011 · 4k+ posts · 1k+ votes
14y
here's the update:
purchased the house at the end of August for 63 and started working on it.
replaced:
10 windows, gutters, garage door, 6 basement windows, interior and exterior doors, carpet, kitchen, bath had to be gutted, basement sink, kitchen flooring (vinyl), new plumbing
spent around $16.5 to fix it up.
the house looks gorgeous, but i am having trouble renting it. i have been showing it since the start of November, had a few applications, but no tenants yet. very disappointing. been carrying it for 3 full months now after the repairs were completed.
Indianapolis, IN · Member since 2008 · 244 posts · 36 votes
14y
When I update a rental, I only fix what is broken, make it clean, safe and presentable. The neighborhood will attract the quality of tenants. What type of condition are the other houses on block?
Property Manager · Livonia, MI · Member since 2011 · 4k+ posts · 1k+ votes
14y
all of the houses in 1 sq mile are cookie cutter 1950's brick ranches. that street in particular is no different. lawns are nice, very nice looking on the outside. but when you go inside, 80% are still stick in 1970's.
i am trying to post a picture of the windows, to show how bad they looked. these are steel pan windows that had rusted over the years and moisture was killing the window. cold air was leaking and furnace bills were sky high.
seems like the picture is huge and have no idea how to resize it.
Lender · Tyngsboro, MA · Member since 2009 · 3k+ posts · 2k+ votes
14y
Two things probably going on:
First, it's the time of year. It sounds like you started advertising mid - October - you were just headed in to the hardest time of the year to rent. Tenants would have had to give notice, and so would have been moving around the holidays, no one likes to do that.
But your price is probably too high. Drop your price to get a larger pool of applicants.
Property Manager · Livonia, MI · Member since 2011 · 4k+ posts · 1k+ votes
14y
the windows are gone and those things could not be saved and the panes could never be shut without gaps.
ann, you are right about that. However, my price $1125 is below average for the house. the other prices i see are 1150 and up to $1350.
however, i charge for pets $55 per month for one pet. It's $80 for two or more pets.
people come in and see it's updated and looks clean and nice, but they dont apply. sometimes they ask if the price is negotiable, and i tell them if they sign a longer lease (15 months or more) i'll knock it down $25-$50 per month.
but most of the time they like how it looks, leave and do not apply.
Investor · Fort Worth, TX · Member since 2011 · 1k+ posts · 450 votes
14y
I fixed my rental up a little better like you do. What are you asking for deposit? I have a low end unit and put it on the market for 600/mo with a 500 deposit and had a lot of interested people that did not apply. I dropped the rent to 550/month and deposit to 300. That seemed to open the flood gates and that was in the end of October.
The justification for my decision was at 550/ month I would cede 600 per year in gross income. That is equivalent to or less than the month to multiple months it would take to find someone to pay the full 600. I have no justification for lowering the deposit - it was just a judgment call and I felt okay with it.
I don't know if you would want to lock yourself into a longer lease for a lower rent price. I would just set the lease to expire at a better time of the year for leasing out the unit if needed. It looks like you are doing that based on the time frame of your proposed lease term. This is solely my opinion and not my experience. My opinion used to be that longer leases were better, but after reading on the topic of lease lengths on BP, I have changed my opinion.