Finishing rehab / rent #7 for the year, leaving a lot of money behind

[Rick Bassett]

We bought, rehabbed and rented 7 SFH's this year, which is by far our most productive year in RE. We have it down now to where we can do a pretty full rehab in 30 - 45 days.

I didn't expect that we would do so many this year as our problem has historically been finding deals that make financial sense but we are now getting a steady stream of property (and tenant) referrals from our growing network.

We typically buy our properties for cash in the $140 - $160k range and put in $20 - $50k so that we can: 1) Command a higher rent and 2) Have them mostly ready to sell if/when the market pops. We refinance the properties after they are renovated and rented. The refi's usually cover close to our purchase price (70% LTV) but not the renovations.

The big down side that we are running into is the cumulative renovation money that we are leaving behind in each of the properties. We have been funding the renovations from (dwindling) personal funds and cash flow. My hope is to get to a point where cash flow covers renovation costs and that we can stop hitting our personal funds.

Any words of wisdom would be appreciated.

Rick

[Sonja Tani]

Hi Rick,
I agree with most of the points that were made by the previous answers but here are a few more suggenstions. I've found that rehabbing a home to rent and rehabbing a home to flip are two different things. It looks to me that you are doing your rehabbing with flipping in mind. If you plan to rent until the market is right to sell, remember, when that time comes all that rehab work will have become "used" and you will have to put more money into the property. When you plan to rent a property, you need to limit your investment to as little as it takes to rent out the home.

As to replenishing your personal funds, selling off a couple of your well rehabbed and upgraded units sounds like an economical way to accomplish that. Another possibility would be to create a business organization such as an LLC and title the properties to it and apply for a loan for Operating Funds.
This is a great time to find Real Estate deals so long as you are prepared to hold them in antisipation of the market recovering and hopefully that will be soon but you must be able to wait it out if it takes longer than expected. An Operating Fund loan or selling off a couple of properties would accomplish that.

Re-think your rehab parameters to allow for further improvements when you put the property up for sale

Good Luck