My First Columbus Ohio Duplex BRRRR

[Michael Sgandurra]

Finally! After much anticipation, my first major renovation and long distance investment property is completed!

The Buy: In April of 2021, I embarked on a significant project to rehab a 100 year old duplex in my hometown of Columbus, Ohio. The home was perfect for a BRRRR. On the exterior, we redid almost the entire home. We had new siding, soffit, fascia, gutters and windows installed while maintaining the historic slate roof. On the interior, we updated each side of the home from a 2 bed 1 bath, into a 3 bed 2 bath. We redid plumbing, updated the electrical, redesigned the existing bathrooms, installed new flooring, completely redid both kitchens and included stainless steel appliances, added central heat/AC, performed foundation and chimney work, replaced every door, installed ceiling fans, and more.

The Rehab: The home was purchased for $100,000. I put 25% down and financed the rest. Total renovation costs were $130,000 for an all-in cost of 160,000, and I supplied $155,000 out of pocket. This was financed through savings from a lifetime of frugality, withdrawing some retirement funds, and obtaining a home-improvement loan. After interviewing several contractors and receiving multiple bids, I decided to have my property management company also oversee the rehab as they had the lowest overall cost, the best interview, the highest level of professionalism, and quickest turnaround date of 75 days. Our agreement had a clause where I would be owed $25/day for each day past the deadline.

While the first 6 weeks of rehab went great, the contractor’s performance quickly went downhill. Without going into 10 months worth of details, a 75 day project that was supposed to complete July 1, 2021 turned into a 308 day project that ‘completed’ February 12, 2022. The contractor came up with every excuse in the book (Covid, supply chain, family needs, labor availability, etc) and despite my multiple threats to fire him, I didn’t follow through. I regret not firing him in July or August once the original deadline had passed. In addition, the quality of work was completely unacceptable and I’m ashamed my Project Manager gave the green light to consider this home complete. Once I flew into town to see the home shortly after completion, it was clear that no ‘make ready’ checklist was followed.

Despite our signed contractual agreement to recoup the $25/day late fee funds, I am told the contractor ‘went under’ and will no longer be paying me the money I am owed. I’m currently dealing with both my property management company as well as further legal options. 

The Rent: Both sides of the property will bring in $1,250/mo in rent, grossing me $2,500. After all expenses, I expect to cash flow around $500/month, giving me roughly a 25% ROI.

The Refinance: I did an 80/20 Cash Out Refi at 4.89% with a 5/1 ARM. The home appraised for $260,000. Despite this being a densely populated urban area, there weren't many great comps for the area. I was hoping for an appraisal closer to $285,000, and I believe the quality of the contractor's work contributed to this. Since there weren't many great comps, the value could have been lower as well. All told, I have about 25k in the deal.

Lessons:

1. 1) If a contractor is available immediately (especially in this market), there’s a good reason why. That should be a red flag.
2. 2) Have a lawyer draft up a legal agreement that a contractor is willing to sign. If they aren’t willing to sign, find out why. If they still won’t sign, I wouldn’t work with them.
3. 3) Increased holding costs on the front end are worth a better contractor/home on the back end.
4. 4) I believe my Project Manager is a good person and hard worker, but this project was far too large for them, and I wish they’d have admitted that up front. Their contractor management was awful, as was their follow-through.
5. 5) Never deviate from the draw schedule/relinquish control of it until you feel comfortable it’s warranted. Had my Project Manager not deviated from the agreed upon draw schedule I might not be trying to recoup late fees.
6. 6) Cut out middle men. Working through my project manager instead of directly with my contractor did not work well, since all information was secondhand.
7. 7) Hold contractors accountable. Do not be afraid to fire them if they are not meeting your expectations, and find someone who is a better fit. It may take more time and cost more up-front money, but peace of mind + a higher quality product for your tenants will be worth it in the end.

Feel free to message me with any questions to learn more.

Thanks all,

Mike

[Ashley Cross]

Congrats on getting through! Renovations have been tough for everyone but it's always a learning lesson.