From what I thought would be a flip to a long term rental

[Shelby Willitts]

Investment Info:

Condo buy & hold investment in Cameron Park.

Purchase price: $294,000
Cash invested: $380,000

Completely gutted and remodeled a 1,367 SF condo (2bd/2.5ba) locally. Have made some other improvements within the last couple years like replaced the AC on the roof (18k) and updated and reinforced the balcony off the master (5k). Remodel cost to get it rentable was about 60k. Rents are currently $2350/mo so net cash flow after insurance, taxes and HOA is about 1900.

What made you interested in investing in this type of deal?

It was listed below market value due to it's condition. Original cabinets/appliances, carpet was gross and smelled, interior walls had issues with holes and things like that. I was looking for a distressed property that I could renovate.

How did you find this deal and how did you negotiate it?

Found on MLS. Worked with a local friend who's an agent who helped me negotiate a great deal. It was listed for $320,000. We offered $300k and after inspections we lowered to $294k.

How did you finance this deal?

Used money from my IRA to buy as an all cash deal. I had my retirement invested in the stock market so I pulled that out and put it into a self-directed IRA.

How did you add value to the deal?

I gutted the entire unit and put in all new appliances. Replaced all carpet with a LVT wood and painted the entire place with one color for consistency. The fireplace was also unsafe. We installed an electric fireplace and drywalled above to install a plug for mounting a TV above the new fireplace. I also cleaned up the overgrown yard and replaced a failing deck with a concrete slab for the back patio.

What was the outcome?

The place is gorgeous (IMO) and rents for more than the standard units in the area. I also have very little maintenance to attend to because everything is new. I self manage instead of using a property management company because I get very few renter calls for service/issues.

Lessons learned? Challenges?

I learned that you can over-improve a rental. However, my intention initially was not to own it as a rental. My intention was to flip so I did some nicer improvements to try to entice buyers. I ultimately decided to hold it and rent it which was a good decision for my retirement account. I think the biggest thing I learned was that you should go into a real estate investment with multiple strategies for getting out of it. The reno will always cost more than you budget for.