Finally hit my numbers on my 3rd property renovation... almost

[Michael Wentzel]

My basic strategy at the moment is to purchase run-down properties in Pueblo (Colorado), fix them up, refinance my cash back out and turn them over to a property manager. In 2014, I completed two of these projects which took me six months each and which I wasn't able to fully get my cash back out. The first property I left about $10,000 in after the refinance and the second one about $5,000 after the rehab. But they are both cash-flowing now and I learned a ton.

So late last year I went hunting for another deal on the MLS. I found nothing. But then a wholesaler mentioned a vacant property he was offering for $15,000. I walked it the next day. My handyman and roofer both gave me bids the same day. We signed that day and closed two days later.

Here is what she looked like...

Not great. The roof was obviously bad and leaking into the house. Almost everything was needed on the inside. But my numbers looked promising...

We ended up taking about three months and paying about $21,000 for a new roof, new furnace, new hot water heater, new kitchen appliances, new exterior siding on one side, new interior paint, new laminate flooring, lots of plumbing and a dumpster full of trash being hauled away. I don't do any of the work myself, other than managing the contractors.

Finished product...

Nothing fancy, but a simple, clean house ready to rent. 

I purchased it for $15,000. I put almost $21,000 into it. After renovations, it appraised for $46,000 and a I just took out a portfolio loan for $36,800. Loan fees were about about $1000, so I was about $1000 out-of-pocket on this one. It will rent for $625 and cash flow about $150. Not great, but not bad. Three months was half the time as my first two renovations.

My one major flaw on this one was not being able to add third bedroom. It would have helped my appraisal and monthly rent. I thought I was just going to add a wall back where there used to be a wall to return this humble 2-bedroom house back to its 3-bedroom glory. I was very wrong. My roofer didn't pull a permit and regional showed up not happy about the roof. Moments later they found my handyman (not a GC) inside with a half-completed wall. At this point they became very not happy. We tore it down and had a GC bid just the bedroom. They came back with an $8000 bid and we decided it wasn't worth it.

So that is renovation number 3. Number 4 is in process and Number 5 will be purchased next Tuesday. Probability says that I eventually get my numbers right and get all my money back out of one these properties.

Mike

[Michael Wentzel]

@Bill S. Looking back on it, I'm not sure why I only received a bid from one GC. I almost always do three bids to find a good one. I think I was a bit frustrated/ worn down by dealing with with the building code guys for the first time. 

But just to give an example of the difference of working with my "handyman" vs working with a General Contractor... here is a story. The house had a "breaker box" for the electricity, but we couldn't find the front cover for it. We hauled a dumpster full of garbage off the property, but never stumbled upon the cover. We knew it was an issue. The GC looked at it, brought his electrician in and said, "The box is too old to find a new cover and building codes don't allow us to fabricate a new one, so it will be $2000 to replace the entire panel." My handyman spent hours tracing down every lead in town and eventually came up with a replacement. Total charge was $140.

Nothing wrong with what the GC did. It is his responsibility to get everything up to code. But that is a pretty major price difference just to get a safe, functional breaker box.

No interest in getting a GC license since I live 40-min a way and may be moving back overseas this year. But I'll eventually need to find a good, reasonably priced GC in the area.

Mike