First house under contract!! Help with rehab scope?

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First house under contract!! Help with rehab scope?

Aaron Mikottis
Architect · Joliet, IL · Member since 2015 · 207 posts · 119 votes

Hey guys.

I just got my first house under contract (!!!) and I'm equal parts excited and terrified. As a result, I'm turning to the Bigger Pockets community in the hopes that I can get some outside opinions on what the scope of my rehab should be. I often hear of people saying that they over did it on their first project so I'm looking to avoid that problem.

Here's the deal: House hacking a 2100 sf duplex. (1050 sf per unit) 70k purchase price, wrapping rehab into a 203k loan. Combining 3.5% down with the Illinois Home First Grant, I'm shooting for zero money out of pocket. Property is located at the southern edge of the "Cathedral Area" of Joliet, IL, which is considered to be one of the more desirable areas of town.

My goal: To provide a quality rental that sits one tier below the highest rent chargers, hitting the sweet spot between cost and return for a B- neighborhood. Participation Award: $800/door Bronze: $850/door Silver: $875/door Gold: $900/door

I have interior photos uploaded to my google drive here.

Here's my analysis of the local rent and the rehab items I'm considering. (click to enlarge) Average neighborhood property value is ~120k.

What do you think? 

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John McConnell
Information Systems and Cyber Security Manager – US ARMY · Augusta, GA · Member since 2015 · 128 posts · 30 votes
10y
J Scott's book on estimating rehab costs. Quick read but wealth of knowledge. Might as well get the bundle from BP for a good deal. Brandon Turner
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  • Andrew Tsaruk
    Charlotte, NC · Member since 2015 · 3 posts · 0 votes
    10y

    Congratulations, Aaron! Best of luck moving forward.

    0Reply
  • Will Martin
    Amelia Court House, VA · Member since 2014 · 42 posts · 4 votes
    10y

    congratulations on your first contract! Good luck on having a happy and prosperous future.

    0Reply
  • Ndy Onyido
    Toronto, Ontario · Member since 2014 · 615 posts · 172 votes
    10y

    Congratulations and best of luck

    0Reply
  • John McConnell
    Information Systems and Cyber Security Manager – US ARMY · Augusta, GA · Member since 2015 · 128 posts · 30 votes
    10y
    J Scott's book on estimating rehab costs. Quick read but wealth of knowledge. Might as well get the bundle from BP for a good deal. Brandon Turner
    2Reply
  • Ian Scalzo
    Plymouth Meeting, PA · Member since 2015 · 20 posts · 4 votes
    10y
    Hey Aaron, Congratulations! I'm sure everything will work out. What software or website did you use to get that rent calculator? Best of luck!
    0Reply
  • Scott DixonPro Member
    Rental Property Investor · Champaign, IL · Member since 2012 · 192 posts · 74 votes
    10y

    Hey @Aaron Mikottis

    Congrats on taking action and securing your first property.  I actually bought a similar duplex a couple years back which was a American Four Square style property.  I went through a pretty large rehab as well and learned a lot in the process.  Few things I know that were large ticket for me but I didn't see itemized on your spreadsheet for the property:  Electrical, Plumbing, Windows, and Bathroom Pieces.  Are all of these in good condition.

    Best of Luck,

    Scott Dixon

    1Reply
  • Greg MyrothPro Member
    Investor · East Peoria, IL · Member since 2015 · 39 posts · 4 votes
    10y

    Aaron,  Congrats!  Looks like the place has a ton of potential.  Please keep us updated as you progress.  

    Greg

    0Reply
  • Mateo Carrera
    Melrose Park, IL · Member since 2015 · 88 posts · 30 votes
    10y
    Congrats you picked a really good area Very desirable. Good luck with the rehab. Looking at your numbers i see a couple things missing, maybe just left out From the post.
    0Reply
  • Mateo Carrera
    Melrose Park, IL · Member since 2015 · 88 posts · 30 votes
    10y
    Agree with Scott Dixon. I forgot to mention insulation Most of the houses in this area have very little or no insulation. I would recommend having someone who has done rehabs like this to tell you what potential surprises. Once u start the project they will pop out of nowhere. And give you maybe some potential things you have not considered or thought of.
    0Reply
  • Sam L.Pro Member
    Rental Property Investor · Joliet, IL · Member since 2014 · 163 posts · 85 votes
    10y

    Congrats! I looked at that house earlier this year. I have a house down the road near St. Pats. Would love to see what you do with the place.

    Good luck!

    0Reply
  • Sam L.Pro Member
    Rental Property Investor · Joliet, IL · Member since 2014 · 163 posts · 85 votes
    10y

    Btw, my realtor and I were surprised for a home with no gutters and a limestone foundation the basement looked quite dry.

    0Reply
  • Jaime Frausto
    Investor · Shorewood, IL · Member since 2011 · 79 posts · 18 votes
    10y
    Congrats Aaron . I too invest in that area. Would love to give u my input by stopping by. Let me know .
    0Reply
  • Aaron Mikottis
    OP
    Architect · Joliet, IL · Member since 2015 · 207 posts · 119 votes
    10y

    Thanks everyone!

    @Ian Scalzo I took a screenshot of the data from Rentometer.com and pasted it into my analysis. If you haven't heard of that site before, definitely check it out. The upgraded version gives you a lot more data than a free account - I purchased a 1 day pass so that I could get the scoop on my competition.

    @Mateo Carrera Thanks for the comment on insulation. I'll definitely check that item out!

    @Scott Dixon Thanks to you as well! I will make sure to walk through those items with the home inspector.

    @Sam L. It is kind of surprising... I'm not a fan of the siding on this house, because I believe that it might be allowing water to run down the face and get stuck on the wall. I'm going to be checking that out in detail this week.

    @Jaime Frausto I would love to get your input! Send me a message with some times you're available and we can meet up.

    0Reply
  • Cory Hansen
    Investor · Madison, WI · Member since 2015 · 9 posts · 1 vote
    10y

    Congratulations Aaron, it looks like it will be a fun and rewarding remodel for you. 

    Quick comments on this. I didn't see any cost for doors or mill work in your spreadsheet. It looks like you have some 5 panel doors with original two part trim then some basic doors in other parts of the house. I'm not sure if you plan to update any of that but it might be something to think about in your planning process.

    Best of luck to you I hope it goes great!

    Cory

    0Reply
  • Aaron Mikottis
    OP
    Architect · Joliet, IL · Member since 2015 · 207 posts · 119 votes
    10y

    @Cory Hansen Thanks for your comment!! That's a great catch on the doors; it would be a dream for me to restore this house to a more historical condition. Some of the proportions of the windows drive me crazy, too. Unfortunately, I don't think that I will be changing out any doors unless they are broken. 

    I have to keep asking myself how much I want to rehab an item for emotional reasons. Putting in nice doors is definitely an emotional want. I don't really think that the market will support that move, however - I don't see a renter being happy to pay more rent for an aesthetic item like the doors. As far as millwork is concerned, I'm going to paint the trim where necessary.

    0Reply
  • Ben Clinger
    Toledo, OH · Member since 2015 · 13 posts · 3 votes
    10y

    Just wanted to say good luck, and thanks for posting pictures on google drive and sharing your estimated costs, I will have to use those ideas for my recent first property - duplex, I purchased last month.

    0Reply
  • Aaron Mikottis
    OP
    Architect · Joliet, IL · Member since 2015 · 207 posts · 119 votes
    10y

    Thanks @Ben Clinger. I will definitely be posting a progress thread and fill everyone in on the real numbers as things move along.

    0Reply
  • Cory Hansen
    Investor · Madison, WI · Member since 2015 · 9 posts · 1 vote
    10y

    @Aaron Mikottis, I'm working on a victorian with doors like that and doing an historic renovation is a lot of work for sure. It sounds like a good plan to steer clear of that for this property. The doors look in good shape from the pictures I wouldn't change them out at all my thought was more matching them if possible. You might be able to pick some up for cheap at a restore type place. If you go for the property and you stick with the 5 panel doors let me know I might have some leftovers from my project that I could donate to your cause.

    0Reply
  • Aaron Mikottis
    OP
    Architect · Joliet, IL · Member since 2015 · 207 posts · 119 votes
    10y

    @Cory Hansen Thanks, I appreciate it! I was just in Madison a couple weeks ago - you guys have some absolutely gorgeous historic houses up there. So much character. They definitely don't build em like that anymore!

    0Reply
  • Doug W.
    Flipper/Rehabber · Alexandria, VA · Member since 2014 · 461 posts · 262 votes
    10y

    Hi @Aaron Mikottis. 

    Congrats on jumping into the deep end of the pool. Here is my suggestion...

    I can't speak to the prices because I think those can vary widely by geographic area and time of the year. But I can speak to the order of the work being done. If you are going to need to do outside work, especially, roofing, painting, and landscaping get to it ASAP! It's going to be winter soon and that could affect the quality of items like how the paint looks after it goes on and how the landscaping turns out.

    I'd also suggest doing the big stuff right away -- like demoing walls, tearing out bathrooms and kitchens, etc. If you're going to even possibly have to change out any of the mechanicals (hvac, water heater, etc.) or deal with major plumbing or electrical work I would get these done right away, too. Otherwise you're going to find yourself later being short on budget when you're needing to tackle the big ticket items... like when you realize your furnace is in worse shape then your thought or that the floor joists under your kitchen are rotted. 

    It's one thing to change your bathroom tile choice to save some money and, on the flip side, it's not easy to save money when you need a major issue fixed later on in the project and your budget is almost expended. 

    Best of luck. Keep us updated on how it is going.

    2Reply
  • Rob Krach
    Lender · Chicago, IL · Member since 2013 · 82 posts · 27 votes
    10y

    sorry issues with the posting

    0Reply
  • Rob Krach
    Lender · Chicago, IL · Member since 2013 · 82 posts · 27 votes
    10y

    @Aaron Mikottis,

    What lender did you use to get the grant plus the 203k.

    I went through the entire list of lenders that offered the grant, found out which ones offered 203k and then was told by every single one of them that i can't combine both.

    I will apply tomorrow for this if you can help me get a lender that does both.

    Congrats and thanks,

    Rob

    0Reply
  • Aaron Mikottis
    OP
    Architect · Joliet, IL · Member since 2015 · 207 posts · 119 votes
    10y

    @Doug W. Thanks for the detailed reply, I really appreciate it! I might have to do some major mechanical stuff so I'll be sure to hit those big ticket items first.

    @Rob Krach, I don't have the loan approved yet (just pre-approval - I'll be signing the formal application tomorrow) so I guess I can't say for sure that I can combine the grant with the 203k. My banker didn't seem to think that it was an issue, however. I'll PM you his contact info.

    0Reply
  • Steven Gesis
    Investor · Miami, FL · Member since 2015 · 1k+ posts · 390 votes
    10y
    Originally posted by @Aaron Mikottis:

    Hey guys.

    I just got my first house under contract (!!!) and I'm equal parts excited and terrified. As a result, I'm turning to the Bigger Pockets community in the hopes that I can get some outside opinions on what the scope of my rehab should be. I often hear of people saying that they over did it on their first project so I'm looking to avoid that problem.

    Here's the deal: House hacking a 2100 sf duplex. (1050 sf per unit) 70k purchase price, wrapping rehab into a 203k loan. Combining 3.5% down with the Illinois Home First Grant, I'm shooting for zero money out of pocket. Property is located at the southern edge of the "Cathedral Area" of Joliet, IL, which is considered to be one of the more desirable areas of town.

    My goal: To provide a quality rental that sits one tier below the highest rent chargers, hitting the sweet spot between cost and return for a B- neighborhood. Participation Award: $800/door Bronze: $850/door Silver: $875/door Gold: $900/door

    I have interior photos uploaded to my google drive here.

    Here's my analysis of the local rent and the rehab items I'm considering. (click to enlarge) Average neighborhood property value is ~120k.

    What do you think? 

    Aaron, congratulations! I can appreciate your concern for possibly over improving the home, however, you will only be able to improve as much as the home  and immediate can bear for your after renovation value based on your scope.  So you will not spend more than the home will appraise for after renovation.

    Now you have the ability to decide what kind of investor or landlord you want to be. My immediate reaction is apply the most you can to the (2) units today, to mitigate future capital expenditures. Certainly address the mechanicals, you will need to comply with HUD guidelines for health and safety and after that, it is up to you. the following basic materials are for you to consider when completing your renovation, while considering the future implications of tenant turn-over:
    *Flooring

    • NO Carpet
    • Tile wet areas if this in your budget or simply install a resilient Rubberized Vinyl Floor plank system
    • General areas - either refinish hardwood if existing or a new resilient tongue & groove laminate flooring

    *Paint

    • Standardize the paint color throughout the entire interior, do not get fancy with painting different rooms different color, just more of a headache to deal with at each tenant turnover

    *Electrical

    • Updated electrical schedule, new outlets and switches you want everything to be nice and bright, you want the wow factor no matter the area or rents, you want everything to be clean and look appealing
    • New Lighting schedule - consider using LED - it is brighter (better presentation) - more energy efficient and should be a smaller maintenance burned over time.

    *Doors

    • Consider standardizing all the door hardware throughout

    This is a small list of items to consider, Im sure we can do the same applications throughout the house to every surface, just need to decide if you want to do something high quality, cost effective materials to mitigate your long term burden or if you are soon that wants to cut confess now and deal with the problems later.  Everyone has different strategies, but if you want my opinion we have found the best practice to be doing large capital infusion on front end addressing the big ticket items and misc. problematic areas then have to deal with it later through maintenance deal with upset tenants.

    Congrats & Good Luck.

    0Reply
  • Mateo Carrera
    Melrose Park, IL · Member since 2015 · 88 posts · 30 votes
    10y
    Quick question Aaron Mikottis what is your scope of work? Might be just go in and rehab it asap and house hack for a short term /long term. Or get the rental side first then your side. What are your plans. I ask that because there are certain things that need to happen in a sequence. May be just small cosmetics. Might be a compleat gut job. I usually do a complete gut job and redo everything because im investing in the long term. I plan to hand down these homes to my children. But just a kinda rule of thumb. I have followed that works well #1&2 almost have to be thought of as the same priority because its gravity dependent#2. And #1 airflow. You can reroute it to a certain degree but you are limited. 1. Hvac 2. Plumbing (drainage) 3. Plumbing (supply) 4. Electrical Lots of different styles of rehabbing. Just wondering what you have in mind ?
    1Reply
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