Just Completed First Rehab: Before & After

[Cory Iannacone]

Pretty Pumped.  Just completed my first rehab.  Learned a lot and looking forward to moving onto the next one.  Before & After:

[Cory Iannacone]

Thanks @Anthony D.  In short, here are the numbers, which require some explaining:

Purchase Price: $125,000.

Repair Costs: $70,000. (includes both labor and material.  I did not do the work myself.  The house is located in Catonsville, MD (which is the suburbs of Baltimore).  I live about an hour and a half away in Harrisburg, PA.

ARV: $265,000 - $275,000

Holding costs: $0.  See explanation below.  

Rentals in the Catonsville, MD area: $1650 - $1850.  (I would put this house at the higher end.)

Taxes: $172/month or $2,062/yr.

Now, here's the backstory.  The house was actually my grandfather's who passed away in October 2015.  My mother had been sitting on it for over a year, paying taxes, utilities, etc. which is when I offered to purchase it from her.  This is where it gets complicated.  We had an agreement (see numbers above) and I moved forward with purchasing materials, hiring contractors, etc. This is when my sister, who lives in Florida expressed interest in the house.  My mother wanted to keep the house in her name (in case my sister moved back to MD from FL), but move forward with the rehab.

Lesson #1: Be very careful in mixing family and business.  I honestly believe the family trumps business, so I would never do anything to jeopardize my relationship with my family.

This is where the deal changed.  My end goal was cash flow which could be used towards another purchase. The house was paid off and my mother wanted to keep it in her name, but did not want to continue paying expenses every month for the house.  Therefore, the new arrangement was that I would handle fixing the house up.  I would then rent it out, pay the expenses, and be paid with the profits from the rent--essentially I would be managing the property.

I asked my mother to put up the cash to pay the contractors as an investment into the property. I put all the materials on a Home Depot credit card with no interest for 24 months. My mother benefited 2 ways: #1 - increased equity in the house she owned from the rehab, and #2 - she would no longer have to worry about covering expenses on the house. I plan on getting a HELOC once my 24 months of no interest runs out on the HD credit card and pay the monthly payments from the rent proceeds. Everyone's needs were being met.

Lesson #2: Be flexible in dealing with sellers to make a deal work. See what the seller needs, and see what you can do to accommodate the seller's needs and your needs at the same time. 

Session #3: I should have done a better job screening my contractor.  Honestly, things, started out great, but I noticed small things which should have been red flags. Work not getting done.  Contractor not at the house when he said he was.  I continued to give the guy chances--too many.  That's really what delayed the project. 

Lesson #4: Listen to your gut when something doesn't seem right.  I would notice work was not done properly.  The contractor really screwed up the floors, but kept telling me that's just the way they were supposed to look.  I had my new contractor redo them and it looked a million times better.