My first rentals were remote rehabs; Here's what happened!

[Account Closed]

(Apologies for the long-winded post!)

My second remote rental rehab is in the books! Here's my journey and lessons learned along the way! Photos/Quote Details provided!

Shout out to @David Greene because if it wasn't for the wisdom he imparted to us in show #169, I likely would never have had the courage to rehab and own a property remotely. 

THE DEAL:

• MLS Listing
• 3BR 2BA // 1950's SFH // 1350 sqft
• Originally $134k; reduced to $119k
• DOM: 6 months +
• Blue Collar B-class neighborhood in Bossier City, LA
• 3BR Market Rents $1000-$1150 // 4BR Market Rents $1200-$1350

This property is in one of the best school districts in Bossier City and literally walking distance from the elementary. It is very well built but what really piqued my interest was the potential to convert the formal dining to a 4th bedroom simply by adding a door. 

THE NEGOTIATION:

• Initial offer $95k w/ 2% Seller Concessions
• Counter 'Final' Offer Received at $115.5K
• Counter 'Final' Offer of $115k with 2% Seller Concessions submitted
• Counter 'FINAL Final' Offer received for $115.5k and 1% Seller Concessions (Accepted)

My agent didn't want counter the final offer but I pushed him to - and glad he did! Even if it seems like a small amount every bit helps.  

THE INSPECTION:

• Overall, property needed ~$1,000 in misc minor repairs
• The roof needed to be completely replaced

Because of the bad roof and the 'final offer' designation from the seller, I walked away from the deal. Two hours later, they offered $4k off ($111.5k) for the roof. I gathered 3 roofing quotes; I needed $7k for a replacement. I offered more at $118.5k with 2% seller concessions and $7k cash back at closin to my contractor - FINAL OFFER. The offer was quickly accepted and the roof replacement cost was effectively rolled into my loan. Amazingly, the appraiser considered the new roof in his methodology and the house appraised for $135k - not including the rehab performed (below)!

The roof was replaced the day after closing; it took the 6-man crew all day but they got it finished. I choose a grayish shingle style and used a 30-year architectural shingle. Everything old was hauled away and the roof looks amazing now!

THE REHAB:

• 2 Bathroom remodels
• New Flooring in Living and Hallway
• Dining room converted into 4th bedroom
• Misc Updates/Repairs
• Landscaping & Tree Removal
• Not quoted on paper but discussed/agreed to include in total price: replace 4 ceiling fans, replace exterior door, add door to formal dining room, install misc items (i.e. smoke alarms, wall outlets where needed, light fixtures, etc)

Original quote included a complete interior repaint (walls/ceilings/cabinets/trim/doors); it was $4.5k. I reduced the painting SOW and  was re-quoted $1800. The contractor's knucklehead painters painted EVERYTHING (not paying attention??) and the GC agreed not to charge me for the additional painting as it was a mistake and outside the agreed upon SOW.

Working with this particular GC remotely was very difficult. I closed on this property mid June and was told this rehab would be done by July 1st. By then, only the demo was done (mostly removing the old tile). The GC went on vacation days later- for two weeks! No work was performed until July 18th after he returns and gets back to it. I ask for picture updates but never receive them. I call/text him ever other day; sometimes he's responsive, most time he's not. Then... radio silence for 5 days! WTH? 

Luckily for me, my Dad lives nearby and checked on the property (he has a key). NOTHING significant done since rehab, only light painting! The house is a mess, AND THE PAINTER IS LIVING THERE!! He is also painting other peoples stuff - IN MY HOUSE - and getting paint on my carpet. Out of caution, I get more bids to complete the project. 

Fortunately, my GC calls the next day; he has been in the hospital with a blood clot in his leg (from driving cross-country on vacation). We had a pretty crucial conversation and re-aligned our goals. We also addressed the painter living there (he handled it) and set expectations that he would replace any damaged carpet at no charge. 

The tide has turned! I get photos everyday with text updates for about a week. Then, nothing for 4 days. Radio silence - AGAIN! My GC finally calls me; his son was in a very bad car accident (he is OK), hence why he was out of pocket. We discussed the timeline again, reset expectations, and he finally moved forward getting the job done literally hours before the new tenants moved in TODAY (08/17/2018). It's now rented for $1300/month.

So, what did I learn here? A LOT!

David Greene is right to surmise that Rockstars know Rockstars! 

1. My husband-wife Agent team was referred by family members, insistently. They are not very good and literally forgot who I was once the sale close. I should have sought out a real Rockstar Agent in the area.
2. I did not vet my GC since he was referred by my Agent(s) on the insistence other investor clients are happy with him. Unfortunately, his failure to keep timelines and poor communication concerns me. I should have vetted my GC more thoroughly (trust, but verify).
3. My agent(s) offered Property Management services to me on my rentals. I told them 'no thank you' but I would like for them to act as a 'leasing agent' and find a renter for my (first) property. I later learned they did not provide 1.) Application services, 2.) background check and screening services, and 3.) Lease agreement creation and execution services. I had to figure this all out on the fly!!! I should have asked questions and set MORE SPECIFIC expectations early on. 
4. My GC had a hard time on my first property getting everything done, despite the email list I sent him. He missed 3 items. For the second property, I created a checklist and told him that he will no get paid until all items on the checklist can be checked off and the quality of work is acceptable. This really helped a lot because I kept going back to the checklist. I need to use checklists more often, especially to keep contractors from forgetting to complete smaller items. 
5. Before providing final payment to my GC on my first property, I gave the work list to my Agent and asked him to make sure everything is complete. He went to the property and said it looks good. When I asked if everything on the list was done he said the property looks very done and is finished. The GC missed 3 items and had to come back, reluctantly, after I paid him! I need to always trust but verify in everything I work with others on.

BEFORE PHOTOS:

SNIPPETS FROM MY CONTRACTOR QUOTES:

POST-REHAB PHOTOS:

ANALYSIS NUMBERS (ANNUAL):

• Down Payment: $23,700
• Closing Costs: $1,455.80
• Rehab Budget: $8,500
  
  • TOTAL CASH INVESTED: $33,655

• Gross Income: $15,600
• Insurance: $811.32
• Property Taxes: $1254.50
• Vacancy @ 7.5%: $1,170
• CapEx/Repairs @ 5% total: $780
• Management Fee @ 10%: $1,560
  
  • NET OPERATING INCOME: $10,024.18
  • PURCHASE CAP RATE: 8.45%
• Debt Service: $6,638.76
  
  • NET CASH FLOW: $3,385.42
    
  • CASH ON CASH RETURN: 10.06%
    
    • NET CASH FLOW (w/out mgmt fee): $4,945.42
      
    • CASH ON CASH RETURN (w/out mgmt fee): 14.69%