We bought 2 more Cash Cows (3 units)

[Zack Clopper]

I have been wanting to make this post for a few months now but been delayed so decided to put 2 of our recent houses in this post. 

This past summer we purchased/rehabbed/refinanced two properties and both turned out great. The first house we worked on the agent/seller for a while before getting under contract. We found this house on the MLS and after being shot down multiple times in a 2 month time frame we finally had an offer accepted. Details for this property:

Purchase Price: $120,000 – 3,000 seller concessions

Rehab Estimate: $50,000

Estimate After Repair Value: $260,000

Loan: 100% of purchase and 100% of rehab – (12% interest for 6 months and 2 points)

After we did the inspection nothing extra popped out at us from our initial inspection of the house. Below are some before pictures of the property and as you can tell it was pretty rough shape cosmetically. Some of the larger issues with the house were the sub floor was rotted out in the bathroom, someone cut out all of the copper plumbing, house wasn’t updated in years and list could go on and on.

Contractor Tip

My business partner and I after purchasing a house we always walk through the house and make a very detailed scope of work and put a price next to everything to get an idea of where we are going to be at, this process typically takes around 2-3 hours for a property. After doing this we start calling contractors via different websites, post on our local investor Facebook page, etc. and get a group of general contractors and specialized contractors. We do all of this within a week after closing and then invite all the contractors to the house that next Saturday in a 2-3 hour window and tell them to come whenever they can in that time frame. On this specific property we had around 30 contractors come out we had printed off copies of our scope of work and walked around groups of contractors and told them to send us their bid and by that Monday (2 days after contractors came out initially) we had a general contractor start on the house. Here are some of the before and after pictures of this house:

Estimated vs. Actual

We estimated on this house if we were to hire everything out separately not to a general contractor it would be around $45,000 and the bid our general contractor gave us was just over $46,000 not including appliances which ended up being around another 1,000 total for 2 units. We hit our budget at the end of the project with no unforeseen expenses and now the property is fully rented out and refinance.

Final Numbers

The final numbers for this project were as followed purchase price $120,000 and renovation came in right under our $50,000 budget. Our initial closing costs were $7,000 which we paid out of pocket for this property and our only money wrapped up in this deal at this time. We have both units rented out now at $1,250 per unit for a total of $2,500 total which was slightly lower than we estimated before starting (estimated: $1,300/unit). After refinancing out of the HM loan our PITI is $1,418 per month. At the end of the day we will be cash flowing $1,082 per month before any maintenance/repairs to the property and make our initial investment back in less than 7 months.

How we lucked out on Deal #2

Our next deal we closed on it 7/12/19 and this house we actually lucked out on. It was listed on the MLS for $89,900 and the ARV in this development is around $160,000. We put an offer on it for $89,000 with $3,000 concession sight unseen and was accepted. When we went to do our inspection we found there is a 2nd full bathroom that was not listed and also a full kitchen in the basement as well with a walkout basement.

We did the same updates we do to almost all of our rentals being new HVAC units, Kitchen, Bathroom, Flooring, Paint, etc. Also another cool feature to the property was the sunroom right off the kitchen that we though would have good potential for extra space so we put down flooring and a new fan out there for bonus space. This property we estimated $25,000 in repairs but only received $20,000 from our hard money lender for the renovation budget. On this deal we used the same general contractor that we used on the previous house since he did a great job, stuck to his numbers, and got the job done in very timely manner.

Below are some of the before and after pictures of the second property:

Final Numbers

The final numbers for this project were as followed purchase price $89,000 and renovation came in right over our $25,000 budget. Our initial closing costs was right above $5,000 which we paid out of pocket for this property and since we also paid anything over 20,000 for our renovation we were all into this project at $10,500. We had the property rented out before our first interest payment to our hard money lender (September, 2019) and we are now going through the refinance process. Because we had the second kitchen in the basement we figured it would be great to ask a bit higher in rent in hopes for a family to move in that might have a in-law that could live in the basement and that is exactly what happened. Typical rent in the neighborhood is around $1,400 to $1,500 on the high side we ended up finding a qualified tenant to rent out for $1,700 per month. We did no renovation to the kitchen in the basement at all and just by us lucking out and having it in the basement netted us 200-300 per month extra. After we finish with our refinance in October our monthly PITI will be right under $1,100 per month and we will be cash flowing a little over $600 per month before maintenance/repairs which will take us almost 18 months to get our initial investment back. Also this house just appraised last week and came in at $160,000 as expected and now we have $50,000 in equity at this house.

Upcoming Projects

Property #1: We have a few projects coming up that we have closed on or have under contract. We just recently got an old multi family that is pretty cool building. Purchase price was $135,000 we have a $80,000 quote from our contractor and hope to be all into the property under $225,000 as we might run into a few things on this project as it is such a large renovation.  The rent for the building should gross around $5,200 per month once it is fully rehabbed and occupied which will be great cash flow.

Property #2: We won a foreclosure on xome.com back in May and should be finally closing on that in coming week/month which we won for $72,000 and have a renovation budget for around $25,000 and an ARV around $130,000 and rent will be at $1,400. It is nice because we own the property attached to this which is why we wanted this house.

Property #3: We got court house auction property under contract from a local wholesaler for $95,000 and we estimated $15,000 in renovation with an ARV around $160,000. We also own another property on this street as well already so familiar with the area and will be renting for $1,500-1,600 depending on what time of the year this closes (hoping in the next month).

Property #4: We got this property under contract yesterday and is a 2 unit that wholesaler won at another court house auction and we got it for $84,000 with a renovation budget of around $25,000 with an ARV at around $165,000 and rents are going to be $900-1,000 per unit.

I hope to be giving more updates on the properties under contract in coming weeks/months and keep growing our rental portfolio to move into the larger Multi units in the next year.