Buy-and-Hold in South Knoxville, TN

[Derek Levine]

Investment Info:

Single-family residence buy & hold investment in Knoxville.

Purchase price: $102,000
Cash invested: $65,000

Solid concrete-block/stucco 1400sf Single-Fam on 1-1/2 acres in beautiful, quiet area of South Knoxville. Rehab involved interior paint and minor wall and ceiling cosmetic fixes; full kitchen remodel with new stainless steel appliances and granite countertops, cabinets; new PEX plumbing throughout house (tricky going through some concrete block walls); full electric re-wiring; LVP flooring throughout house; all new windows; updated bathroom...lots of work in all.

What made you interested in investing in this type of deal?

After relocating from the West Coast to beautiful Tennessee and buying our own home to live in (and spending a few months rehabbing that), we were ready to buy our first new rental in our new Home State. This home seemed solid but would require a lot of updating. Seemed doable. Took longer than expected. Cost more than expected. But nothing excessive and we learned A LOT. Also made good contacts for local contractors.

How did you find this deal and how did you negotiate it?

Used the same Realtor we had used to find our home property. Did most research on Zillow, and looked at a few dozen properties before finding this gem-to-be. Offered below asking, got accepted (came in with a large down-payment), and after our inspector reported on how much work this property would need, we adjusted our offer down further (as allowed in the original offer contract).

How did you finance this deal?

Were already "pre-approved" by a lender who was recommended to us by our Realtor; the loan was for a small cash-out from our primary residence (which we had bought in cash a few months prior to finding this house). Put thirty-percent down and had cash reserves in the bank ready for an extensive rehab.

How did you add value to the deal?

Rehabbed and improved the property with the intention to avoid "unexpected" events from popping up in the near future. This involved a serious water-main replacement and all new everything (except the roof and walls), even serious tree-trimming done by experts. We rehabbed with the intention of attracting a serious-minded, long-term renter.
Bought at $20k below asking but rehabbed with $30k out-of-pocket, and then another $5k for a replacement of a 300-foot water-main line.

What was the outcome?

After a multi-month and expensive rehab (for us, anyway), the property was in great shape. Didn't take a long to find a great renter and after their first two-year lease contract recently expired with us, they signed another two-year term. And, they treat the place like their home (with respect).
Cash-on-cash numbers aren't great because of how much our own money we put into the down-payment and rehab costs, but in the 2-1/2 years we've owned the property it's value has more than doubled.

Lessons learned? Challenges?

Some things you don't know until you experience them...it's a challenge to find reliable electricians, plumbers, etc. You can do internet research and ask for referrals, but it can take time to find a good team. We had a plumber do half the job and then stop returning calls. Several window installers said they wouldn't touch the work we wanted done before we found a dream-team who completed the job in one day. In the beginning I did work I could myself, even if just to know what to expect.