Knoxville historic remodel that nearly took us out

[Cory King]

In 2022 we took on a historic home near downtown Knoxville. We paid $170,000 for it. After inspections and due diligence we anticipated around $50k in rehab and about 4-5 months of time to turn over with an ARV (after repair value) around $325,000. Solid deal. Using a hard money loan to cover the purchase and rehab costs.

The inspection revealed some termite damage to about 2 floor joists that we could see and the rest of the place was seemingly surface level with the bathrooms and kitchens needing the most work. As we started peeling back the layers in those areas more termite damage showed itself. Joist after joist, stud after stud were basically turning to powder. In total 14 joists, countless studs, 1 girder, and new footers had to be replaced. In order to access the floor joists the floor itself had to come up. The home has these lovely caramel colored heart pine floors and removing them was the craziest game of operation I've ever played as to not damage them and fit back together. 

As the work and time started to add up the numbers were getting squeezed more and more. In total we'd invested $120,000 into the project and it took us 11 months to complete. Thankfully our lender was pretty flexible as we hit our 6 month deadline and were still short $60k in cash needed to complete the project. We paid an extra 2 points at refinance and got an extension for the deal for an added 4 months. I spent a lot of time hustling my *** off to generate the extra cash needed bc we didn't have it in reserves to just write the check. 

As we finished it up I was able to recoup a majority but not all of my invested cash, leaving about $40k in the deal. Prior to purchasing in 2022 when rates were rapidly rising, thankfully I did underwrite this deal at upwards of $100k in costs and 9% interest and it still penciled out. Glad I did bc that's pretty much were I ended up. First cash out refi resulted at a rate at 9.2%. Payment was $2400/mo and leased to students at $3200/mo 

We refinanced in 2024 at a much better rate, mid 7s.

As of now our note is $2300/mo and the property generates $3550/mo gross income renting to students at University of Tennessee. We also recently completed a cost segregation study to accelerate some depreciation and save on taxes which has now helped us get back the cash we'd originally left in the project.