How did I do on this deal?
So, I decided to purchase a second rental property. The property I found was a SFH on foreclosure auction. The price I finally bid was $76k with approximately $4k closing and buyer's premium costs bringing my investment to $79k. Since I owned another rental property nearby, I made a ballpark guess of $10k for repairs, even though I had no basis for it at this point.
Since the property was occupied by the previous owner, the "rules" of the auction were that I was to not bother(contact) the owner or they could pull the deal. I drove over to the property and talked to the neighbor. I did a sidewalk appraisal and noticed that the roof was in good condition. The yard was well manicured. From what little I could see of the inside through the windows from the sidewalk, it didn't look like a hoarder's house. The air conditioner was running. The driveway was good. That's it. Take my money, roll the dice.
I did do my due diligence at the county recorder's office and the court house. I found out that there were 9 tax liens on the property. I checked the document numbers and compared them with the foreclosure documents and found that all 9 were released when the bank took ownership. I noticed that the owner had divorced and there was a quit claim deed for that. Good no "other" owner issues to deal with. The guy had already had a bankruptcy in the last 7 years, so he couldn't forestall the process that way. GREAT! Also, I noted that there was a writ of possession awarded to them at the sheriff's sale. There was an eviction date with the sheriff set for Sept 9, 2016. We closed on Aug 25 and by Aug 30, the property was recorded. We were considering a cash for keys but decided to wait for the 9th. On Sept 5 we posted a notice on the door for eviction just to cover our bases. I later found out from my NEW lawyer, that while doing that was good, it wasn't necessary because in our state even though the bank cancelled the sheriff's trip to the property because they didn't own it any more, that the writ was still valid. They had to vacate and I wouldn't need to apply to the court for unlawful detainer again. Just schedule with the sheriff again if necessary. My wife found out from the neighbor a few days prior to the eviction date that the guy had been moving stuff out. On Sept 9, I arrived at the house and tried to drill the lock open(thanks YouTube). After breaking 2 drill bits I used 3 hits with a hammer on the door knob and I was inside(The deadbolts had been removed by previous owner for some reason. Thank you, no locksmith for me.
My first look at the property.
Well, the guy was a smoker. It was quite strong. But, the property looked in good shape. The range and refrigerator was left(surprising). It had an almost completely finished basement(it has a basement....cha ching). I didn't find anything in the property records that there even was a basement. In that neighborhood it is about 50-50 to have a basement and a finished one was a percentage of that. There was one wall that had a wood stove pipe hole in it through the concrete foundation and it was already stuffed with insulation. The rest of the 3/4 basement attached to that area was finished sans the floor. One quarter of that area of the basement had the walls finished but not the ceiling. Then there was a full bathroom in the basement, but what filth. The shower looked as if it was used by a road paver crew to clean their boots up. Then the laundry area was completely unfinished.
What we needed to fix.
In the basement finished area, there was a hole in the ceiling drywall(1'x1') where the previous owner installed a shutoff valve to the faucet outside. When I turned it on, it leaked like hell. A few turns on both nuts stopped the leak. To solve this issue permanently, the recommendation was to add a new shut off valve in the unfinished basement area by where the water meter is and then seal the ceiling up permanently. The hope is that if no one is messing with that valve, it won't leak in the future.
One of the windows had a broken fitting that kept it from sliding up and down properly. It would slam down if lifted.
There is no garbage disposal in the left side of the double sink in the kitchen. This drain is open, so something needs done there or it will get quite wet under there.
There is a double sink in the bathroom. The faucet on the left side doesn't work at all. Don't know yet what the issue is, but it's a supply side water issue and probably not too costly.
There was an above ground pool in the backyard. I consider this a liability that I don't want to mitigate, so I called around and got a quote for $500 to remove. They were also going to remove some trees in the backyard because there was some overgrowth and I just didn't like the look of it. Total backyard work estimate came to $1400. I told my contractor and he said he has a guy who works for him that usually does it for $200. The same guy said he'd pull down all the trees for an additional $200. The only difference would be that there would be no removal from property. For $1000, i'll get the city to bring out the free twice a year dumpster and i'll throw the pieces in there myself.
The entire upstairs had carpet, sans the bathroom and kitchen. I am replacing it with laminate flooring so I don't have to keep replacing carpets with each new tenant.
The gutter nails were coming out around the house due to the weight of the downspouts being clogged up. They were secured and cleaned. Also placed a gutter guard over them to keep them from being clogged again.
What we also fixed.
We decided to finish finishing off the basement. Rents in this particular area go for $1100-$1400 per month. With a fully finished basement, that gives a lot move living area and will in my opinion help me secure a rent toward the higher end of that range. In order to do that, I have to put down laminate flooring in the main basement area. Also had to finish off that one wall that had the stove pipe hole. Then had to finish the ceiling in a small portion of the finished area. Then install a door that closed off the bathroom and the unfinished laundry room. We also need to do something with the steps, possibly carpet them.
Other stuff
I purchased an ozone generator to mitigate the smoke smell and washed all the walls with TSP twice. Then painted with an oil based primer and then a latex paint.
I found my contractor by accident. I wasn't sure who I was going to use, but I needed to get a new lock for my door, so I was at Home Depot and trying to explain the metal doors I had to the employee and how I couldn't find a lock that would fit my door, this other guy walks up and takes over the conversation and saves me from the employee. I end up talking to him for an hour there at Home Depot and check out his reference and gave him a call. His estimate for all the work was $5100 + materials. No money up front, just that we'd go with him when we bought the materials and pay for them. That helped alleviate any, my contractor ran off with my deposit money issues, so a win there. I am planning on two more deals in the next 6-7 months and will use this guy again if everything goes all right. I also asked him about going with him to one of his other jobs, if he has some drywall and i'll provide some free labor in exchange for some OTJ training on the how-tos of drywall and later other things(Hey, I'm still small, so nothing wrong with learning).
The flooring material was about $3800 and I'm looking like I might be around my $10k mark after all including paint and some paid cleaning people. Maybe $11k. So assuming that my numbers are accurate, how did I do?
Summary
Purchase Cost: $79000.
Labor: $5200.
Materials: $4900.
Estimated Rent: $1400(or figure $1200 on low end).
Estimated Rent date: 11/1/16.
All cash deal, no financing.
Comments?
Thanks,
Brian
