All Forum Posts by: Jon Mason

This is all really good feedback guys, thank you! After reading your posts and sleeping on it, I agree that this would not be the right move and we’ll be denying this applicant in favor of one of the other more qualified applicants that I’m sure we’ll be getting.

Thanks again!

My wife and I purchased our first rental property in August of 2018 and have just listed it for rent. We learned a lot of lessons, and learned them the hard way. The numbers below aren't super impressive, but I'm very proud of what my wife and I have accomplished and it seems that despite the issues, this property will cashflow nicely. We're excited to do the next one and I believe with what we've learned on this one, we can do it 100x better!

The rehab took WAY too long, but we were attempting to keep from using of our HELOC to cover the rehab, so we were putting about $2,000 a month of our income toward the repairs. In hindsight, I think it would've been better to just get hard money to cover the rehab and downpayment and get done with it as quickly as possible, but I felt nervous about any kind of time constraint considering we basically had no idea what we were doing.

We aren't going to come out of this deal unscathed financially as we'll have some HELOC debt and a small amount of debt to a family member remaining, but it will still cashflow pretty well and fortunately we're in a hot market that has been very forgiving. The rents are strong and appreciation is strong as well. Without those two factors, this could've turned out much worse than it did.

Details:

• 3BR/2BA 1900 square feet, bult in 1953.
• Had a weird layout where what should've been the master suite was sharing a bathroom with another bedroom. We turned it into a real master suite by walling off the bathroom from the other bedroom.
• Purchase price of $115,000
• Rehab:
  • Estimated rehab: $30,000
  • Actual Rehab:  $50,781
• ARV:
  • Estimated ARV: $150,000
  • Actual ARV: Still waiting on appraisal, but will likely be $160,000 - $170,000.
• Bought off of MLS, probably worth $130,000 at the time we purchased it, so not a screaming deal by any stretch.
• $35,000 loan from a family member for the down payment and a small portion of rehab ($30K DP, $5K rehab).
• Conventional mortgage for the remainder. We will probably not go this route on the next one, may do hard money. I'm feeling more confident in our ability to execute on the rehab and do it quickly, so I'm feeling more comfortable going the hard money route.
• We used a HELOC on our primary residence as well as our own cash to fund the rehab. Fortunately we have a good amount of income and have kept our expenses in check, so we could put a lot of cash towards the rehab. We still ended up putting way too much on our HELOC though.
• We were hoping to get $1200 a month in rent, but we now have it listed at $1375 and are getting good traffic on it. 
• After all is said and done and we've completed the refinance, we will likely have a property cashflowing ~ $500 per month before repairs/capex/vacancy.
• We will get about $30K from the refi which we have earmarked to pay back the bulk of the loan to our family member. However, I don't think they need the money and we may try to keep it as seed money for our next house.

Lessons Learned:

• Good contractors are EVERYTHING. We learned to give a new contractor a chance on a small job and inspect what you expect. Once they've proven they know what they're doing, then give them additional work. We did way too much assuming that people knew what they were doing and it bit us more times than I'd like to admit. 
• Similarly to renters who want to move in immediately, I learned to beware of any contractor who says they can start today. I now know that I want the contractors who are covered up. The guy who can start today definitely sucks at everything.
• When we purchased the house, we didn't anticipate all of the large "under-the-surface" repairs that would be needed that wouldn't impact the appraisal value and those were the biggest expenses that bit us. One important lesson we learned is to pay attention to the type of repairs needed on a house before you buy it. In the future I'll be looking for houses that need the types of repairs that will increase the appraisal value, basically maximizing the dollars we're putting into rehab. Here are the items that bit us:
  • Retaining wall, which we built ourselves, even doing it ourselves it still cost us $2,500.
  • Replacing old fuse panel with modern breaker box - $3,000. I didn't have any experience with this type of thing, but I will be on the lookout for it in the future.
  • Drain pipes for plumbing were old and some were in bad shape. I didn't know going into this that these old style galvanized pipes should've been a red flag. I think we probably paid out $1000 in various repair of galvanized pipe.
  • There was also a plumbing situation outside with old clay pipes underground that we couldn't have known about, but that ended up costing us $5,500 to jackhammer up the back porch, replace the line and put in new concrete.
  • Water in the basement, we paid someone for a foundation drain to the tune of $2500, and then we put in 2 french drains ourselves, which came to about $1000. 

The most important thing I learned from this is that I was stupid to sit on the sidelines watching other people do this for as long as I did. I wish I had done it sooner, and I've found my desire and confidence to do the next one has grown exponentially. You only live once, and if you're reasonably confident in your numbers and you're in the right market, real estate can be very forgiving. For anyone reading this who is sitting on the sidelines, just find a deal and pull the trigger already. As you can see from this, it doesn't have to be the insane deal you hear people bragging about on podcasts (although that should certainly be your goal), but what I'm saying is if it doesn't turn out like you thought it would in your initial analysis, it's probably not going to ruin you financially.

We are showing our first rental property today and have had a lot of really positive responses from potential renters.

We had one Hispanic family that came to view the house and they really liked it and have already applied through Cozy.

I’m trying not to let my soft side get in the way of good business sense and hoping for some guidance on this.

The father of the family has newly acquired an SSN so he has limited credit history. In fact, he only had one inquiry on his credit report.

His income is very good, and all around I got a really good gut feeling about them.

The thing that gave me pause is that his wife is obviously not legal as she doesn’t have a SSN and his brother would likely be living with them as he is apparently on his way here from Honduras, also wont have a SSN.

Our policy is that anyone 18+ living at the house is on the lease and has completed the background check and obviously these other 2 adults won’t be able to do that.

Should we scratch them off the list and move on to the next one (assuming more folks apply; these are the only ones so far), or is there a scenario where you would move forward with this family?

Thanks in advance for your guidance.

I've heard people say you want to get people who are looking 30 or 60 days out for a property to rent and that you want to stay away from people that need a place yesterday as they likely aren't going to be good tenants. How do you reconcile that idea with the need to wait until the property is fully ready to rent before listing it? 

We have a property that we're trying to finish the rehab on and will likely have it ready to rent by 3/1, but if I wait until 3/1 to list it and then I'm looking for someone 60 - 90 days out, that seems like a losing proposition. Any thoughts on that? Am I way off base?

oh cool, i didn't know that...sucks they aren't a part of the pro membership though...ergh.

Anyone have a bulletproof lease agreement they use in TN that you could share with me or point me to? 

@Brian Pulaski - thanks man,  that's super helpful. I'm definitely going to take you up on that, but it will likely be early next week before I can post photos. I'll try to put together some useful photos and measurements as well. 

@Jason D. - when you say template, are you referring to something on their website? I tried to use their online designer thing and it just kind of went blank screen on me, so I eventually gave up. I've measured the space and put down tape to kind of map everything out, but maybe I'm missing something. I didn't see anything else on their website though..

That's great feedback @Brian Pulaski! I read about the semi truck bit and was a bit concerned by that. I think the truck could get on to the street the house is on, but I wasn't sure if that was going to be an issue. I suppose they would tell me in advance if the delivery location is a problem.

The house we're remodeling has a smaller kitchen and we're going with a bit cheaper finishes. We have been looking at the Dover White line on rtacabinetstore.com, although they do have a shaker line we considered that came out to be only about $75 more. We're sitting at about $1700 right now with shipping, so we wouldn't qualify for the free shipping at Lily Ann.

Are there any "gotchas" in terms of measuring the space and making sure everything will fit? Any clearances you need to take into account or anything like that? We're dealing with a somewhat tight space and I'm a little concerned having never done this before.

I'm looking at purchasing RTA cabinets from rtacabinetstore.com, which came out on top in terms of price when compared to a few other places. Unlike lily ann, I wouldn't have to pay sales tax in TN either, which is an added savings. I have a small kitchen that we've gutted and will be installing RTA cabinets. I have no experience with RTA and realize that I'm about to drop some money based on just a few measurements and sketches and I'm sitting here wondering what I don't know about this whole process. I'm hoping to learn some lessons from you guys' experience and hopefully avoid making some mistakes here.

On a related note, does anyone have experience with rtacabinetstore.com they'd like to share?