Hey Bigger Pockets,
I wrote my introduction post a week or two ago and explained how my wife and I began in real estate investment. We took the $50k from our cash-out refinance, and immediately went to work.
We did some driving for dollars and sent some letters. We got quite a few calls and leads, but none of them panned out. I think we were kinda scared to pull the trigger on anything. Then, a few months later, we finally got some traction. A local investor (he inherited his parents’ investments and he had run them into the ground) mentioned to one of our friends that he was going to sell some of his properties in Sheffield, AL. She texted my wife because we had been talking about nothing but real estate for the past year :-) We immediately drove to view the properties and they were terrible, ugly, and scary; exactly what we wanted!!
There were 3 buildings on the property: a quadplex and two very small single family homes. The quadplex is said to have been built in the 1800’s (log cabin turned into multifamily), and the other 2 not far behind. There were holes in the roofs, buzzards living in the chimney, rotten wood, and termite damage everywhere. From all of our research on Bigger Pockets, though, we knew this meant there was huge potential for profit. Even though the buildings were in such bad shape, we were a little shocked when the seller said he only wanted $10,000 for all 3. He gave us first choice since we were the first to contact him, so we offered him full asking price. After title insurance and attorney fees, we bought all 3 properties for $10,700!
Now, we are still a little new to real estate, so I did not even realize that all 3 of these buildings were on the same deed. I called my lender in an attempt to get a Homestyle renovation loan for the quadplex, and they informed me that they could not lend against properties containing more than one dwelling! GREAT. After some research, I discovered I could contact a surveyor and have the properties subdivided. They are now scheduled to do so, hopefully in a couple weeks.
Meanwhile, since we did have SOME cash to use for renovations, we decided to focus on the 820 SF, 2 bedroom, 1 bath house. We vetted some contractors and picked our favorite. He told us to write up a Letter of Intent so that everything would be clear, but we did not listen! (because we're stupid) We now see the need for a very detailed renovation list for a contractor. The initial estimate was $11,500, but he informed us that it would be hard to keep it this low (we told him we’d like to stay close to $10k) initially).
We found some termite damage, had to re-plumb the entire house, and put new vinyl siding on the exterior (the wood siding was pretty far gone). After all was said and done, our contractor’s estimate had gone up to $14,900 (because of things we added) + $1500 for the plumbing. This included all new flooring, paint inside and out, light fixtures, new cabinets and shelving in the kitchen, and some light electrical work. We then spent about $1750 on the fridge, dishwasher, stove, and AC window unit.
So, if you consider a purchase price of $2000 for the house ($12k / 6 units), we have spent a total of approximately $22,000. Our property manager seems to think we can get $500-525. Based on local comps, the house seems to be worth about $40k. So, after we refinance and pull out 75% of the equity, and after closing costs, we should be pulling out $7k more than we put into it and still cash flowing about $100 per month (after PITI, vacancy, maint., capex, and prop mgmt).
We’ll be renovating the other buildings asap.
Any comment, advice, or criticism is certainly welcome! Should I try to make these write-ups shorter?
Thanks for reading,
- Michael
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