Hello All,
Not sure if this really qualifies as a success story or not yet but my wife & I closed on two SFH in Syracuse, NY in the last couple of weeks and, as an out of state investor, am now in town for the rehab. Both properties were bought sight unseen other than my relators (aunt and cousin of my wife) looking at them as well as a professional inspection and report. This post is kind of long so stick with me...
Property #1 (3/1.5, 1,200+ sq ft):
This house was a HUD home and potentially vacant for over a year. Everything was shut off and winterized. We paid roughly 70% of retail for this and knew there could be some funkiness. The gas and electric were restored on friday and I walked through the house on sat when I got to town. Smelled a bit like gas so I shut off the water heater (was empty but switch was set to 'on' and the range. Was just a quick tour to see the place so that was it for the night. Came back sunday morning and it smelled like gas still. When I opened the door to the basement it was solid gas. Shut the door and got the gas co to come out to the house. Turns out someone turned the gas feed to the dryer from vertical to horizontal then placed a 3/4" cap on the 1/2" pipe. Seems malicious to me since a professional would never do that and I would think common sense would let you know that is a stupid idea in general. The guy said it was still a couple days from blowing up the joint but I was really glad that I had the foresight to schedule the turn on right before I showed up as we closed a couple weeks earlier. Once that was fixed plus another small leak near the furnace we were good with gas.
The water was turned on Monday and I made sure to have the plumber out there. As my closing attorney said: The only good thing about a HUD house is the price. Sage advice since we immediately had a blown coupling right near the meter in the basement. Not off to a good start. The entire list of plumbing fixes includes:
- replace tub drain (mechanism toast plus drain was handyman'd out of code)
- replace water heater
- replace slop sink faucet
- replace 2 sink faucets
- bring upstairs 1/2 bath vanity drain to code (straight drop and no vent)
- move gas range feed to original placement in the house (they had it where the fridge should be and the fridge was a huge french door deal where the eat in location should be)
- re-run gas feed to dryer (utility co capped the line back towards a main joint)
That ends up to be way more than I originally thought but it could have been worse.
We pulled up the kitchen floor since someone had put el cheapo vinyl faux laminate down (always a bad choice) on top of old linoleum. Turns out the hardwood floors beneath are in great shape but the caveat is that they used 2" narrow staples to fasten the underlayment and they are not coming out. We tried pliers (staples snap) and bought a staple puller (too wide) but the staples are through 3/4" oak plus 1" tongue and groove subfloor and not budging. Suggestions welcome to save the floors as so far nothing is working. The rest of the first floor has hardwoods that just need to be refinished. I am going to contract this out due to time constraints but in the past have refinished floors myself and it is really not so hard, just time consuming.
The roof that initially looked pretty good is actually leaking so we are in for a new roof now. Thinking of adding gutters as well to help route water away from the foundation (see next point). All in that will be around $7500.
The only other major project is the basement. There was a hint of mold and dirty carpets on the 'finished' side of it during the walkthrough and the listing pics. Turns out the job someone did to finish it is so poor it should be criminal. There is no vapor barrier on the concrete floor, they just laid down strand board then carpeted right over. The walls are a similar story but since the drywall (not mold/mildew resistant) from a previous remodel was jenky, they just paneled right over it. Paneling is always a sign of covering something up so in most cases I would leave and paint if in good condition, for this house it was obvious something was materially wrong so we ripped it all out. What we discovered was that the house has a floating slab so there is a small channel around the whole thing which would normally catch any moisture and either route it to the floor drain or let it evaporate but in this case was used to feed moisture directly to the finished surfaces. Needless to say we no longer have any intentions of finishing the basement but have at least resolved the source of the issue and the system can now work the way it was designed. The basement will be good a lot of nice storage now, I guess.
On the plus side, it is in a great neighborhood and school district plus it already has all replacement windows. The hardwoods look promising and it should easily rent so hopefully all the upfront cost is worth it. Trying to manage from across the country is hard enough without worrying about when the next major thing is going to fail. We are set up on this one to have a solid rental for the next 15 - 20 years. It should rent for over 1% of purchase + rehab price.
Property #2 (3/1, 1850+ sq ft):
This property was picked up from a couple who had apparently been there for 40 years. It was tchotchke heaven. The house itself was built in the late 1800s but is super solid and everything looks square. We got it for about 80% of market value and knew it wasn't a fantastic deal after factoring the rehab but the numbers were still pretty good and the location is solid.
The good:
- all replacement windows
- amazing first floor layout with 10' ceilings
- lots of light and good views
- great location for nightlife, walking, bus line
- possible hardwoods throughout first floor (waiting for painting to be done to remove 100 year old wall to wall carpet)
The bad:
- only bathroom is on second floor
- everything is from 1940
- small bedrooms
- spent roof (we knew this coming in)
The ugly:
- super weird bedroom layout, one closet is in the bathroom!
- yard has drainage issues
- no driveway or garage will hurt when renting
- kitchen is carpeted and has really dated counters
Since I am putting most of my effort into the other house, I contracted out a lot of work: painting (walls, ceilings, trim), floors (if we need to refinish), roof (of course), carpets (stairs and all of second floor). Plus I always use contractors for electrical and plumbing. We prepped for the painters by removing all the drapes, nails, outlet covers, etc. Anything to make their job easier and faster.
This one should rent for 1.2% of purchase price plus rehab.
For both properties we are getting all new appliances to modernize them and reduce chance of repairs.
So that's it, we now need to finish the work in the next week and get them rented out. There is still a ton of projects left to do and more pop up every day so we'll see if I can finish before I head west or end up having to sub out the remaining small stuff.
For financing we used conventional 80% loans on both and the down payment came from a HELOC on another rental property. We should cash flow over $100/mo on each after factoring in the following:
- 4% vacancy
- 7% repairs
- 5% CapEx
- Annual HVAC maintenance on furnace and AC units (~$175/house/yr)
Certainly not a get rich quick scheme as many others on this path have pointed out. We are long-term buy and hold to either have passive income or cash-out for retirement.
Going forward the plan is to lay low for 6 months or so to make sure there are no surprise expenses with these new houses then scale up to larger multi-families.
