Have you ever felt lucky that your parents taught you something? That luck for me was my father who was teaching me from the school of hard knocks. Introductory course? Practical Sense 101.
Even though I didn’t enjoy it at the time, my father brought me around the house when things broke down. From plumbing to pools to drywall to tile, he always had a do-it-yourself attitude.
This has always been my attitude – until recently when I decided to start investing in multifamily apartments. I realized that doing all the work myself is almost impossible. But my first four single family rehabs were practical.
Taking advantage of the handyman experience I learned from my father, I was able to make $26,000 on a simple property. I want to share that story here.
But before we get into that, let’s take a look at the numbers.
Single Family Real Estate Deals By The Numbers
- Purchase Price: $100,600.00
- AS VALUE ASSESSMENT: $146,000.00
- ARV Rating: $187,000.00
- Repair Budget: $10,371.76
capitalize on sweat equity
With this property, I did it all- hardwood floors, drywall, painting, baseboards, crown molding, trim work, interior and exterior doors, glass repair, kitchen remodeling, tile work, toilet, vanity, light, windows, brick/patio work, tree removal and everything in between. I have a pair of Lucky LL Bean jeans and boots that last through hours of hard work.
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There is something to be said about learning by doing, and I am truly blessed that I have this ability to figure things out. I agree, it can be difficult at times. This is especially true when you build a built-in breakfast nook and consider that a two-by-four actually measures 2 inches by 4 inches…
You must have seen a pile of junk.
looking for opportunities
But as I move forward in my investing career, the things my father taught me have been invaluable to the real estate buying process. When I walk through a property now, I don’t notice the color of the paint or the make and model of the appliances. I look at the quality of the work, the construction materials, and whether the property has potential.
My father taught me to have an eye and focus on the end product. All his teachings work through me in every deal.
The most important factors were buying the right one and buying something with potential. So, when running through this project, I saw the final product, not the mess left behind.
And by doing the work myself I was able to save on construction costs. The cost of the materials was $10,371.76. Had I hired it, the labor would have added another $10K to the $15K.
Yes, it would still be a profitable investment but not as much as paying over $26,000 at the time of refinancing.
accepting it is not magic
The title of the article sounds like a sales pitch, doesn’t it? Like I have some magical seven-step process or secret of the trade. And for only $997, you can have them too!
No way! I just want to show you how I got this deal done.
The only magic comes in the form of my three golden rules of investing:
- “Do what you want to say and say what you want to do.”
- “Protect your lender and yourself by buying the right one.”
- “Don’t get emotional.”
buy property
When buying a foreclosure, you typically make a cash offer and take the property. This leaves you with two conflicts.
The first is that you must have done all your due diligence at the time of the walkthrough. This is where my father’s teachings have come in handy. However, I still prefer to have an expert opinion, as I am not a master of all fields.
The other struggle is funding. As a former teacher, buying this property for $100,000 cash was a big deal. I didn’t have nearly that much money in savings. In fact, I actually had to borrow all of this and more.
In return, I gave my investors a return on their investment secured by the property (the first position for the purchase and the second position for the rehab). Also, it was insured in case of any untoward incident.
My total loan amount was approximately $117,000, which is 63 percent of the final value (ARV).
finale and beyond
Within an hour, I was in my shoes and jeans, working on the exterior of the house. I believe that it is necessary to start from outside. The neighbors will thank you for it too.
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Usually, these houses haven’t been lived in for a while, and the grass is knee-high. With just a lawn cut, tree/shrub removal, power washing, shutters and mulch, you can really make the property pop!
For the next 11 and a half days, I busted my butt off, working around the clock. Work ethic was another thing I’m grateful my father taught me: “Early to rise, last to go.”
rehab process
The entire kitchen was old, but the cabinets were structurally sound. New cabinets cost about $3,600 for a 10 by 10 kitchen. I spent $40 on paint, $60 on new hardware, and $150 on countertops, and it took a day’s labor.
The devices were purchased as a package deal for $2,200.
This was my second job refinishing hardwood floors. The hardwood on this property was approximately 700 square feet. In Connecticut, the cost to refinish a floor is $2 per square foot. Of course, it depends on how bad they are and how many coats of poly you want.
For me, it cost about $50 to rent a floor sander and another $90 in materials like sand paper, rollers, and clear semi-gloss.
Pool removal was not one of my specialties either. So, I got some contractors who were in the middle of work. The total cost with the permit was approximately $3,500. It’s been an amazing deal for me so far. Other quotes came in around $5,500 to $7,500.
The reason I removed the pool was because the cost of keeping it was far greater than removing it. Ultimately, I’ll be keeping the house as a rental and don’t want the liability and maintenance that comes with pool ownership.
Cashing out for $26,000+
Once I completed the rehab work, I rented out the property while I waited for seasoning requirements in Connecticut. Generally, lenders want to see one year of ownership before giving you a long-term loan on a home.
Once that year was over, I went to the bank to talk about taking out 80 percent of the equity. This is where magic happens, so watch carefully:
- I bought the agar for $100,600.
- I had another $17,000 in rehab and holding costs.
- My tenants paid for the carrying cost for the first year.
- Then I went to a bank to do a cash-out refinance and told them I wanted to take out some equity (80% LTV).
- The home is appraised for $185,000, meaning a loan of $148,000 (185,000 x 0.8=148,000).
- I paid my investors $117,000 to borrow money.
- I want to keep the balance, minus closing costs.
- This resulted in a tax-free check of $26,663!
I know I’ve simplified this, but it was countless hours of reading books, attending investor meetups, and hands-on experience that made this deal possible. And there’s always risk with real estate.
But with the right amount of knowledge and experience, the magic can do Happen.
Questions about the above deal? notes?
Let’s talk in the comments below.
Note by BiggerPockets: These are the views expressed by the author and do not necessarily represent the views of BigPockets.
