Rental House #6
We finished our 6th rental house! I’m so glad we got this one. This past year it has been next to impossible to buy a house. Houses for sale in my market have either been crazy over priced, in terrible condition, or snatched up in a matter of hours (or all three!). This is due mainly to a lack of inventory caused by both the direct and indirect factors of the coronavirus, the moratorium on foreclosures is a probably the largest factor.
Anyways, I was able to buy this house because it was so overpriced. This was a foreclosure that somehow happened during Coronavirus and it was well over priced. It was listed at $58,000 then dropped a month later to $50,000, then to $45,000 at 2 months. As the listing approached 3 months I put in an offer for slightly over what the banks position on the property was, $32,150. This was a major discount over the $45,000 list price and that had already dropped the price $13,000. Honestly, for our current market conditions it was probably worth the $45,000. Anyways after submitting our offer our agent saw that the listing agent was in the process of lowering the price…to $34,900 and asked us if we wanted to lower our offer. I was shocked by how big of a cut this was, but I also knew that at $34,900 other investors would be beating down the door for it. I kept the offer where it was and the bank accepted. We closed the day before Christmas Eve. (I know, I’m a bit late publishing on this one.)
About The House:
This house was originally a 2 bedroom 1 bath house. It has a large add on at the back which is 1 bedroom with a partitioned room behind it, turning it into a 3 bedroom with the possibility of a 4th. It’s perfect for a home office or nursery. The house also has a 1 car cinder block garage, a metal storage shed, and a full basement. It needed mostly cosmetic updates, with the largest fix being the water heater needed replaced. This house had many years of deferred maintenance.
Here’s a video walkthrough of the house. I recorded this for myself when we walked through it with our realtor. I did this so I could reference back rooms and my thinking on repairs when forming our bid. Ignore our chatter, I didn’t intend to publish it, but I was lacking “before” pics, so this is what we have lol.
Buying The House:
This was probably the most frustrating deal I’ve had. We put in a clean all cash no contingency offer. This should have closed in under 2 weeks, it took almost a month. We had no communication from the sellers side until we prompted them and then they responded with the documents right away. The sellers hired a 3rd party to deal with everything and this 3rd party charged extraordinary closing cost fees. Normally I pay around $500 for closing costs, with this company they tried to charge $2,000. We got them down to around $1,500, but it was still a major pain. I hate being shook down. The value they provided was no where near what they wanted for closing costs. Hopefully enough people complain to this bank that they choose a different facilitator in the future. We closed on the house 2 days before Christmas.
Ceiling Drywall: The ceiling drywall had holes in 3 rooms, as well as several cracks. I repaired all of these. I patched the holes and mudded all the cracks. After 2 layers of paint the ceilings look brand new. I also LOVE the way freshly painted ceilings look. I think going forward I will try to paint ceilings in all our properties. I will say that it is worth it to pay extra for the special ceiling paint. It drips FAR less than ordinary paint.
Drywall 2nd bedroom 2 walls: 2 of the place plaster walls in the 2nd bedroom were destroyed. Rather than try to patch them I did a complete tear out and put up new drywall. This was a big project and made quite a mess. Thankfully I was able to fit the debris in the trash cart over a couple weeks and didn’t have to pay for a dumpster. My drywall skills are improving. It’s not perfect, but way better than it was!
Paint: We painted all of the rooms except the back bedroom, which has wood paneling.
Replace carpet B2: In the 2nd bedroom we tore out the old 1970s carpet and installed premium carpet squares. These carpet squares have a substantial foam padding on the back which makes it feel like normal carpet. The hardwood flooring underneath the carpet would have been too difficult to refinish. We spent days getting all the staples and bits of padding up from the original carpet.
Kitchen extension cabinet and counters: This house has an odd shape and the kitchen area extends into a side room that then goes to the back door and the stairs to the basement. Historically the stove was here, but that was it. We put down new flooring and Installed new cabinets and a countertop in this area as well.
Remove window bars: The bedrooms all had bars on the windows. I removed these. These were put in with long flat head screws that were extremely rusted. I tried to unscrew the first bar, but gave up on that method. I then tried cutting through them with a grinder. I got through the first bar then realized it was far easier to just grind off the screw heads, then come back and cut the screws flush with the house.
Clear off shed roof: Remember when I said this house had deferred maintenance? The shed roof has a small angle to it for water to drain off, but it’s directly under a tree. Branches, leaves, and other organic matter had built up on this roof for so long that it had hundreds of pounds of soil, as well as several leaves and branches. It looked much better once it was clean.
Clear off sidewalk: The sidewalk around the house was completely overgrown, in fact you could barely see most of it. I cut back all the overgrown plants and pressure washed the area.
Replace Basement windows: All the basement windows had cracks in the glass, with 2 that were fully broken. I replaced the glass with a high impact plexiglass.
Drain Repairs: The drains backed up immediately when we started to use the plumbing. We got a clog out, but still had some drainage issues. For under $200 a plumber came out and fixed a venting issue for us and now the drains run very well.
Replace sink supply line: Plumbing is fun. These were most likely original supply lines. We swapped them out because sediment had fully blocked them.
Cabinet paint and handles: These cabinets took forever! The cabinets were originally a horrible yellow color. We painted them gray and installed new hardware on all the handles. The kitchen looks so much better now.
Ceiling fixtures: We replaced 5 overhead lights. I hate doing these, but it certainly makes the rooms look nicer.
New breaker and wiring for Dryer: This one was scary. In the basement there was one wire coming from the breaker box that was split off into 2 separate runs, one going to the dryer and one to the stove. This junction was also not done in a box, and the tape that was used was coming off in several spots. There was certainly the potential to touch a live 240V circuit, and I’m guessing if both the stove and dryer were going at the same time the breaker would trip. I rerouted this cable, and ran a new cable so both the dryer and the stove had dedicated runs, and all junctions were completed in enclosed boxes.
Rebuilt Pantry: The pantry in the kitchen was falling apart. I replaced all the drywall and shelving and gave it a paint job.
Deep cleaning: The house was dirty to say the least, but at least it was cleaned out. We’ve bought houses before that were filled with garbage. This just needed cleaning. We cleaned the walls before painting them, deep cleaned the carpets, and cleaned the walls and floors in the basement.
Blinds, Appliances, Smoke Detectors: We installed new blinds through out the house, new 10 year sealed smoke detectors, and appliances. Normally we buy new appliances, however we got a stupid good deal on used functioning appliances that weren’t that old, so we went with used in this situation. I always go with the sealed smoke detectors so no one “borrows” from them for other devices, it also give me a timeline to know exactly when they need replaced.
Power wash: We had a couple warm days in January so I took advantage of this and power washed the house. It makes a big difference in how it looks.
New garage roof: I replaced the garage roof once summer hit. It’s been a while since I’ve done a roof and each time I tell myself the same thing “Next time I’m going to buy a nail gun”, but I never do. I hand nailed the whole thing. The old roof had 2 layers of shingles, with the second layer installed incorrectly, they hadn’t staggered the shingles. I also replaced some of the rotten boards. This roof should easily last another 25 years.
Replaced Hot Water Heater: The hot water heater was in functioning order but was very old and I didn’t want to take risks with it. Because the venting looked suspect (and because I didn’t want to do it) I hired out the replacement. This cost a lot more than me doing it myself, but it also accelerated our timeline and allowed me to focus on other tasks.
GFCIs: Most of the outlets in the house were 2 prong outlets. I replaced a ton of these with GFCI 3 prong outlets.
What I Didn’t Do: I didn’t split the add on into 2 separate bedrooms. Although this is possible to do, it will wait until our next tenant. I will most likely do this in the future, preferably when I have extra time on my hands and lumber prices are back down to reality. A 4 bedroom house should get me an extra $100 in rent over a 3 bedroom house. I like to maximize the income from each property so this will happen in the future.
We decided to price this one very competitively at $850 a month, we actually didn’t even need to advertise this one, we had a qualified applicant from a previous listing who was still in contact with us looking for a place. We rented the house out to this family. Typically renting in the winter is more difficult since most people would prefer to move in nice weather and while the kids are out of school. I think in the future we could get $900+ per month for this house. Honestly if we were listing it today I would shoot for $950. There have been very few rentals on the market in the past 6 months since we rented this house out. It is in walking distance to the high school, the boys and girls club, and a city park. It has a dry full basement, a decent garage, and the extra large master bedroom with extra room is a good selling point.
This rehab was more labor intensive than money intensive. We spent a total of 34 days rehabbing the property between purchase and rented out. The total initial rehab cost was $4,039. We then spent another $500 (ish) on the garage roof and will be spending around $1,000 more to get the garage door swapped out, for a total all in cost of around $37,500.
I wanted to do a cash out refinance after 6 months, however my lender is now insisting that I must be employed at the time of my loan application, whereas in the past because I can prove that I routinely go back to work for these companies and my layoffs are temporary they were able to process my loans. Once I go back to work in mid August I will go after a cash out refinance. With how hot the market has been I should have no problem getting an appraisal for over $55,000, giving me enough cash back at 75% loan to value to have no cash tied up in the property and to cover the loan costs.
Hopefully I can find another project soon. My momentum has been slowing down due to a tight home supply and no foreclosures for over a year.
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