We Rented Out Our Old House!

In 2011 Mrs. C. and I decided to upgrade our house.  We moved from a $50,000 home on a 50X200 lot to a $150,000 home on 3 acres.  Since then we have purchased an adjoining 8 acres (with cash).  When we bought our new home we had listed our old home on the market and expected a quick sale.  The house sat on the market for several months and we ended up renting it out. Back in 2012 after sitting on the market for 6 months and having not 1, but 2 deals fall through after stretching out for months, we rented out our house for substantially less than market rate to the guy who fell through on the 2nd purchase offer.  This was a really bad plan.  He was a nightmare and we paid for it dearly.  He rented from us for almost 2 years and then Mrs. C.’s mom moved into the house and covered the payment.  She needed a place to move to and it helped us out because it stopped us from having 2 house payments, this was certainly a win-win.  We recently bought our 3rd rental property house and moved her into it because it is much more practical for her than this house was. We just spent 6 weeks and $5,500 on fixing this house up and we rented out our old house for $1,200 a month.

15 years of deferred maintenance:

When we first bought the house in 2006 it had been abandoned for over a year.  While we lived there we did some upgrades to it, but most were extremely cheap, like the $23 we spent to sticky back tile the laundry room. During the time we lived there we did a roof replacement, replaced the furnace, and opened a doorway into a room that caused a weird flow to the house.  The house was at one point a duplex. We also painted the house to our very unique tastes at the time.

Rehabbing The House:

We spent a good chunk of the summer rehabbing this house and getting it rent ready.  To say this is a large house is an understatement.  It’s a 5 bedroom, 2.5 bath house with well over 2,00 square feet.  There was so much painting to do!  Here’s a breakdown of the work we did:

• Went to open concept kitchen cabinets and stripped 5 layers of paint off of them, then painted black.
•   Mrs. C. did the majority of this.
• Replaced kitchen counters: I bet the counters in here were greater than 30 years old.  They had water damage and needed to go.
• paint touched up most of the house, painted over unique paint choices. Our kitchen had originally been painted to look like Bear’s kitchen in the TV show “Bear In The Big Blue House“. This was really cool for our 3 year old at the time, but not so much when listing to sell/rent.
• replaced back door: This is the 3rd exterior door we have replaced this year and we are getting fairly proficient at it. The previous backdoor had been damaged by our previous renter, and since it still functioned we had deferred maintenance on it.
• removed carpet from a bonus room, sanded and stained the floors, turned it into the dining room.  We had used this room as a playroom for the kids and the carpet needed to be pulled up to turn it into a dining room.
• installed 2 doors to turn old dining room into 5th bedroom: Since the upstairs bonus room doesn’t count as a bedroom we wanted to turn this room into a bedroom.  It appears that it had been a bedroom in the past. Once upon a time this house was a 2 unit, which is why there seem to be “extra” rooms.
• installed carpet in upstairs bonus room:  I hate doing carpet! especially without the proper tools.  Honestly we only installed carpet in the upstairs bonus room because we already had it.  We reused the carpet we tore out of the downstairs bonus room.  This room is too small to be considered a bedroom.  it was originally the stair landing for a 2nd staircase in the house.  Those stairs have since been covered up and this room is roughly 16 X 7, however the ceiling is slanted and only about 6 X 7 has 5 ft or greater ceiling clearance.
• painted back and front decks. The paint on these has shown its age, actually the back deck had every bit of paint worn off of it over time.
• installed blinds on all windows: Blinds are cheap, most of them are $5 at Walmart. There are a few larger windows that cost $20 for the blinds.  This house was built in the 1920s and has a ton of windows.
• installed smoke detectors throughout: With a smoke detector in every bedroom, outside of every sleeping area, and on every level we put a total of 9 smoke detectors in this house.  We bit the bullet and bought all 10-Year Sealed Lithium Smoke Alarms so we don’t have to worry about battery failures.
• installed new water heater:  The water heater in this house was installed in 2002.  It still worked, but it was getting up there in age and I don’t want an emergency call on it.  When originally installed it was placed on books instead of bricks, which had since settled due to previous flooding. Before we bought the house it had well water, and when we purchased the house from the bank we required them to hook it up to city water because the well had failed while sitting.  Well water is tougher on water heaters than city water.
• installed central air: We found a great local HVAC contractor who is inexpensive and does really good work.  He installed our furnace on the last house.  The upstairs of this house is dormered and gets stupid hot in the summer.  A new AC unit also helps increase the rental price and how long people will consider staying.
• Replaced Kitchen and dining room ceiling fans: Both of the original fans were more for show than function.  They didn’t move much air around.  The new 52″ fans I installed are amazing.
• painted damaged wood floors: In the upstairs rooms, the 3 season room, and in the downstairs master bedroom the hardwoods are too far gone to sand and properly refinish.  We painted them all brown. They look WAY better now than they did.  The large upstairs bedroom had been painted at least 3 times before we owned the house without drop clothes, so the floor was covered in paint already.
• Repaired broken door jamb upstairs bedroom.  I was able to do this without replacing the entire door and jamb. It had been broken by our previous renter and we never got around to fixing it.
• Installed GFCIs in kitchen and bathrooms: Gotta have them by code to rent, even though for the past 100 years this house has not had GFCIs.
• Replaced all door knobs:  Our old tenant had without our permission replaced every door knob with locking door knobs to rent out individual rooms.  We don’t have the keys to these and this setup led to the ability for small kids to accidentally lock themselves in and the parents would be forced to break open the door.

I use my Lowes Business credit card when buying any supplies at Lowes because it has no annual fee and gives a 5% discount at the register.  Anyone can set one up here for their business account.  I’ve only had the card for a couple months and have already saved several hundred dollars.

2 Rehabs in 1 summer:

We closed on the 3rd rental house in late May and worked on it until mid July, then switched gears to this house and worked on it up until mid September.  In between the two we had to move my mother in law, which was a difficult task.  She has a lot of stuff and we decided to do many van trips vs. renting a Uhaul. We literally spent the entire summer working on rental houses.

Going forward I would like to do 1 rehab in the late fall/ early winter, November / December, then another one in May and June.  It will be so much easier to make progress while the kids are in school and I am off of work.  We have found a couple trusted contractors along the way that can handle some of the tasks we would rather not.

Sentimental Value:

Mrs. C. and I bought this house in 2006, when I was 20 and she was 23.  We saved like hell to be able to make our down payment.  I worked 2 jobs for a while, she worked extra shifts, and we made it happen.  A big part in us being able to buy our first house was me working my first refueling outage, where I earned $14 an hour and worked 60 hours a week for a month.  My normal job was a cook at KFC and I earned $6.50 an hour and could only work 39.9 hours a week.

This house was the first big milestone on our path the building wealth.  I have memory problems and can’t seem to hold on to them, but I can still see us walking through this house and standing in the master bedroom when Mrs. C. told me we needed to get it.  We offered about 12% less than asking on it since it had been on the market for over a year.  The realtor called us up after we put in our offer and told us that there was another offer on the property and the bank wanted our best and final offer.  We went all in and offered the full list price.  Now I know that most likely there wasn’t another offer on the property and I just lost $6,000 in the negotiation, but that was OK.  This was THE house.

We lived there for 5 years.  My son was born while we lived there and our boys did a lot of growing up there. I don’t regret buying this house, or paying what I did for it.  We paid $48,000 for this house.

We Rented Out Our Old House!

Our house appraised, before we installed the central air and finished our rehab at $96,000.  We spent just under $5,500 on the rehab.  Let’s say we could sell it today for $100,000. We advertised the house for $1,200 a month. Originally we were going to shoot for $1,000 a month, but after we decided to add the 5th bedroom and central air, we felt we should aim higher.  We had dozens of calls on it, showed it a half dozen times, and found a well qualified tenant at $1,200 a month. This is a much smaller value to rent portion than we would like, but it still cash flows well. I’m okay with holding on to it because half of it’s value is appreciation over the last 13 years and because we were able to move the debt from our other properties onto it.

This was the first property that we have gone through the process of advertising the property, finding a tenant, checking references, and going through a tenant walk through. We had a few hiccups on this process and will work on refining it as we get more rentals here in the near future. Renting out our old house was a major milestone in building our rental portfolio.  The total cash flow from our 3 rental properties is enough to cover what Mrs. C. used to earn at her old job.   It took about 4 months to get there, but it was well worth it.

We refinanced the house to a 15 year loan at 4.75% at 75% LTV with a $71,000 loan.  We had previously had the house on a 10 year note and only owed $17,000 on it.  We moved our debt from our 2 other rentals to this house, so they are “free and clear”. The debt for those properties was on our primary residence HELOC, which is now paid off.  We cash flowed the $5,000 rehab on this house.  Our monthly payment is $550, taxes are $120 a month and insurance is $50 a month.  Moving all the debt to one property is a big win because:  We are limited to a total of 10 mortgages for conforming loans, so keeping debt on a few larger properties is more beneficial than having several smaller loans.  Closing costs are really expensive overall and are a big percentage for small value houses.  the last 2 houses we bought cost $20,000 each.  By paying “cash” our closing costs were around $500 for each property instead of the roughly $3,000 they would have been with a standard bank loan.  Finally, in a worst case scenario we could lose this house, but the other 2 are safe.

This property although it has a Benton Harbor address is actually in St. Joseph Township, which is a more desirable area with higher home values and rent prices.  Over time it is likely that the rent for this home will increase.  Our market has very few 4 and 5 bedroom homes that come up for rent.  I pay close attention to the rental market and in the past year there have only been a handful of houses of this size that have come up.  The last one of comparable size was only listed for 3 days before it was rented out at $1,300 a month.

Old primary residences seem to be the first rental most landlords start with, usually by default.  Did you sell your last home or are you renting it out?