|
Last Updated: May 14th, 2012 - 22:24:01 |
Anatomy of a Rehab on Long Island
It was just several days after I attended Steve Cook’s One Day Rehab Workshop on Long Island, NY that I finally jumped off the fence, went full time into Real Estate and located a great rehab opportunity.
Even finding the property was serendipitous. I initially called a Realtor regarding a house for sale that looked promising. When they told me the asking price I knew right away that there was no motivation behind the seller. However I did tell the broker that I was looking for investment properties that I could rehab and sell. She invited me to her office to look at another property. By the time I arrived at her office, the house she intended on showing me had an accepted offer. Also that day another property her office had listed had the deal fall through, so off I went to inspect the house with her agent.
The house is an expanded split-level about 30 years old and had been occupied by rental tenants for several years. The owner actually had several deals fall through on the property and was becoming increasingly desperate to sell. He had built a dormer over the garage with the intention of adding more rental units to the house (it is just a one family house) but could no longer afford to continue with the construction and no longer had a tenant in the house to help pay the bills.
The original part of the house was in fair condition and needed to be freshened up and slightly updated. The dormer was nearly complete, but not finished enough for the Town to issue a Certificate of Occupancy. Without the C.O. no bank was willing to mortgage the property for a traditional buyer. After viewing the property I went back to the Realtor’s office to comp the property and was pleased with the potential of this house.
I was able to make an all cash offer with a quick close. We wrote up an offer to the Seller and before I arrived home my cell phone rang with the Seller’s counteroffer. We split the difference and a deal was born.
Original asking price: 325,000
Deal that fell apart: 298,000
My purchase price: 270,000
Comps: 340,000 to 370,000
Repairs: 15,000 to 20,000
I was ready to close in 30 days; however, my attorney included in the contract and insisted on me to not close on the property until a C.O. was in place for the dormer. The result is that the seller was required to complete a significant amount more of finishing the dormer interior, work that I was budgeting to do myself.
Further by waiting for the C.O. I avoided the worry of the possibility that the local town's building department could condemn the dormer work done and order it removed or require me to re-file and pay for building permits and inspections.
Closing didn’t take place until mid September but I was ready to get going on the rehab right away.
My first day in the house I surveyed the whole house and listed all the work needed to be done. I then prioritized, matched my original budget with each item and scheduled the work to be done. I had some contractors in place already and just needed to finalize contracts with them.
I wanted to be hands on with this rehab to fully learn the time and process of the rehab (yes I now know that I can do more by having others do work for me).
Flooring:
Carpeting was virtually new in the original part of the house; the dormer needed carpet and a mudroom tiled (I love the tile, it’s a heavy vinyl tile with the look of ceramic but not the cost). Work finished in two days close to my budget
Plumbing & Heating:
I replaced two bathroom vanities and two toilets. The upgrade to the kitchen was minimal – new dishwasher, new sink and fixture. Also had the Boiler serviced and finished work required to connect the hot water pump for the dormer thermostat. All plumbing work went smoothly another two day job and again within my budget.
Electrical:
Planned on replacing all outlets, switches and ceiling lights, and completing wiring of the dormer. First surprise… electric service from the electric company was in serious need of an upgrade and years of amateur wiring made the electric circuit breaker panel a dangerous hazard. If one thing is done with extreme caution, to me it is a safe electrical system installed by an electrician I trust. I didn’t think twice about doing the right thing and upgraded the entire electrical system. It was the best $2,500.00 cost overrun and lesson I ever learned.
Landscaping:
Landscaping was a big part of the curb appeal this house needed. Primarily it needed some overgrown shrubs removed and some trees trimmed or removed. I had the tree service mulch all the branches and spread them throughout the yard and the former shrubbery in front of the house. Throw in a couple of lawn cuttings and things looked great and again within my budget.
Kitchen:
As previously mentioned I replaced little in the kitchen. A new dishwasher, new sink and fixture, a new stove. I pulled out a very ugly microwave cabinet above the stove and replaced it with a new cabinet and stove hood exhaust/light. The refrigerator was in good conditioned so it stayed. Made my budget again.
Painting:
My initial budget for painting was actually pretty good, so I thought. My first lesson was that painting over existing paint that is gloss or semi gloss requires more work and therefore money to do right, not a big mistake but it did add to my costs. Also I decided to remove some old paneling in the family room, which also added to my painting costs. Then some old wallpaper slipped past me, again adding to my cost.
Roofing and Siding:
The roof was brand new, but after investigating a leak I thought was due to some missing siding and driving rain storms turned out to be due to the previous owner not installing a cap on the roof. I missed it but it was a minor cost addition. The siding was also new but incomplete, mostly fascias and soffits, as well as shutters (amazing what a few pairs of $40.00 shutters can do for a house). My handyman did all this work. Except for the roof cap, completion was within my budget.
Miscellaneous:
I decided early on to do most of the light carpentry work myself, some sheetrock patching, mouldings, doorframes, hardware replacement, spackling, etc. Also, some light demo work. This afforded me the opportunity to become very familiar with the rehab process working as my own G.C. and laborer, but it also cost me time and therefore money. Still a lesson I was willing to pay and learn. I did however find a very good handyman whom can handle all types of work including my roof and siding repairs, hanging doors, replacing windows, etc. Budget for miscellaneous work ran higher than I allowed, due in part to my inefficiency and more work required due to other changes such as removing family room paneling and therefore needing to install more moulding, Also discovering short cuts taken by the previous owner that I would not tolerate as part of my finished project or even consider trying to pass on to one of my buyers.
The end game:
When my work was nearly complete I listed the house with my Real Estate office (As a side note during the buying of this house I became a licensed Real Estate Sales Person.). Timing wasn’t great here. I should have been back on the market weeks sooner, but ended up listing the week before Thanksgiving. Well the phone did not ring Thanksgiving week. Then the following weekend was a blizzard and 20” of snow followed by another snow storm a week later leaving 8” of snow. Now Christmas is getting very close and I am sure not expecting any calls until after New Years, when much to my delight I get 6 calls within a week of Christmas.
Most of the calls were people just kicking tires, one family drove by and even called me while I was out of state as they stood in front of the house and asked questions about the interior. I thought certainly they would be strong contenders, so I made an appointment with them to see the house a couple days later. Surprisingly they canceled and I have not heard back from them.
However, later that day, one woman did look at the house, inside and out and was very interested. A few days later she then took a second look with her fiancé and parents (Parents, like attorneys, can be the kiss of death to a real estate deal). And, just a couple more days later I had an offer that met my goals and parameters for selling the house.
They were pre approved for a mortgage by a mortgage banker I hold in high regard and, I have been assured of a fast closing.
The bottom line:
Sale Price: $345,000
Purchase Price: $270,000
Rehab Costs: $22,000
Holding Costs: $3,500
Gross Profit: $49,500
Some Lessons Learned:
Don’t pay all cash when not necessary. I tied up too much of my capital by paying cash. Since I was getting a C.O. for the house from the seller I should have gotten a mortgage and kept my cash liquid.
Keep a deal moving. Push to close. Time is money.
Mistakes take twice the time and money to fix. Other people’s mistakes take even more time and money to fix.
People buy and sell houses all times of the year.
Don’t overpay for a house. I probably could have bought this house for $10,000 to $15,000 less. Not a whine, just an observation.
Don’t over rehab a house. Keep the rehab work performed to what will help bring in the best return for the investment being made. Some things I planned on doing to the house but cut out, did not even matter when my buyer looked at the house. Certainly other things that gave the house curb appeal and a sense of being new inside and out made the biggest difference.
Get the job done, and plan accordingly. Avoid seat of your pants type decisions.
Know a good deal when it comes by.
I am sure there are other lessons to be learned and I look forward to each one of them.
Finally the lesson I kept trying to learn but couldn’t until this rehab…
“Do this now!” , means exactly what it says.
Sincerely,
Christian
Steve Cook is a real estate investor from Baltimore, Maryland. He is the owner of
flippinghomes.com. For more information on Steve or his materials, click here
Do you own real estate articles or stories and want to share with other investors?
You have chance to win
$100 Amazon Gift Certificates. We will give
away 3 prizes for top authors each month!
Email your articles or stories to:
articles@buyincomeproperties.com
© Copyright 2001 - 2010 by
BuyIncomeProperties.com
Visit
Real Estate Forums
for every real estate investing topics!
Enter Here
Top of Page
|
|
