The Renovation Starts

“During my initial inspections of the property I already knew I had an electrical issue in that two of the units needed breaker panels “

This is the 2nd article in a series in which I am chronicling my Real Estate Adventure. Previous article links for this series can be found at the end of the post. I have purchased a property that had been previously converted into 4 apartment units and need a total renovation. Follow along with me to find out if I have bitten off more than I can chew or will I realize my dreams of renting the apartments for a sizable monthly cash flow.

In the first post I discussed how I discovered the property, purchased, financed and Insured the property. Now the work and the spending begin.

During my initial inspections of the property I already knew I had an electrical issue in that two of the units needed breaker panels to be replaced as the existing ones were too small for modern appliances and amperage loads and they were the old fuse type panels. For those of you that are too young older panels instead of having breakers that flipped on and off like a switch they had fuses that screwed into each circuit. If a fuse blew you had to have a fuse of that size handy to replace it or, as many would do back then, is bypass the fuse by placing a copper penny behind the fuse. It was very dangerous thing to do because there was usually a reason the fuse was caused to blow in the first place and by doing so you just bypassed an important safety feature. I’m not sure that would work with the modern penny now days as they are not pure copper any longer.

Because I realized I could not do anything of importance on the apartments until I had electric service I had made arrangements with an electrical contractor for accomplishing the work. I knew this was the most important place to start.  They actually contacted the real estate agent and made arrangements to check out the work prior to closing. They gave me an estimate for the work but also determined that in addition to what I already knew had to be done to bring it up to code I had to replace the feed wires for all the meters and breaker panels, install outside main cutoffs for each unit and because the new panels would not line up they had to change out the electrical service drops on the roof.  Immediately after closing I went to the property and was surprised to see the electrical contractor there with the power company preparing to start the job. This was on a Monday after noon and by Wednesday evening they had completed the job. On Thursday the County Inspector showed up and inspected the work and then I was cleared to contact the Power Company to have the electric service activated. Unfortunately they were unable to come out until Friday morning so I didn’t have as much time as I would have liked to fully inspect the property. Most of the light fixtures did not have bulbs and with 9-10′ ceilings I could not reach them anyway so I had to buy a ladder and few packs of light bulbs (LED) from the hardware store.

I have decided to make every fixture and light in the apartments utilizing LED bulbs. It will give the apartments a more modern feel , save the tenants and myself money on electric bills and be a positive for the environment. In addition the bulbs should last 15-25 years so with less changing of bulbs I am hoping it will reduce damage to lighting fixtures. I have to say I put the bulbs on the front porch left them on and drove by at night and it made the outside look great at night.

Another quick job I had done was having a large Pine tree cut down in the front yard. The center of the yard is adorned by a magnificent Magnolia tree. It is very old and gives the home sort of a southern plantation feel. For what ever reason though there was a large Pine tree growing directly in front of it so I decided to have it removed. It took a couple of guys I hired about an hour to cut it down. There is a lot more that needs to be done in the yard but that will be saved for another time as I am still in the planning stages.

Pine Tree blocking view of Magnolia
Pine Tree blocking a beautiful Magnolia Tree

I had to head back to Virginia Saturday morning so my work for the week was over, although some what limited I do feel it was productive and I am happy with what I got done. Now that I am back at home I have to come up with a plan. My tentative plan is to start planning for the plumbing and Air Conditions.

My Budget for the first Unit is as follows:

Electric Panels  Done – $5,000

Plumbing – $2,000 ( All supply side Plumbing, my son in law is doing the work)

AC – Already had some one check it out – 1 Unit is fine, 2 units need new electric, and one unit was (missing ?- stolen?) $3,500 quote to replace missing unit 2.5 ton

Demo – $600

Paint – (I’m doing the work ) – $600

Kitchen – $12,000

Bath – $3,000

Flooring – $2,500

Total Cost – $29,200 – Note: The Electric & Plumbing was for all four units so future units should come in cheaper.

 

What do you think ?

Previous : Article one of My Real Estate Adventures

Advertisements

My Real Estate Adventure

“the purchase, renovation and rental of a one hundred year old property that has been converted to a 4 unit apartment building.”

Ever wonder what it would be like

To buy a Rental Property ?

This is the first article in a series that will chronicle my adventures in Real Estate investment property in detail. Including the purchase, the renovation , the mistakes along with the good, and hopefully the rental of the units and the overall outcome of my experience.

Well wonder no more ! I have done just that and you can follow along my journey with no financial risk to you what so ever. This will be a series of articles I plan to write to document my journey through the purchase, renovation and rental of a one hundred year old property that has been converted to a 4 unit apartment building.

First the history behind my purchase. I was visiting my oldest daughter that lives in south Georgia. The visit was one of several trips I had made last year as I was planning on moving there from Virginia. My wife had died from cancer a couple of years back and it was just myself and my two youngest children so I thought it would be nice to buy a home in Georgia that we could move to in order to try and bring back our family together. One thing I have realized is the importance of family.

We had looked at countless homes in the South Georgia area and even in the northern Florida area and to a lesser extent in a eastern area of Alabama. Unfortunately nothing seemed to meet our needs, at least not at convenient times. I had found several properties on Zillow that were very promising and met the needs of what we were looking for in a home, but it seemed like every home we liked at the time someone beat us to it. I decided that it was time to try a new approach. I saw a 2 acre lot in a great neighborhood. It had a lake, a couple of ponds and only had a total of 36 lots in the community with No Homeowners Association !( I am strongly against HOAs and have vowed to never buy a home that is in one again) So, I bought the lot. My intentions were to build a home on the lot for my youngest children and I to live. I found the home plans we liked, met with a builder and started exploring loans for the construction.  In January 2017 my children had a long weekend off from school so I went to talk to the builder about the project. It was during this trip that I stumbled across this old property that was listed for sale for $120,000. I scheduled an appointment with a real estate agent to look at it and learned that it was actually a 4 unit apartment located in the most desirable part of town.  I also learned that it had been mostly vacant since 2007, having been purchased in 2009 by an investor who I later learned, lost the house when he went to prison (sorry, no details on why he went to prison). I looked at every square inch of the structure and noticed that there was indeed quite a bit of work that was needed to be done to make these apartments livable but what I was really looking for was to make sure that the “bones” of the home were in good shape. I could see a lot of potential for this Bank owned property. At this point I was  torn – Build the home of my dreams or buy an investment property. I had a lot of serious thinking to do.

That night my family and I discussed the property and while all agreed that it was potentially a good investment not everyone agreed that I should purchase it.

The next day I returned home to Virginia( of course my mind was on this the whole 9 hour drive back)  and over the next few days I pondered the deal and started doing research on how much it would take to renovate the property and bring it up to modern standards. After my research I estimated it would cost about $90,000 to renovate the property to but adjusted that total to $110,000 just for a built in contingency. So with a purchase price of $120,000 and added costs of $110,000 my grand total would be $230,000. Not bad for a $5,000 square foot apartment building. That would be a cost of about $58,000 per unit. Now I had to determine if I could make money on the apartments when finished. My research showed the going rate in this rural area of Georgia was about $600 for a two bedroom apartment. This building had 1 three bedroom / 2 bath apartment (1,500 square feet) and 3 Two Bedroom 1 bath apartments (1100 square feet each). Since this was considered the upscale part of town and I believed I could get about $3,000 per month for the units. On a side note the single family home directly  across the street  sold for $370,000 and it was only three thousand square feet. So after reviewing these numbers my mind was made up, This was a deal I could not pass by. I decided to make the bank an offer.

I knew just how long the bank had been sitting on this property, having to pay taxes of over $3,000 a year and keeping the lawn cut, not to mention carrying this on  their books so I made a low ball offer in February 2017 of $55,000 for the property. The bank rejected my offer and to make  a long story short we finally came to a sales price of $85,000 for the property. That was $35,000 below their asking price! I was elated. My two youngest children, not so much. If everything goes as planned (I know it seldom does) this will bring my total investment price to $195,000. Not bad for an expected return of $3,000 per month. This would mean the apartments could pay for itself in as little as six years.

So now I had made an offer, it was accepted, so I wanted to obtain financing for the project. I had just sold my main home so I had the money to pay cash but remember what this site is all about – making money and one of my main philosophies is to Never give up your cash if you don’t have to. In this case I needed about $195,000 ( $85,000 for the apartments and $110,000 for the renovation). By leaving this money invested I was confident I could earn a minimum of 8% on the money (Approximately $16,000) while loans were going for around 4% or less. Unfortunately I found out that regular banks with regular mortgages would not lend money for homes that were not “move in ready” so I had to go to a local bank which gave me a five year loan with a balloon payment so I decided to only go with financing the $85,000 and I would finance the renovation costs out of pocket.My new plan was to take care of major items like Electrical and Plumbing up front and the finish each apartment one at a time. In this manner I can spend a minimum amount of money on each renovation and as I get the first apartment finished I can rent it out to help offset the cost of renovation on each following apartment. At least that is my plan, we will see if I can make it work in reality.

Now I had to find Insurance for the apartments. The bank required it but of course I would be very ignorant to not get insurance on the property. As a side note : I also purchased a Title Insurance Policy at closing. I have learned that for very little cost , in this case $275, you can protect yourself. One example I remember specifically was an instance when I lived in a town-home. A builder built units behind ours on another piece of property and started selling the units. It turned out the builder somehow built the town-homes on someone Else’s  property and there was a big fight for the ownership. I don’t know whatever happened as I moved away but I did  learn that you need to protect yourself from these rare types of circumstances. You just never know of the unknown lurking in the shadows of a property. Getting back to the insurance; the first quote I got for rental insurance was for $5,000 per year ! They were telling me that the building I was paying $85,000 for would cost them $888,000 to replace! This would make it one of the most expensive properties in town.  Just a little more than I expected. Actually the quote was more than double what I was expecting. I sought other quotes but the other companies refused to give me a quote on a rental property because it was currently unoccupied. I ended up having to get a “Builder’s Insurance” policy because the building was vacant and would be under renovation. Even on that, one company quoted me $2,000 and another $850 for six months. No one would give me a quote for a permanent rental policy until the home was finished except the original company. So of course I took the $850 policy. It covered the property for $200,000 which was sufficient to cover the money I would have invested into it.

I originally had hoped for all the units to be renovated within six months but because of my new renovation plan of paying out of pocket and renovating one apartment at a time instead of all four simultaneously , I now expect it to take about 8 months to complete. Once the renovation is completed and I have people living in the apartments I can return to the bank and apply for a more conventional loan with more favorable terms. I plan to start advertising the apartments slightly before they are finished in order to rent them as quickly as possible. I am currently leaning towards a 15 year mortgage but I will be in a better position to make that determination at the time I have all the facts. After the original fiasco with obtaining a mortgage and an Insurance policy I will not just assume it will be an easy process this time.

I also intend to source as much as I can from the local community that is contractors and vendors. I want to let the community know I support them and appreciate their support of me. This is a rural small town and I want to make sure we are are all working together to make our community a better place. I believe that in turn the community will support me also.

One thing is certain, this is going to be a challenging project, especially when you consider I currently live out of state. At the same time it excites me with the possibilities of taking a property that so many others had failed on to turning it into a updated and modern income producing property. That is rewarding to me into itself but the income will be icing on the cake. Who knows, if this goes well I just might take on additional projects. And of course I still plan to have a home built in a couple of years.

I hope you have enjoyed reading about my Real Estate Adventure and will join me as I post updates along the way. It should be interesting to watch unfold. I have owned Rental Properties in the past but they were always single family and required little or no renovations. So here I am in the beginning stages of a huge renovation project with my two youngest children believing I have gone insane while my two oldest children seem to be excited about the project.

Will the project come in on or under budget? Will I meet my timeline? Will I be able to get at least $3,000 per month in rental income? What unknown challenges will I face? Will I want to continue and make this a full time business in the future? We will answer all these questions and more so follow along as I document my largest renovation and rental project ever!

Comments or thoughts? Please share them with us.

PS: I would also like to say I welcome design ideas also. One discussion I am already having is Kitchen counter tops – Should I go with Granite or should I go with a lower cost item like a Laminate counter top , will the granite bring in more rent ? The more suggestions the better and the more discussion  the merrier!

Coming Soon – Follow My Adventure

“Coming Soon is a series of articles on my Purchase of a 90 year old home that has been converted to four Apartment Units and has set empty for most of the past decade. “

Hello Readers!

I have multiple personalities – at least when it comes to investing. While my main style of investing in the stock market is Dividend Income Investing, I also look for multiple sources of Income. This is for a few reasons as I hope to explain further in an upcoming article on the subject but I will briefly touch on right now. First you need sources of income to build your Dividend Income Portfolio because if you don’t have them you may never save enough to reach your income goals. The other reason is for safety reasons. With multiple sources of income coming in it acts like an insurance policy so if you lose one source for any reason you still have income coming in. And of course the ultimate goal should be to have Excess Multiple Income pouring in so you can reach your goals even sooner. I personally have multiple sources of income, this blog is one of my newest sources. I also never stop looking for opportunities and I have decided it is time to invest in real estate. So as they say I do practice what I preach and now a new journey has started.

Coming Soon is a series of articles on my Purchase of a 90 year old home that has been converted to four Apartment Units and has set empty for most of the past decade.

It is a daunting task to say the least but I am going to take on the challenge. If you have ever thought about doing the same you might be interested in following along as I plunge deeper into a real estate deal than I ever have before.

I am certain I will have many trials along the way and question my own sanity but hopefully if I stay focused  the reward will be high. The first in a long series of articles will be published soon which will cover my experience from purchase to hopefully fully renting the units out. I hope to publish before and after pictures and will welcome the advice and thoughts of my readers about decisions.

My background is that I have owned three rental units in the past but these were always places I had lived previously and rented out. The renovations of prior structures were minor compared to what I am about to embark upon. Where do I start – I don’t have a clue, but I will figure it out and move on.

When all this is said and done I intend to then decide if I want to find another place to renovate or even start a real estate flipping business.

I chose this particular property because I know this area can be a little slow in re-selling properties so I know that I can rent out units and more than cover the mortgage and expenses.  In fact, just renting two units should have me seeing a profit. The home is located in what is considered a very good area of town and there is currently a shortage of rental units in the area and practically no upper end apartments of which I intend to make these in hopes of attracting more affluent tenants. There are four apartments. One three bedroom with two baths and close to 1600 square feet. The other three units are two bedroom with one bath and are all around 1100 square feet. Each unit will feature stainless steel appliances, Hand scraped flooring and each unit will come furnished with its own washer and dryer.

Its a old style farm house with a wrap around porch on the front, with a porch swing on one end and on the other end I intend to have a couple of old fashion rocking chairs. It presently has an old wooden deck in the rear but I will remove that and replace it with a concrete patio and a built in park grill for barbecues.

Front of House
Front of House at time of Purchase – My Adventure !

Other features I plan on having for the apartments are a forty year Metal roof, electric fireplaces( the existing ones are wood burning but I do not want wood burning fireplaces in rental units for safety reasons), new siding with a fresh new look and adding shutters, new landscaping, an upgraded drive and parking area and a multitude of safety features like Fire Extinguishers, more smoke alarms and emergency exit signs and emergency lighting in the central stairwell. All lighting will be upgraded to new low energy and long lasting LED fixtures, modern ceiling fans and I will look for energy efficient appliances where practical. I am also considering upgrading water heaters to tank-less heaters to save space and energy but have not made a definite decision as of yet. Anther feature I am considering is skylights in the upper units and a light tube for the central stairwell.

I believe this will be a learning experience for me and invite you to follow along on my journey.

If you think this might be interesting be sure to sign up to follow this blog so you will be notified of new articles being posted.

 

Thoughts or comments? I would love to hear from you !