You know those TV shows where a husband and wife roll into town, buy a house in cash, knock down a non-load bearing wall, and then sail off into the sunset with a $30,000 profit? If you’re like me, you’re not really sure who did what, or what anything actually cost, and how hard that all would be to do yourself.
This past summer I won a foreclosed property in June for $38,000, spent $18,000 improving the property over three (3) months, and had the house rented by September for $850/month ($56,000 invested).
In my last post I covered "Finding My First Rental Property”.
What you see above is the finished product. What I started with is pictured below:
My first move after winning the auction was to go straight to the house and get a locksmith to let me in so I could for the first time, take a look at the place. He changed the front and back door to a new key for $216.00.
The house had been foreclosed upon 18 months prior and sat vacant for most of that time. On my first walk-through, the house looked promising. The stove and a dishwasher were still there. The bathroom had a tile floor and tile shower. A washer and dryer were even left in the basement.
During my due diligence I saw evidence the home, built in 1922, had been “flipped” in the early 2000s by checking for permits previously pulled on the property. The electrical was upgraded. The detached garage was re-built at that time. This house was a real deal.
But just like the shows on TV, the house was not without surprises.
Before I jump into the surprises and the rest of the typical repairs, I do want to recommend the single best resource I’ve seen for estimating residential rehab costs. This is a beginner’s level solution to estimating repair costs:
”The Book on Estimating Rehab Costs: The Investor's Guide to Defining Your Renovation Plan, Building Your Budget, and Knowing Exactly How Much It All Costs” by J Scott
As an engineer I’ve used RSMeans to estimate projects. They have a pricing guide for new construction and a contractor’s pricing guide which would likely only be helpful for a small percentage of those looking to rehab or build their own house. This is not a beginner’s solution. Regardless, I’ve linked those guides below:
”2019 Residential Costs Book” by RSMeans
”2019 Contractor's Pricing Guide: Residential Repair & Remodeling Costs Book” by RS Means
The primary tool used by the insurance industry for estimating damage and repairs is “Xactimate”. This is a software solution that costs a couple hundred dollars a month but can be used to effectively estimate the cost of most repairs to a home with the appropriate level of contextual experience (not a beginner’s solution). A 30-day free trial is often available.
$6,000 Worth of Surprises
In the basement I quickly noticed all of the copper piping was stolen, cut clean off from the water meter to clean off at the floor boards. The water tank was in bad shape as well, totally rusted out.
I found my first plumbing quote on Google. The local company wanted $4,500 to replace the stolen copper with PEX (plastic tubing) and water tank. They had a nice website, and a nice truck, but the price was just too high. I was debating learning how to do the work myself for that price.
I asked the neighbor if they had any repairs done to their house over the years. They had a phone number of a guy that did good work on their basement. When I called the number, he didn’t feel comfortable doing what I was asking him to do so he passed me on to a bit of a freelance plumber. The guy he recommended didn’t do the cleanest possible job, but there were no leaks, and that’s all I asked for. The total to replace the copper piping with copper (not PEX) and install a new 40 gallon gas water tank was $2,000. While the plumber was there I had him check for gas leaks. He replace faulty gas valves behind the stove, boiler, and fire place for $200.
Once the water was running, we learned the dishwasher leaked (replaced for $300), the kitchen sink faucet sprayer was possessed (kitchen sink and faucet replaced for $170), and worst of all, there was a burst pipe behind the tile shower wall leaking water down into the living room!
The Kholer shower pan cost $362. The pan was an odd size (42” x 42”), but fortunately I was able to get an exact replacement.
I asked multiple handymen to quote me to do the job, no one wanted to touch it. Even Mr. $4,500 to install some plastic tubing and a water heater didn’t feel comfortable quoting the work.
The biggest challenge was that the shower was tile, and no one could be certain where exactly the broken pipe was routed. Costs could escalate rapidly, and re-tiling the entire shower could cost $2,000+.
I took this job on with help from my dad, who is an electrical engineer, and has a general aptitude for most handyman projects.
Removing the pan by myself was painful and messy. I used a sub-compact 18V cordless Makita reciprocating saw ~$100 (one of the most utilized of the $1,700 I spent on new tools to complete the house), a 42” wrecking bar ~$20, and a cordless 18V Makita multi-tool $120 (another must have tool).
The cement backer board when cut turns to an incredibly fine dust that is absolutely dangerous and shouldn’t be inhaled. I used a respirator I bought from Home Depot for $30. I’d definitely use something higher grade if I was to do this more than once.
Fortunately we were able to intercept the burst pipe by cutting into the sub-floor. We then creatively re-routed the shower head to the opposite shower wall for ~$150 in materials. I called back the plumber that replaced the copper in the basement for $150 to cap the burst line.
The reason the pipe burst in the first place was the shower head was on the outside wall. Because the pipe was run up the exterior wall it likely burst due to lack of heat during an extended cold snap. The might’ve happened even if the house was occupied and heated if the outside temperatures were cold enough. Just a tip, always check for plumbing that is routed along an exterior wall, it will likely burst at some point in freezing climates.
The glass shower door that was there previously cost $400+ to replace, so I simply covered the shower with a rod and curtain ~$40.
My dad then replaced the bottom row of tiles which were removed to take out the shower pan for likely less than $50 in materials.
In total ~$600 went into fixing the burst pipe behind the tile shower. But this also included at least 16 unpaid hours. If I could have found someone else to do this task my guess is I would’ve spent ~$2,000+.
The boiler, which appeared to have been installed in 1997, didn’t work. I had a company come out to the house and present my options. Switching to a forced air furnace could cost $4,000+ and cause a real mess routing ducting and vents in a house not designed to make that work. The basic choice was to try to fix the broken parts in the boiler that was there for $2,000 and see if it still worked, or buy a new boiler for $6,000+. The guy I was working with raved about radiant heat that comes out of these old boilers. He said it was worth the risk to fix the boiler, even though it could break tomorrow, or in another 20 years. I had them fix the old boiler for $2,000, and knock on wood the thing still works. I have to say the radiant heat feels great in the winter. I wish I had one myself.
For demolition I rented a 30 YD dumpster for a week for a total of $359. I ripped out all of the carpet. My dad and I cut down this overgrown sapling. The shower pan went in dumpster too. Mostly everything that was left in the house by the previous owner also fit in the dumpster. I even made some friends in the neighborhood by offering some of the remaining space for their trash.
The 1,200 sf house had a cheap vinyl tile in the kitchen in poor shape, wood floors in good shape in the living room and dining room, and worn out carpet on the stairs, upstairs hallway, and three bedrooms, and ceramic tile in the only bathroom.
I had a friend of the painter I hired replace 130 sf of vinyl tile in the kitchen and rear entry for $200 in labor and ~$200 in materials.
I had ~450 sf of carpet replaced by another friend of the painter for $450 in labor which included the carpet pad. I did the demo myself. Note that carpet is not sold or installed in square feet. You’ll need a carpet installer to come out and measure the place before you buy any materials (“How to Measure for Carpet in 4 Simple Steps”). I spent $770 on the carpet itself. In total the $1,220 I spent on having carpet installed by a professional could have likely been reduced to $770 if I had gone with the summer promotion Home Depot was running which offered free install on carpet for purchases >$700. I’m very pleased with the quality of the carpet I had installed (Fireworks II - Color Explosion Twist).
Each of the eight (8) rooms needed new paint. Some of rooms had holes in the plaster the size of grapefruits. Don the painter, who I first met because he lived across the street from the new rental, painted and patched each room for $120/each. The total came to $1,000 which included painting the trim, and the eggshell tan paint. I had to buy the paint for the rooms that were not tan (Don’s bulk special). I chose the Behr Color of the Year for 2018 (In the Moment). I thought the color worked well in the kitchen with the 2000s era cabinets (not everything needs to be white and grey these days!). The color might’ve been a bit dark for the bathroom though. If you know me personally, and ever need a painter, let me know. Don did a great job.
I also paid Don $120 labor to paint the basement walls with DRYLOK ($110 for a 5 gallon bucket covered the ~20’x20’ basement).
Each of the radiators were spray painted for ~$14 each ($7/can, 2 cans/radiator). The radiators were unbelievably heavy to the point there was no sense in trying to get them out of the house. We just left them in the room and covered the floors around them. The spray paint itself, though it travels in the air, does not stick to anything past a few foot radius. When the particles land beyond that, they’re dry and can be swept away with a broom. This was an incredibly useful insight I learned from Don as I didn’t have to tarp off the entire room.
The house has the original asbestos siding from 1922, and man does it still look great. The paint on the front of the house was pretty dirty and wouldn’t clean to any noticeable degree. My dad was able to match a computerized color sample to the exact color of the paint and simply painted only the first floor of front of the house which effectively made it look clean. A gallon of the good exterior paint was ~$50.
Gutters and Fascia
A single gutter spanned the length of the front porch. When I bought the house there was a noticeable sag in the middle. Water would literally pour out of the the middle of the gutter and caused the fascia board to rot. I paid a company $335 to replace the gutter around the perimeter of the porch. But they did not do the job right the first time and literally left a high spot in the middle which would allow a small amount of water to pool in the gutter. After patiently attempting to reschedule for three weeks I had to raise my voice to stop the installer from trying to explain to me why water doesn’t have to flow down hill. They did eventually fix their mistake after conceding that yes, water flows down hill.
My dad and I replaced the rotting fascia board with pvc board. We did the same around the perimeter of the garage door which was also rotting after years of neglect. Eight-inch wide PVC board runs ~$1.50/ft.
Porches and Steps
I went through four (4) gallons of Behr Premium DeckOver Textured Paint in the color Slate ($35/gal). I also used a gallon of Zinsser Triple Thick Primer to paint directly over the paint that didn’t peel off when powerwashd ($35/gal). I absolutely love how the color and texture turned out. I probably spent ~$200 in painting materials and over 12 hours painting the railings, trim, and columns with three coats of exterior semi-gloss white.
The front and back porches and steps were in bad shape and too shaky for tenants to use reliably. I fixed the steps and the rear back porch with general lumber and screws for ~$150 in materials.
The front columns were in bad shape. My dad used what had to of been atleast ~$100 worth of Bondo to sculpt the rotting columns into “looks new” shape. Also done by my dad, but not shown below was some mason work on the porch support bricks which was worth at least a few hundred dollars of free labor.
As a tedious but worthwhile task, I painted the interior doors an Espresso Brown. I love how they turned out. The cheap bedroom dooms were damaged and replaced for $90/each. I was able to keep two (2) of the original wood doors. I probably spent ~$300 on painting materials for the doors. The exterior doors were painted a matching Crimson Red. (Word to the wise, red paints look uncomfortably pink until they dry).
I purchased a French door to separate the rear entry from the kitchen to cut down on the draft from people coming in and out in the winter. That set me back ~$250 all in, but is a nice touch to the kitchen.
Habitat for Humanity and Craigslist are great places for used appliances. I bought a gas stove for $150 on Craigslist from another landlord upgrading to stainless steel. I got a scratch and dent new refrigerator for $300. You can get dishwashers at Habitat for Humanity for $25, but there’s no guarantee they won’t leak. I just went with a new dishwasher for $300 on Labor Day Sale assuming it’ll last me 5-10 years before I need to replace it.
If you’ve been keeping tabs to this point you’ll notice I’ve only told you about ~$14,000 of the $18,000 that went into improving this foreclosure into rental condition. The other expenses range from a collection of odds and ends:
$300 auction fees
$88 in bank fees
$500 on blinds
$500 on ceiling fans
$500 on meals
Travel, light bulbs, temporary lighting, weedkiller, mops, buckets, brooms, tape, sharpies, pencils, paper towels, boxes and boxes of screws
Odds and ends and material waste that come along with the project
One way to look at this is taking the $14,000 I told you about, the memorable and more obvious repair items, and then adding 25% for all the expenses that don’t come to mind right away.
I kept track of all my expenses on a simple ledger with each purchase itemized including as many receipts as I could remember to keep.
This month when I filed my tax return my accountant had me organize the property expenses into the following categories:
Auto and Travel
Cleaning and Maintenance
I hope an aspiring real estate investor out there finds this information useful in their own pursuit of wealth. The best teacher of all though will be the lessons learned by doing.