Part 1
Over the past few years, I’ve wanted to invest in real estate. Several months ago, Bubby and I found a diamond in the rough for only $32,500. We decided to claim this one as our vacation home and when not using the house ourselves, we can house share for extra income. The house is a 3-bedroom, 2 bath brick house and it is located on a 1+ acre lot in a small village in Northern Louisiana. The best part of this deal is that it’s a lakefront property. Yes, Louisiana. Are you thinking of alligators? Bubby and I don’t mind them. In fact, they taste great. The only problem is that we knew this property would require more than a little elbow grease. Despite this, I could immediately see the property's potential.
Bubby was not sold on the idea of purchasing right away. When I first found the house on Zillow the listing price was $46,500 and at that price I thought that it was a steal. I did not know that it would take months to convince Bubby that this house was worth looking at. I continued to watch the listing and every couple of months the price dropped. When the total price dropped by $14,000, I was ready to make an offer. It turns out that my family had to take a trip to Louisiana for family business, so I decided that the new lower price was worth looking into.
A day after arriving in Louisiana, we drove by the house and Bubby was less than impressed with the first glance. He was even more disinterested on the second glance. He did, however, like the tree shaded lot and he absolutely loved the lake. Unfortunately, we could barely see the lake since the yard was badly overgrown. The house had been vacant for nearly two years. I believe that the foreclosing bank did not want to waste more money on a stagnant property through weed abatement. Bubby did eventually come around. He thought that we should buy the property and demolish the house, thinking that the vacant lot would be worth the purchase price without the trouble of fixing up the house. I, on the other hand, continued to think the property as a whole was a good deal.
Days after our drive-by visit, I contacted the realtor and told her that I was interested and would be submitting an offer. I scheduled an inspection and the realtor recommended a lender that could initiate the construction loan that we needed. Since Bubby’s credit score was higher than my score, the bank felt that it was best to deem him as the primary/sole borrower. Louisiana is a community property State, so I was still required to sign the bank promissory note. The temporary construction loan was reflected on my credit report. When the permanent loan was initiated with Curtice alone this did not show on my credit report.
I contacted a licensed local contractor who visited the property and reassured us that he could perform the repairs for my desired $50,000 maximum. During his second visit a few days later, he discovered that there had been a fire on the property. The overgrown yard had provided additional fuel for the neighbor across the street who had been burning leaves. The burnt yard was not enough to discourage me since the yard now looked 90% better. In fact, it would not require mowing for several weeks. I immediately called the realtor to offer $30,000, but another neighbor, who was also interested, placed an offer for the exact amount, but offered to pay in cash. In an attempt to win my prize, I kept to my original $32,500 bank offer and it was accepted. I secured the deal with a $500 earnest deposit. Around this time though, we discovered that the contractor’s license had recently expired. I had located him through a popular home advisor website.
Fire Aftermath (the house did not suffer any fire damage)
We later learned that our awesome village Firefighter was also a village Deputy Sheriff, a great Plumber, a store owner in town; and a landscaper.
The inspection results were still a little concerning to Bubby, but he was all in by now and I held no reservations. At least the unsightly roof did not have any leaks. The house was dated and the electrical was outdated, but the house otherwise had a good structure. Around this same time, we found a new contractor that checked out. As out of state buyers, the bank required us to place money into a savings account until closing. All our money, including the earnest deposit, was returned at closing.
The purchase price of $32,500 plus the $50,000 in upgrades, and a few additional fees here and there, brought the total to just over $80,000. After the upgrades, which are approximately 85% complete, the house currently appraises for over $100,000.
$42,000 from renovation loan:
New Electrical
New HVAC and AC
Metal roof
Sheet-Rocked walls and ceilings
Laminate Wood Tile Floors
New Windows
Replaced living room window with French Door
Replaced exterior front door with window (entered bathroom?)
Painted interior
Removed tub and added tiled shower in 2nd bath
Paint and wood trim to kitchen cabinets
*Additional $8000 out of pocket expenses:
Appliances
Crown molding and baseboards
Light fixtures and ceiling fans
Lime wash for brick exterior and fireplace
Painted kitchen countertops
New Interior Doors
Resurfaced shower in 1st bath with Tub and Tile Paint
Sweat Equity = 368 hours and counting.
BEFORE
AFTER
If you're thinking about rehabbing here are a few lessons that we learned that you may find helpful.
Lessons Learned
-It is best to be on site when renovating an out of state property to supervise contractors. If you can't be there in person conduct regular video meetings.
-This one is a no brainer, but secure in writing with your contractor that he or she will not pay subcontractors before inspecting their work. We assumed he would. This removed our leverage for correcting inadequate work.
-Personally inspect each completed job with the contractor, or beforehand.
-Repair major components first; plumbing, electrical, heating, air conditioning and save smaller repairs until the end.
-Keep a detailed record of contractor bank draws for all repairs.
-Conduct daily or weekly meetings at a minimum with your contractor.
-Check your contractor’s license expiration date with your states licensing board.
-Bonus= my credit score improved within the several months that it took the bank to payoff of the interim/construction loan.
Be sure to check back later for Part 2