Rehab #12, Salem – Under Contract

 

The real estate agent who sold me Rehab #9 called me early last week to tell me about an upcoming property that needs a lot of work.  The owners, who were hoarders, haven’t lived in the house for several years so there is a lot of deferred maintenance.  She asked that I do some research to see if I’d be interested because they may be looking for a quick sale.  I have access to the MLS so researching a property takes about 5-10 minutes.  Through my research I found out that this is a 1,056 sq. ft. ranch with 3 bedrooms and 1.5 baths.  It has a 1 car garage and a nice, level lot.  The property is in a great neighborhood, walking distance to one of the top schools in Salem.  I was estimating the ARV at around $280,000 to $300,000.

On Friday I got a text from the agent telling me that she was at the house with the owner.  Here’s how our conversation went:

Deal Text 1Deal Text 2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Okay, this seemed a bit too easy!  I was expecting that there would be some unforeseen issues once I got to the house and I would have to adjust my offer price.  I should mention that I was able to estimate the rehab costs without looking at the property because I rehabbed a very similar house 5 months ago.  As a matter of fact, the other house was owned by hoarders too.

My partner and I did a quick walk through on Saturday morning to get a better idea of the costs and we came to $71,500.  After budgeting a 10% contingency factor, we are right at $78,650.  This is a bit above my original estimate because we need to make a couple floorplan changes.  On a positive note, my partner, who is a real estate agent in Salem estimates an ARV of $320,000.  However, I’m still being conservative in my analysis by using a $310,000 ARV.

Rehab #12, Salem - Rehab Analysis

This property will get a full facelift on the exterior with new vinyl siding, all new windows and a new roof.  The driveway will be sealed and we’ll add some curb appeal to make the house pop.  On the interior, we are replacing all the doors, removing wallpaper, completely remodeling the 1.5 bathrooms and kitchen and refinishing the hardwood floors.  The house will be fitted with all new electric and since we already need to replace the heating system, we’re going to convert it from forced hot water to forced hot air so we can add central AC for minimal cost.  The biggest change that will take place is moving the basement stairs from between the living room and kitchen to the back side of the dining room.  This will allow the kitchen, living room and dining room to be completely open.  We are also going to add a 300 sq. ft. family room in the basement.  And since it’s important to keep a seamless transition to the basement, we are going to have the stairway open with only a half wall acting as a railing.  Next, we’ll replace the door in the kitchen and add a hallway to the back porch and garage.  This small change will  add 150 sq. ft. to the house and make the porch much more accessible to the kitchen.  With the addition of this space and the basement, the house will go from a 1,056 sq. ft. ranch to a 1,506 sq. ft. ranch.  This square footage is right in the sweet spot for first time home buyers and growing families.

We are using a private money lender for this deal who is financing 100% of the purchase and rehab costs.  It’s very difficult to get 100% financing because most lenders want to ensure you have “skin in the game” (meaning to have your own cash in the deal so you are directly affected if anything should go wrong with the deal).  Luckily, this lender knows me very well and understands how conservative I am with my deals.  Speaking of being conservative, you’ll see that I rounded the rehab costs up to $80,000 and I’m budgeting for 6 months of holding costs even though we are estimating a 4 month hold time.  Also, we usually only budget for a 2% commission (my wife and my partner have their real estate agent licenses), however, the real estate agent who got this deal for us asked that we use her on the sale end.  Obviously, we don’t have a problem with this.

Even with the conservative measures, I’m pretty excited about the ROI on this deal.

Here are some of the pictures of the property:

 

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  • Wow Justin this is another good looking deal!
    Man you are getting them in fast and furious with great numbers.
    Congrats!
    How many more before you are going to start wholesaling some? 🙂

    • Thanks Shaun. Yes, things are getting busy. I’m working on a few right now that I would be looking to wholesale. I’ll let you know.

  • Pingback: Rehab #12, Salem – Staging Pictures | The Boston Investor()

  • Michael

    Hi Justin, this is a great illustration! It looks like you and your partner only had to come up with roughly $6,500 to $8,500 each. Just curious, did you have to come out of pocket for all of the holding costs during the rehab or were you able to role the hard money payment into a lien to be paid off at close?

    • Michael – The PML gave us the full amount of the purchase price and rehab costs at the beginning so to the extent that we came under budget, we could use his money to pay the holding costs. This way if we needed to put money into the deal, it would come near the end of the rehab and our money wouldn’t be held up for long, thus increasing our IRR. I should have my final analysis on this project in about a month so I can share more details about the funding then.