Posted by Tony Colella on September 10, 2008 at 17:07:38:
An early congrats for your Friday closing on the newest park Don!
Let us know how it all turns out.
Tony
Rehab Cost (Very Long) - Posted by Ryan (NC)
Posted by Ryan (NC) on September 09, 2008 at 13:07:48:
Having just finished one the companies taxes I have some real data to challenge the folks that insist that you HAVE to spend 5-6k+ to rehab a unit for resale. This is widely one of the places that I see people over spend on their investments by building the unit to their standards rather than the tenant/buyers expectations.
We don’t opperate slums but we donâ??t build mansions either, what we build is safe, decent, affordable housingâ?¦ in my market folks canâ??t afford over improved units that would other wise put the price way above what they could handle and make it harder for me to find people to put in the home.
Here are some Lonnie Deal numbers:
FMHP#23 Purchase $750 Rehab Cost $2651.80, L/O for $12k $750 Down $250/month net
- L/O again after 6 months $10,500 with $0 down to current tenant $200/month net
FMHP#32 (Repo) rehab $63.60 L/O for 7th or 8th time $6500 $500 down $165 /month net
FMHP#79 (repo) $0 rehab, Grass cutting $30 L/O 4th time for $7800 with 1k down $190/month net
FMHP#65 Purchase $4500 Rehab $1064 L/O for $18k $1200 down $265/month net
FMHP#68 Purchase $4850 Rehab $666.42 L/O for $16k $1k Down $265/month net
SH#3 Purchase $2000 Rehab $101.36, L/O $5500, L/O $800 down $215/month net
HP#15Purchase $6000, rehab $1462.74 (had to replace shingles), L/O $14.5k $750 down $255/month net
Here are some rental unit numbers:
GD DW Purchase $32k, rehab $5210.48 (had to put on a new roof) Rented for $700/month
On the following rentals we put $750 down and have a mortgage of $115 using easy math
WR2 Repairs $1937.79 Rented for $325
WR3 Repairs $3504.10 Rented for $425
WR5 Repairs $891.48 Rented for $350
WR6 Repairs $222.77 Rented for $360
WR8 Repairs $1971.89 Rented for $425
WR9 Repairs $642.09 Rented for $350
WR11 Repairs $711.07 Rented for $350
These 15 homes are very representative of our cost and include labor charges, they are not cherry picked, I had 2 roofs to put on this year and still kept cost down as best I could by cutting out niceties that might have got me a tad more in rent or made me happier with the finished product but didnâ??t affect the livability of the finished product.
I keep the rehab cost down by using a repair system and basic materials for the job, the units that run over $1500 in rehab cost were cosmetically trashed, my handy man bought a larger than normal portion of the materials, or I underestimated or missed repairs when looking at the unit for purchase. WR3 I had to replace 75% of the subfloor before we could really start AND THERE WERE PEOPLE LIVING IN IT! If I hit a costly snag something else has to give to make up the difference! Need a new roof? Maybe I can get by with the carpet in the BRâ??s to cut the cost, maybe we leave appliances out. (which I normally move to & charge for in rentals)
My basic rehab is to:
Remove any carpet that is DAMAGED, even moderately stained carpet is normally over looked if itâ??s cleaned.
Fix any windows That are broken.
Kool Seal the roof.
Fix any bad spots in the floor (rolling back any carpet / floor coverings for reuse if possible)
Fix holes in the walls, using access panels, solid outlet covers, sheetrock mud, or cheap paneling as a last resort.
Paint the unit inside if itâ??s really bad with 2 coats of kilz
Replace carpet Trying to reuse pullout if possible i.e. LR carpet torn but lacks the smell of money, a smaller BR gets cut out section
Insure that light fixtures, smoke detectors, outlets, etc. are serviceable
Check decks/steps for safety issues
Possibly paint exterior of higher end homes if really needed
Repair/replace damaged underpinning
Cut and reuse molding replacing donor sections IF it stands out major.
In a nut shell Iâ??m looking for the overall appearance of DECENT, if it doesnâ??t grab my attention from the door way of the next room it most likely doesnâ??t need fixedâ?¦ I drive Chris nuts with this one and sheetrock work, a minor bow or ding isnâ??t going to keep a unit from renting however 20 hours spent making the walls perfect WILL keep the next unit from renting up for at least a week.
If all goes well and I donâ??t hit any unexpected bumps Iâ??ll spend as much of my repair budget in the master bedroom/bath and the kitchen as possible. This is the only Place you will see me spend money to make something really nice. In the rentals Iâ??ve gotten to the point that Iâ??m trying to get it so that every unit has at least the LR in laminate which runs about $300 installed.
A comment that really got to me when I got started in this business was â??Look hunny, the toilet isnâ??t falling through the floorâ??. I repair trailers to be mobile homes, NOT single family houses that are going to rent for $1000+ a month. If you are one of the folks spending more than $2500 on a regular basis to repair homes I personally feel that it boils down to one of 2 things, buying the wrong homes, or over improvingâ?¦ There is a reason that most older homes have the ugly brown paneling, it was cheap, fast to install, and meet the clients expectations! When looking a item for repair ask yourself is this the minimum item that will do the job or do I want it for the way it looks? A good example is light fixtures, the pretty ones in contractor packs cost between $12-18 each, the T mount like came with the home can be found for between $0.75 and $1.25 and $2 for a cover if you want to splurge.
Most of what Iâ??ve learned was thanks to Scott and Tony, the second I walked into their homes I knew I was spending WAY to much to fix them! Iâ??ve been down the road of spending 4-6k to rehab a home only to take several years to get the money back. I personally prefer to make decent homes and do more of them, for every 1k saved in rehab cost the company will net a return of roughly $100 per month which can be used to fix another home or fill a vacant lot.
The other aspect of rehabbing to the tenants expectations is that WHEN you get a unit back with some damage youâ??re not out the cost of high end material, my average turn around cost between tenants is about $60 with a few running down as low as $12.75 not counting lot rent / mortgage payments. Normally this money is spent on a gallon of kilz and cleaning supplies and maybe a solid outlet cover to cover a hole and salvage material from other jobs, I rug doctor units 2-3 at a time and simply refuse to clean carpets for only one unit. (I waive part/all of the deposit and have the tenant do it)
Sorry so long, I will try to get some pictures up here shortly as wellâ?¦
Best wishes,
Ryan Needler
Ryan, Ryan… - Posted by Greg Meade
Posted by Greg Meade on September 10, 2008 at 19:59:19:
you are a CHEAPSTER! Just gotta love you. Wasn’t it you that told how you make your door and windown flat molding from a 4X8 sheet of cheap panelling cut into one inch strips?? Rustic, wood look at very good prices. I have done it and it does finish up a room.
One of the best sayings I heard at Tony and Scott’s Bootcamp was “lowered expectations” and a lot of my L/O Notes follow this rule.
You have seen my operation here and we have a two tier busines. Park lots with clean, affordable, safe housing and 36 private lots that range from 1/4 acre to 3 acre lake front .5M lots.
Two different critters but I agree," Know when to say when" should be the first rule of rehab. I went to The Brenn’s home on meeting and they were rehabbing a SFR with ceramic tile, granite counters, 400 ffaucets, stainless apps and i thought then, “WOW I wouldn’t mind working around this stuff everty day” They made huge money on the resell there but I’m not there yet.
I have looked over probably 40 different operations in 5-6 states and i think the most common mistake I see made is over rehabbing.It can take the profit out of a deal for years and wear you out. As a landlord it kills me tro see stuff torn up for no good reason but in my area young kids do more damage than large dogs…go figure.
SandiFL and I were talking about this exact subject 4 hours ago!
Your friend.
Greg
Re: Rehab Cost (Very Long) - Posted by Don-NY
Posted by Don-NY on September 10, 2008 at 05:50:45:
Ryan,
This couldn’t have been posted at a better time for us.
In our first park we removed four 12 wides and pulled in four 14 wides.
Total cost per unit average $13,500.
Estimated rehab cost if we kept the 12 wides $2500 per (they needed new furnaces).
Total increase in rent $125 a month per.
We believed the old 12 wides would not rent, but looking back they would have easily.
And we would have been generating income from month 2 and full @ month 5 not start at month 5 and full at month 10.
This park was vacant when we bought it and needed infrastructure work so pulling the homes made some sense. And we now have a great little cash cow
We are closing Friday on a 12 lot park.
With 7 POH
6 of these are OLD HOMELY 10 WIDES!
5 of the 6 are rented @300-375
I used to think 10 wides were dumpster fodder and sometimes they are, but they rent!
We realized there is a significant need in this area for housing under $400 but average apt rents are $450+
So what are we planning to do?
Make sure they are safe, clean, dry and livable.
And keep on renting them until they wont rent or they fall down.
Don & Karen
Re: Ryan, Ryan… - Posted by Gary
Posted by Gary on September 11, 2008 at 21:08:28:
The 1" strips look like the same thing the factory puts in their low end homes.
I don’t rehab homes anymore. All homes are sold and rented as fixers. Presently I have two young men,one working on his third home, the other his first with intent to sell with me guiding them with screening,cheap fix ideas,and I keep alot of good used and new closeout items they can have for free or cheap to help them make money.
I would much rather look for new properties,used homes,and repair items. I’d even do outside maintenance and property management before rehab these days.
I have no friends,
Gary