Project 1622
Project 1622 was our first project. Spurred by the need to not be one of the investors who studies, learns all the potential benefits of real estate investing, then does nothing, we pulled the trigger on this 3 bedroom 1 bath home built in 1905.
The seller was renting out the property and it was in need of major repair. The Real Estate Agent that I was working with heard of the property within his firm and gave me a call. The property had not yet been listed and there was no determined listing price so I went all in with a conservative cash offer, waiving all contingencies. Truth was I anticipated that I would most likely learn a lot but lose my earnest money for the lesson.
We had the home inspected and found major repairs that would need to be addressed to be proud to put this home on the market. I was hunting around for contractors to try and get a good estimate. Needless to say, as estimates started coming back in I was shocked by the amount of money that would need to be put into the property. My original ballpark of 10-12k was quickly becoming double that. I re-ran the numbers again and again and figured that even with the increased construction costs I should be OK. Let’s look at the numbers.
Purchase Price: $95,000
Anticipated Renovation Cost: $10,000 – $12,000
Renovation Cost Estimate: $19,000
Actual Renovation Cost: $42,627
ARV: $170,000
Rent Estimate: $1200
Actual Rent: $1150
As you can see. Repairs were WAY more than I was anticipating but I was still able to finish the project for about 75% of ARV so I figured I’d be fine. What I didn’t consider is that even though the equity was good and I should be able to pull almost of my money back out of the property on the refinance, it wouldn’t cash flow. To hit my targeted cash flow I would really need to keep the mortgage around $110,000 – $115,000. At this point the property has hit it’s seasoning period but until I can find additional deals I don’t need the cash so I have not refinanced the property yet. I have come to the conclusion that what I pull out will need to create positive cash flow so I don’t run too thin going forward which means I’ll leave some money in the deal for a while.
Obviously when I bought this property, based on my anticipated repair numbers, this was going to be a home run. Didn’t turn out that way but it’s still a solid start to what I hope will become a long and prosperous real estate careeer.
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