This is the second house I bought and I purchased it with a partner. I will call this house the Don’tPlex house. It was a duplex when we bought it and we converted it to a 4-bedroom single family house. It was the worst rehab experience I have had in my investing career.
This house is currently rented for $750 and the payment is 564.63 (with escrow). The problem with the house is that we spent almost $70,000 on the house and it is now worth about $50,000. The loan was for $57,000 but we used money from a loan on another house to compete this house so did not have to use our own money. Luckily, we have a 30 year fixed mortgage keeping the cash flow at a barely acceptable rate.
Here are the numbers:
|Current Loan Amount:||$55,274.67|
|Payment (escrow included):||$564.63|
|Loan type:||30 year fixed|
|Monthly Cash flow:||$185.37|
|Comments:||We paid too much for this house and I wish I did not have it. This cash flow is tiny and I have a partner. It is probably worth about $40,000 and we could not sell it for the loan balance. Its cash flow is usually eaten up by minor repairs but we have never had to put money into it.|
I bought the house with the same partner I used on the wholesaler house. Midway through the wholesaler house we started looking for properties on our own. We bought this house for $11,000 and planned to spend $25,000 on repairs. It was a duplex and each side had a bedroom, kitchen, living room, and bathroom. We discovered that it used to be a single family house and the permit to convert to the duplex was never filed. We didn’t want the duplex anyway so we converted back to a 4 bedroom 2 bath house.
This was a major rehab effort. It involved the following:
- Replacing the roof
- Replace the stolen HVAC unit
- adding walls
- removing walls
- sealing up interior and exterior doors
- adding new interior doors
- replacing ceilings
- building closets
- building a laundry room
We were still new in the business and did not know many contractors. We started by using some of the few good contractors who worked on the wholesaler house. This enraged the wholesaler who thought we should still be paying him since we used the same people he did. We used the electrician he used and it was a disaster. The house needed to be re-wired and after several weeks the job was half done and the electrician would not come back. We eventually paid him off because we were concerned he would vandalize the place.
Shortly after getting rid of the electrician we had the wiring stolen. This house had an open 6 foot crawlspace and someone went under the house and cut the wiring. They must have stolen less than $50 in copper but it would cost us $3,000 to rewire the house. We filled an insurance claim and recovered most of this money.
After the wire theft, we sealed up the crawlspace with lattice and hired a local electrical company to rewire the house. I think the thieves noticed their truck and watched the work. As soon as the work was complete the thieves broke through the lattice and struck again – another $3,000 wasted.
We then removed the lattice and added actual siding to the crawlspace. This would make it a bit harder for the thieves the break in. We had the house re-wired and a week later the wiring was stolen again, another $3,000 wasted. In this theft, the thieves broke the padlock on the full-size door to the crawlspace.
This time, we added a huge industrial strength lock that was almost impossible the break. We then added a security system with sensors on all the doors and we put motion sensors near the breaker box and under the house. We bought the Repulsar 1 Burglar Bomb – a pepper spray bomb that could be fired by the alarm system. We added this in the crawlspace. Unfortunately, no one ever broke into the crawlspace again. The fancy lock just funneled the thieves upstairs. The burglar bomb was never tested on thieves, only on some contractors who forgot to disarm it.
The alarm system was setup to call us if it ever went off. We would then call the police and head over to the house. About a week after installing it I received a call about 3am. I called my partner, then the police, and I headed to the house. We found the back door had been kicked in and some tools stolen, but the loud siren must have chased the thieves away.
A few days later it went off again (in the middle of the night). When we arrived at the house we found a back window busted. It appears the thieves broke the window, crawled in, set off the motion sensor, and fled. We boarded up the window and left for the night.
A week or so later I was awoken by a call from the alarm. When we arrived at the house we found the board had been removed from the window. A quick search of the house found nothing missing. As we were boarding up the window a police officer arrived at the house. He informed us that earlier he had been there, just after the alarm went off. He found the open window and he and his partner climbed in. His partner stepped on a nail and he had to take him to the emergency room.
Shortly after the incident we had power turned on at the house and the thefts stopped. It seems that the thieves only go after the wire when it has no power. Maybe they are scared of being electrocuted, or maybe the lights make them think someone is at the house. Either way, the only time I have had wire or AC stolen was when the house had no power.
Once we had stable electricity it was time to complete the rehab. We were already several thousand dollars over budget due to the thefts. My partner wanted to do the work himself to save us money. To this day we still argue over this issue. I contend that he did not save us money. Although he charged very little for his labor (about $1/hour) his quest for perfection and eye for craftsmanship caused the budget to soar. He argues that we got better quality for what we would have spent hiring contractors. However, we both agree that with him doing the work it added several months duration to the project.
After this he was through with the rental business. We did a third house together but we had purchased it just after purchasing this one. We still work together to manage the 3 properties we own jointly, but he no longer pursues new properties. I have purchased 10 additional properties since this time. He is burned out on the entire process because he invested too much time into the properties. He agrees, but he still likes to do the maintenance himself when possible. I refuse to sweat for the rental houses. Make it easy and it is easier to do.