I bought an REO property in Apex, NC on December 10, 2007 through a wholesaler for $31,000 using a hard money loan. The house was a 1213 square foot ranch with a brick fade and floor to ceilings windows, two bedrooms and one bath.
The house had been vacant for more than two years and used for parties by the local teenagers. The previous owners had started to build an auxiliary 300 square foot house about two feet from the primary structure that was never finished but was used extensively as a living space.
My plan was to do a basic rehab, refinance to pull my investment out, and rent the property as a long term hold. I particularly liked the location which is in a neglected area of the county between two attractive, fast-growing cities. It is in the path of development and will see significant appreciation when the planned highway is completed.
The rehab plan called for repairing the foundation girders that were rotted due to improper window installation and drainage issues around the perimeter of the foundation. Rerouting the kitchen drain lines, replacing all the windows except two floor to ceiling windows in the living room that were protected by the front porch roof; replacing the front and back porch railings, replacing the roof and repairing the sheathing, repair leak damage to the ceilings, replace the flooring, water heater, air conditioner, lighting, range hood, electrical outlets and switches, both exterior and most interior doors.
Outside I removed the small “house”, cleaned the piles of refuse, removed a steel shed, and trimmed the overhanging branches. The cost of the rehab was budgeted at $26,350.
The rehab came in at $28,700 due to having to replace the ancient furnace entirely with a new gas pack system and a miscommunication about the window trim which delayed the project by almost two weeks, as well. During the rehab I figured out a way of walling off a second living room to create a third bedroom. This third bedroom is now the master bedroom since it is the roomiest of the three bedrooms.
The timeline was six weeks straddling the Christmas holidays. We missed the time line by two weeks due primarily to the miscommunication which was caused by my inexperience.
ARV (appraised) $122,000
Purchase price $31,000
Purchase & holding costs $2,000
My exit strategy is to refinance the hard money loan with a 30 year, 80% LTV mortgage to pull out about $34,000 of equity which will be used to finance my next rehab. I have signed a lease for the house at $700 per month beginning the day the rehab was completed! This was my first real estate investment deal but represents precisely my business model.