I had only bought two properties, so I was still very “wet behind the ears” at the time of this success story. Still, I made out ok and learned a great deal in the process.
My background: Fair carpenter, plumber, electrician, builder; certified home inspector.
I had just moved to a new state, so I was unfamiliar with the area. So, the first thing I did was find a real estate broker I liked and respected. I asked her to look around for any great deals on distressed properties. She had recently sold a distressed property to another newbie investor, and had noticed that after a few months, nothing had been done on the property. This property was a one bedroom/one bath older home on a large city lot. She wisely recognized they may had bitten off more than they could chew. So she contacted the new owners and asked them if they would be willing to sell. Now, based on what I was hearing from my Broker (reading between the lines), I figured they had bought this little home for ~$30k. Sure enough, they were willing to sell for $33k.
I took a look at the home and discovered it had a few additions surprising for such a small place. Still, it had a lot of character and charm; I really wanted to learn more about this home's history. After talking with some locals, I learned the home was the town (now a small town of ~600 people) dentist's office around the turn of the 20th century. A poor economy (and resultant move of many people and businesses to another city 30 miles away) led to the dentist's office closure. Someone decided to move the office to a residential lot and convert it into a home.
So here's this charming old home, with 9'3″ ceilings, 6/12 cedar shake roof, and at least three additions. Additionally, it had survived a fire as evidenced from charred rafters in the attic. I just fell in love with it, and the idea of restoring it so I bought it for $33k.
Here's the details at the time I bought the property:
Property: 1900ish ranch style house on large city lot; crawlspace and two foot concrete foundation.
Square footage: ~600; lot size: 125×150′.
Bedrooms/baths: 1 bedroom/1 bath (accessible from the bedroom only).
The roof needed rebuilt; the floor structure needed beefed up; it sat lopsided on the lot leaving 17 feet to the left and 30 feet to the right.
I decided to gut the home. I stripped all the drywall (over lath and plaster) off the walls and ceilings. I added 12 feet to the right of the home allowing it to sit better on the lot. The addition also allowed adding a second bedroom. In fact, I redesigned the entire floor plan in order to have a two bedroom, one and a half bath home with large kitchen, dining and utility rooms. I basically turned the poorly built roof system (rafters and joists only) into trusses eliminating ceiling sag (as much as 3″ in some rooms). I re-plumbed and rewired the home with all new plumbing supply, drain/waste/vent, fixtures, new 200 amp main electrical panel and plenty of outlets. I beefed up the sagging and squeaky floor with additional joists, posts and girders, where necessary. The roof got asphalt comp shingles; the new (now plumb) walls got drywall. Basically, it became a “new” home, inside and out.
So, after all work was finished I ended up with a beautiful “like new” home ready to sell. However, I did not add a garage. This, I felt kept the property value lower than it could be. I estimated its value at $80k. I came up with this based on the remodeled square footage of 1,006 x $80 sq ft; reasonable, I thought for a home in a town with a poor economy and no garage.
Since my renovations had cost around $30k (not including the “free” labor of myself and my family), I figured I would clear around $15k if I sold for $80k. So, I put it on the market for $79.9k.
IT SOLD IN THREE DAYS!
What went right:
1) Finding a cheap property through network I had just made.
2) I made a profit (a very small one)
3) I learned a great deal in the process.
4) The finished product was beautiful; easy to sell.
What went wrong:
1) Failed to start the project with a well-planned budget; or any well-defined plan for that matter.
2) Did not accurately account for home's value in light of its beauty and sell-ability.
3) After my time and labor is factored in, not much of a profit afterall.
How would I approach the same opportunity today:
1) Develop a cost analysis plan to determine the best course of action:
a. Buy and rent.
b. Minor fix-up and sell.
c. Major overhaul (as was done) and sell.
d. Walk away.
2) Develop and stick to a budget.
3) Get a free market analysis from three realtors to determine listing price.