Underestimating Everything

"That should only cost like $5,000-7,000, right?"
Strategy:
Buy and hold

About the Property

underestimating-everything-gurley

About the Deal

Why I liked it

First, it had a guest house that technically had its own address and could be rented out separately.

Second, the main house was huge, and after a walk through it seemed like I could make some small changes (tub insert, adding a closet and adding a door) to turn this 3BR/1.5BA into a 5BR/2BA.

Deal structure

Purchased with a conventional mortgage putting 15% down. (Yes, it is indeed possible to put only 15% down for an investment property with a conventional mortgage).

Deal outcome

Not only was there a heck of a lot more rehab than I had initially planned, but it took a long time thanks to weather and supply chain issues.

Making matters worse, within a month of getting a tenant into the main house there was an electrical fire — its own fun adventure for all sorts of reasons.

That tenant moved out after the fire, and it took a couple extra months to get the main house leased. By then we had hit the off-season and had to rent it for $200/month less than it initially leased for. But believe it or not, that still beat the initial projections!

Projected Numbers

Purchase: $195,000
Rehab: $7,000
Total Rent: $2,200

Actual numbers

Purchase: $195,000
Rehab: $28,045
Rent: $2,250

Deal Outcome


Lose!

Lessons Learned

1. Don’t bank on your own rehab estimates. Have a contractor look.

2. If you plan on doing rehab, send the contractor your inspection report and let them tell you which issues need further investigation and/or repairs.

3. Keep reserves!