Surprise Bonus
The Basics of the Deal:
“Surprise Bonus” was purchased for 36K and it was listed as a 3/2, with detached Garage and over 1,400 sq ft on a nice sized city lot.
We called this “Surprise Bonus” because when we walked through the property not only did we find an easy conversion to a 4th bedroom we also found the detached garage was actually a nice sized mother in law house 1/1 with living room and kitchen.
The key to this deal was we learned from our “Flop-Flip” house and planned to rent the property to one large family instead of two separate families. Mistakes happen but don’t repeat them as it can get very expensive.
Expected and Initial Plan:
We initially expected both houses to cost about 10k in repairs as it needed the usual work plus some extras in the mother in law unit. We added a few cheap cabinets, painted inside and outside of both units, created a 4th bedroom, carpet and linoleum in kitchen and bath.
The house is directly across from a school so we expected it to rent pretty fast and given we had a 4/2 plus a 1/1 we felt really good about getting $1,095 a month in rent.
Actuals:
We ended up spending 13.5K on repairs and we actually got the property rented for $1,100. The initial tenants we moved in actually had some family issues shortly after moving in and thus they were out inside of 90 days. This was not fun but you can’t plan for family problems. They had plenty of income, solid jobs, great references but when a family dissolves it can dissolve quickly.
We moved a second family in and they have been paying like clockwork and at the same rental amount of $1,100.
The overage was actually caused by the need to run a hot water line to the mother in law unit. Apparently the original owner never bothered to provide anything but cold water to the back unit. This expense wasn’t fun but well worth it as it insured we got our rental amount and it made the value of the property increase as both units are now functional. You have to ask yourself who would want to live somewhere with only cold water.
Current Status of Property:
The second tenants are a nice family and they pay like clockwork and I suspect they will live there a long time.
Lessons Learned:
Don’t repeat past mistakes. We learned from of “Flop-Flip” house that when in doubt rent a house to one family instead of two.
You can’t believe everything you read in the MLS. The more properties you see the greater chance of finding extra value.
Don’t assume a past owner has done repairs or remodels to your standards as you will be disappointed. Your name is on the line so make sure you always provide safe and secure housing. Don’t be a slumlord it not worth it!!! Karma will eventually bite you in the butt if you cut corners and don’t treat your tenants like customers.
Grade the Deal and Why:
We give this house an A- as we came in over budget but got our expected rental rate.
Future Plans for Property:
Given the location and the cash flow that this property spins off it will be a keeper for many years. You can’t build houses for under 40K especially ones that will rent for $1,100.
In the mean time we will be looking for ways to strip off a small piece of equity via a bank line or private money as we only owe about 20K on the property.
