The Stucco House
The Basics of the Deal:
“The Stucco House” was purchased for 40k and it offer 3 Bedrooms, 1 Baths, and is about 1,200 feet and sat on a standard city lot of 6,500 square feet.
We called this “The Stucco House” because it had these great new windows put in but the stucco around each window had not been repaired. Along with stucco work to the exterior it was in desperate need of a paint job as the house looked like it had chicken pox’s as all the various spots with new stucco had no paint let alone the segments that had little to no stucco. The rear yard needed a new fence as there was chicken wire holding up multiple sections. The roof was less than 2 years old and the basic fixtures were in good shape. We needed a stove and new water heater as they had left with the past owner.
Expected and Initial Plan:
We initially expected the house to cost 6-8K in repairs and to rent rather quickly for $925-$950 as the area was nice but only offered street parking.
Actuals:
We ended up spending about 7K on repairs and it took less than two weeks to turn the unit from start to finish.
Once the stucco work was completed and the exterior was painted we secured a tenant at $950 a month before the work was complete.
Current Status of Property:
We still own the house and consider it a long term keeper as you can’t build houses for what we paid for this one. So whenever the market turns and this unit is back to replacement cost we might look at exchanging the property but until then we are happy to keep it.
The initial tenants are still in the property and to date have paid like clockwork. I guess it helps that Section 8 pays over 90% of the rent (Did I mention we love the Section 8 program even with all the paperwork headaches).
Lessons Learned:
Move fast when you find a good deal and don’t get scared off by cosmetic things. We put this property in escrow at 40K and then drove down to perform our walk through and create the scope of work.
To say the house looked odd the first time we saw it with the various patches of stucco would be an understatement. But we knew this was cosmetic, and it clearly drove other buyers away.
If the numbers work and you have margin of safety take you shot.
Grade the Deal and Why:
We give this house a B+ as we hit are target budget, got the high end of our rent and to date have found no unexpected surprises (outside of a shower leak in the wall one time).
Future Plans for Property:
We look forward to holding this property long term. We will look to extract 20-30k of equity as time goes by via an equity line with a bank or via private money from our network as we would like to increase the velocity of our capital. We only owe about 20K on the house currently.
When the property gets back to replacement cost of 120K-150K we will look to exchange our equity into a small multi-family. But until then we are happy to hold the property given the cash flow it spins off every month.
