Rental Property “fixer-upper” from the 80’s – Blood, Sweat and Tears, Literally

Back to the 80’s

I think stuff from the 1980’s is so cool. It reminds me of my childhood and just look at it now. Swatch watches, Depeche Mode, INXS, neon, puff paint, acid wash jeans, Bodyglove, The Cold War, Dungeon’s and Dragons, come on, bring it back! That said, I am not a fan of one thing from the 80’s, 1980’s wallpaper that I would need to remove from my rental investment property. I would not wish scraping that wallpaper off on anyone! Here is an overview of an investment property remodel job, with all the good, bad and the ugly aspects exposed!

Real Estate Investing

I have owned several different properties over the years and have used some of the following real estate investment property evaluation factors.. I work in real estate as my day job and enjoy it for many reasons. That said, I do not find it easy or a get rich quick thing. I view real estate investing as another steady avenue to building net worth over time, developing a passive income machine and achieving True Wealth. In this post I outline my experience with a rental property and I title this “Blood, Sweat and Tears, Literally.” So here is a case study on a rental property I invested in a few years back. I will provide the good, the bad and the ugly in terms of this experience. Hopefully you will learn from my pain and be able to avoid some of the pitfalls. “All’s well that ends well” as Master Shakespeare reminds us, and many years after the initial experience the investment was well worth the money, time and effort. But, not for everyone, it depends on lifestyle, available capital, the market and willingness to invest the time.

I would not wish peeling and removing wallpaper on my worst enemy, that would be too cruel 😉

  6 years ago I purchased a single family home with the goal of fixing it up and then renting it out at positive cashflow. The purchase price was $490,000.  Here are the initial things I did to make sure this was a viable investment:
  1. Good bones. I had a complete home inspection done. A very old couple had lived in the house for about 20 years. It looked ok, but very outdated 80’s wallpaper (I love the 80’s, but did not need the wallpaper). And I am talking wallpaper everywhere that just looked weird, old fixtures, old appliances. Normal wear and tear, etc. It seemed that the couple had taken relatively good care of the place, although they were not sinking any money into any kind of upgrades or updates. The attic was pretty dingy looking and smelled really bad. The home inspection ran $300, but was well worth the report. It was very thorough and identified problem areas, but the inspector made the comment I was looking for, “this place has good bones.” In other words, the stuff that turned someone off about the property was mainly cosmetic, which is relatively easy to change.
  2. Down payment as initial investment. I was putting $90k down that I had saved over many many years. This was the actual money out of my pocket that I considered my initial investment. So when running return on investment calculations, I was using this plus another $10,000 factored in for closing costs and the initial improvements and upgrades I had planned. I am a big believer in down payments, and this one constituted about 20%. This to me is a good hedge against a big downturn in the market and a job loss. There is a buffer so we are not upside down on the property. Remember, the winds of the economy can change.
  3. Monthly payment vs. possible rent. The principle and interest came out to about $1,800/month + $460/month in property taxes + $100 insurance costs for a total obligation of $2,360/month of debt service.  Throw in another $100/month in yard maintenance and another $100/month estimated long term maintenance bill.  So, I was looking at $2,560/month in outflow.
  4. Market survey and potential rental income. Before I purchased the property I started doing research on the local rental market. You may want to hire an appraiser or do extensive research via craigslist, zillow, redfin, etc. I happened to know this market very well since it was where I had lived and grown up. I am personally a big fan of investing close to home because one really has their finger on the pulse of that market. It appeared that similar houses rented for anywhere from $2,900-$3,200/month. This would mean positive cash flow of about $300-500 per month.
  5. Good neighborhood with great schools. Great schools are a huge magnet for attracting families to a particular neighborhood. Just another factor one would want to keep in mind when investing.
  6. Worth It? To me it was. Not a huge life changing amount of money, but it was positive. And I was pretty sure the underlying asset would appreciate in value, which it has. I also knew the local market had a strong economy and desirable location, therefore demand would stay strong for renting the property and I was able to increase the rental price over time.
    Sounds good Money Viking, what is the catch?
  1. It was hard to get the property into top notch condition. It was grueling in fact. The initial rehab was my brother and I working non-stop for two weeks for 16 hour days just to get the place in somewhat presentable condition. I electrocuted myself at one point and cut my hand at one point, hence the blood. There was long long hours doing this work to save money, and a lot of sweat. Plus the rehab budget did go over what was planned by a few thousand, so that was definitely not fun making those trips over and over again to Home Depot, that resulted in metaphorical tears.
  2. We have mostly had great Tenants since then, but one set did not leave the place in the greatest shape, in fact they kind of trashed it. It was stressful cleaning it up and fixing it again, it cost money and I had to deal with keeping the security deposit.
  3. There was a risk with a close profit margin each month. If one major system fails, a whole years worth of positive cash flow could be gone in a minute.
As always, we are not advocating for this method in anyway whatsoever. There is a beauty and cleanliness to owning a well diversified stock/bond portfolio at low expenses. No tenants to work with, no trips to Home Depot, no blood or sweat. But, on the other hand, real property is a tangible asset like a piece of gold. And, it can be better than gold because it can throw off income every month and has many tax advantages. Things to keep in mind to be set up for success:
  • I knew the market. I knew the economy, market, rental prices and demographics well.
  • I had the initial capital to put up and deal with the repairs.
  • My brother was kind enough to lend his handy rehab skills. I can swing a hammer and do some basic stuff, but my brother has some great technical expertise. I am just saying it helps to be handy or have a friend who can help you out.
  • Again, just an opinion, but I think real estate is a long term investment, not a get rich quick scenario for most. The people that make fast money have a lot of capital to reply in getting the job done fast (for example a flipper.)
What are your strategies for success with rental properties?
This is not advice for any individual. Investing in real estate is risky and one should seek professional advice if choosing this particular investment path.

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