You need vision to seize opportunities
This post is all about having vision to cease opportunities.
I want to tell you a story about a house that my wife and I bought a few years back. It turned out to be a really great investment. It took a lot of work and the project went over budget, however, it turned out better and more valuable than originally expected.
Here is my account of how the project played out.
We are always searching for undervalued properties that we can increase value. We were watching this particular property on MLS for quite a while. The price kept getting reduced, but nobody was buying it. We called our agent to see what the deal was with the property. He said the property is going to soon go into foreclosure, plus the owner owes property taxes. He has a small mortgage and has owned the property for about 13 years. The reason it has not sold is that the property is in extremely rough condition. It also lacked identity. It was once a hotel, then a fourplex, then a Bed and breakfast, then a tri-plex.
There was one tenant living in the back lower unit, which did not have running water. They were paying $300 a month in rent. That unit had electric heat. The rest of the house was heated by forced hot air, however, the furnace broke and the current owner could not afford to fix it. The yard was also full of garbage. It looked like a garbage dump. Our agent was not very keen on showing us the place. We managed to convince him to show us the house and went to see it. The amazing thing is that when we pulled into the junk filled yard, we started to visualize what the house could look like. It had a really positive vibe, almost like it just wanted to be loved.
We brought my wife’s father and uncle to the viewing, and even though they did not say much, there body language was telling us they thought we were crazy. We asked our agent if we could make a conditional offer, and his response was “are you sure”. When we look back at the original pictures we can see why they thought we were crazy, however, at the time we could only see the end result.
We managed to strike a deal where the current owner was able to pay off his mortgage, and get clear of the tax man. I think they were happy to be out of the land lording business (it is definitely not for everyone). We also made the seller agree to have all the junk in and out of the property removed, plus have the one last remaining tenant removed.
We had all the usual conditions in place and went through the property with our electrician, general contractor, plumber, painter, handy man and property manager. I am not sure if our team saw the vision at that point, however, they were more than happy to price up the required work. We were able to set up a closing date a couple of months out and start on the project.
We set out a budget, but ran into a few snags. When you are doing a renovation in the 100K range, I definitely recommend building in a cushion for the unknown. The first snag was a visit from the local building inspector. His visit added $7000 to the project. The next snag was we found out that more walls than originally thought were missing insulation. Then there were all sorts of great ideas suggested by our contractors that seemed like must have items, so we kept saying yes. Then we were coming close to the end, and all our cash ran out.
We were fortunate to have some great banks working with us on the project and they extended our credit, plus we enlisted the help of my dad, stepmother, wife’s uncle to work on the project, and other relatives to babysit while Shelly and I worked on the project. We managed to work through all our snags and the end result was a gorgeous, fully rented, four unit property. The house appraised better than expected, so we were extremely happy with the experience.
Here is my summary of the project:
1. When you are seeking under valued properties, you need to be able to visualize the end result. The reason you can get a nice property under valued usually means it needs work. In this case, we did well, because we saw something no one else saw. It took some elbow grease, but the financial pay off made it worthwhile.
2. Surround yourself with a great team of trades people. They might not always see your vision and in some cases be a bit negative, however, they are extremely important to your project. Time and cooperation mean money. We are fortunate to have trades people that are willing to work together. It is important that all the required work is done in the correct order (ie: the painter can’t start before electrician).
3. When you do a budget for your project, make sure to allow for surprise expense.
4. If you are going to do a big project on an older building, it is a good idea to contact the building inspector first. That way they can tell you what you are going to need to do to meet code. We have used this method on all our projects after this one, and it has worked great. The other great thing is that it is a good feeling to have your building 100% up to code. I think it adds value to your property to have a building inspector seal of approval.
5. By properly renovating this property we were able to significantly increase the value and attract great tenants.
6. We are able to take pride in the fact that we were able to give this great old house an identity.
Until next time,
Michael P Currie