We bought this duplex from the bank. The prior owner had started renovation and stopped right after installing drywall. We essentially picked up where this person left off. We put in all the finishes and fixed any shoddy work left behind. This was a super easy, quick renovation, except for two hurdles: COVID-19 and a major plumbing leak.
Plumbing is hands down my least favorite thing. It can cause damage in such a short period of time. After showing up to find the sheetrock soaked, twice, we had a plumber fix the problem (an old pipe burst that was never repaired) and we were able to move forward.
Coronavirus simply caused delays. Some contractors didn't want to be there when other contractors were working, which I understand. And we also experienced material delays: late or missing appliances and piecing together a full kitchen cabinet set with what is already in stock because the cabinet supplier was shut down.
We also had to pick all our tile and floors online, as we were unable to go into the tile showroom and look at samples or buy boxes.
Negotiating to buy it
The bidding process to get this property under contract went on for months. I had been watching the property for some time. It's not easy to find cheap duplexes in our area anymore, as other investors gobble them up so quickly! But this one got passed over by a lot of other buyers. I think it even went into contract with other investors, but ultimately fell through. We watched the price fall. More details on that process here.
No one wanted this property. Here's why...
Adding value
This property had only 2-bedrooms. That's 1-bedroom per unit - highly undesirable to most investors or anyone who might live there. But if we turned it into a 4-bedroom, it would be a different story. The problem is the square footage on this property isn't very large. I had a couple architects come by who struggled to figure out where to add the additional bedrooms wanted within the existing floor plan. We ended up working with another architect who works with a lot of investors and he got it done. This one change, plus all the modern finishes added to the home, doubled the value of this property.
Exiting the deal
We follow the BRRRR process with all our buy-and-hold renovations and we will be doing the same thing here. Initially, Plan A for this property was flip and sell it. However, after running the numbers some more, we decided a few months in that we actually prefer Plan B: flip and rent it. As of this writing, we're planning to list it next week for $1850 per unit. Then, we're going to refinance the property with a projected bank appraised value of $435,000. We bought it back in March for $225,000.
At the new, higher value, the bank will pay us almost all the money we invested to buy and fix up the property. We'll get all our cash back. And after the rent starts coming in, we will be able to cover all the monthly expenses (mortgage, taxes, insurance, water) plus make a monthly profit of about $1,000 per month or $12,000 per year.
I realize to some people this all may seem like a lot of work to make $1,000 extra per month. But to us, it's all worth it because at the end of the day, we bought the property with $0 of our own money, but it will pay us for a lifetime.
And as the years pass, we'll eventually own it or be able without a mortgage or we will be able to sell it with all or a bulk of the mortgage principal paid down by the rents.
And now, we will repeat the process with another property.
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