Rental House #31 – A Nice Rehab and Sweet, Sweet Negotiation

by Stealthy Rich · Published May 10, 2020 · Updated May 13, 2020

22131 Birded Brook Giver – May 2016

We hooked another one with our super-simple yellow letters, and we couldn’t have been happier about it. A guy called Dave on a lazy Tuesday afternoon and told him he had a house he wanted to sell. Dave asked him what he thought it was worth, and the man said $90k, but that it needed $25,000 in repairs to get it ready to sell. Before the gentleman finished his sentence, Dave was in his Honda Accord zooming towards the property address; he could smell blood in the water.

The guy mentioned it was empty and that the back door was unlocked. Dave found the address and let himself in. Not a stitch of clean carpet in the place, it was stain ridden and full of holes, basically unlivable. There were a few broken windows, and the place was so filthy. Just the kind of place for The Stealthy Rich to breathe new life into again. Here’s what happened next.

Dave from TSR: “It’s definitely worth $90,000 once repaired for around $25,000. However, do you think its fair for us to take this project on without being rewarded for the risk?”

Owner: “No, that’s probably not fair.”

Dave from TSR: What do you think is a fair amount, then we should be compensated to take on such a project?

Owner: How about we lower the price by $15k?

Dave from TSR: Now in complete shock, summarized the following, “Ok so $90,000 after repair value – $25,000 – $15,000 gets us to $55,000?” (He thought the owner upon hearing this number would not be happy with what he had just proposed.

Owner: “How soon can you close?”

Dave from TSR: Jaw drops to the floor.

By the way, we fix the entire house up for $12,000 and get a renter in there for $1,195.

Rental House Stats and Rehab

This property was built in 1984 and had two garages, three bedrooms, and two baths but was only 1,230 square feet. However, we received not a penny less in rent each month due to that fact. All that mattered to people was the number of bedrooms and the location. Again in this house, here are the things we fixed.

Painted entire place
New toilets
New carpet (This was before our LVP kick)
Fixed up yard
Removed old water softener
Repaired garage door
Added New faucets and showerheads
Replaced all ductworks and an HVAC condenser
Fixed broken windows
Replaced light fixtures
Powerwashed
Replaced dishwasher and range
Replaced rear exterior siding which was rotting and needed new Hardie Board

All of this totaled $12,000 in rehab cost.

We then got a long term tenant moved in at $1,195 per month, and we went to our bank and asked for a loan for $80,000.

That means we paid $55,000. We spent $12,000 on rehab and then got a check for $80,000 from our bank. This deal is the BRRR method at its finest.

With an $80,000 price and $1,195 rent, that means our rent to price ratio is 1,195/80000 = 1.49

UPDATE 2020

Rent has only increased over time, and now our rent to price ratio is $1275/$82000 = 1.55 (Our price went up as we changed out the countertops as well in a future year).