This doesn't look like a slum, does it? Well, maybe the clothes hanging on the balcony are a dead giveaway.Here is a new kitchen in one of the units that we had remodeled:
I know you're thinking, "Niiiiiice," but, in reality, it was "duuuuumb." It wasn't the smartest thing to do financially because we were putting money into something that would rent without looking like the Taj Mahal. We certainly couldn't charge more than the market rent in that area, so why throw all that money away? We figured it out 18 months into the rehab. Oh, but we didn't only do one. Let's see, hmmm, how many did we rehab like a palace . . . .around 22! No, my finger didn't sit on the "2" key for just a second too long.
When my husband went to look at the property prior to our purchasing it, the contractor who worked with our first PM (the absolute worse on the planet--tell you about her later--imagine trying to work with Sybil) estimated that it would take about $1,500 to rehab the units that were uninhabitable (or down) because a majority were small efficiencies (that would be "studios" for those in California). We probably should have asked someone reputable for a written estimate of each unit. If we had done that, we would have found that most of the units cost around $7,000 to fix up---oh yeah, that's because we insisted on targeting the renters from the lines of royalty.
This is an example of a kitchen before it was refurbished. What we weren't told was that after it was completed and someone moved in, it would look like this again after they left town without paying the rent for six months.
Here is a bathroom before (I hope that you haven't just eaten):
I don't even know what you have to do to get a bathroom that dirty. I have five boys and, although their bathroom is gross most of the time, it's never come close to looking like this. (By the way, the camera had a date lapse. This picture was not taken on New Year's Day in 2004--unless that explains all the black and, gasp, yellow stains.)
Well, this is better, isn't it? I'm not sure, but I think this is the interior of Leona Helmsley's (rest her soul) bathroom in the penthouse of one of her expensive hotels. Notice the toilet paper holder six inches from the floor. I think Kentucky people must be super short or just perform most of their stretching while sitting on the loo (no, I'm not English, but I thought it sounded better than "toilet").
We purchased this property for $1,110,000 and put around $200,000 in rehab costs into it. We also had to float the mortgage payments and regular expenses while it was half empty. We went through three property managers, but the second one actually worked for the first one, so there was not an interruption at the transition. We purchased this one because the numbers at full occupancy minus expected vacancies were awesome and this one would be the foundation of our residual passive income. However, we had never overseen any kind of construction before--and it was exceptionally difficult being so far away. We thought that we would rely on management to take our place. Oh, here we are again--back at Mistake #1.
We sold it for $1,075,000. It was the best we could do, considering that the managers did not intend to pay the mortgage until the money we owed them (due to their inability to collect the rent from the tenants who they placed in the units) was at a zero balance. We could have fired them and retained new management, except for the facts that management transition tends to be expensive (renters leave and new managers want to fix everything, in addition to complaining about old management) and they would have placed a lien on the property that would make it difficult to sell. Not only that, in order to buy the property, we had to put our best rental (which we still own, by the way) up as collateral. So, if we went into foreclosure on the apartment, we risked losing our rental in California, which had doubled in value.
Initially, we were repeatedly told that the nice improvements would cost us just as much as ones that were not as nice: there was a deal on the tile flooring, the hand-made cabinets were cheaper than prefabs, the A/C units were on clearance, and on and on. Not. If we had just had a contractor repair the basics, it would have cost us less than half of what we paid. I wouldn't mind if we had recouped a portion, but to lose it all makes it hard to swallow. This would be a good time to think of something funny, but my consolation is that we don't have to worry about it anymore and I'm grateful that we saved our credit rating so that one day we will have another opportunity to buy more real estate. Do I sound like a drug addict, or what?
