Take Action Last Year
We all know the feeling of I wish I did XYZ when it was available, affordable, etc. That’s a common real estate story and your future self will thank you for taking action NOW.
That’s what this investor did. They took action in the summer of 2020 when interest rates were in the 3% (nice huh), but the market was competitive and offers were being put in sight unseen, inspections being waived and buyers making all the concessions.
The Property & Renovation
The investor bought the unit with the goal of renovating and turning it into a mid-term rental. During the 6-month renovation they lived in the unit and completed a lot of the rehab work themselves. It’s a 1,950 sq. ft. 4 bed, 4 bath town home in the City Park neighborhood of Denver.
The unit was in OK shape, just outdated builder grade finishes throughout. The investor knew that they could drastically improve their rental income by updating the fixtures, fresh paint, etc. so they put in the time and money upfront.
Like all good renovations, the project didn’t go to plan. The contractor used on the project, who was recommended by Home Advisor, was a big fat flop. He did terrible work and scammed the owner. The good news, because the contractor was hired through Home Advisor, the homeowner received a $12.5K settlement after filing a complaint. This reduced their renovation cost from $35K to $22.5K (while the settlement was a nice bonus, we don’t recommend this strategy to save money 😊 ).
Lesson Learned from the Renovation
When you’re planning a renovation and interviewing contractors pick two: timeline, quality or cost. You’ll never get all three!
Also, vet your contractors! Get references and pull background checks. Also do some online sleuthing. Read reviews, read through the Better Business Bureau and Google their name to look for any news articles!
Now the Numbers
|Down Payment (including closing costs)||$20,500|
Income & Appreciation
|Principal Pay Down||$9,293|
Cash on Cash Return: 38.29%
At the time, this investment was a total drain. The physical labor of the remodel and the stress of a crappy contractor was a lot. Good news, that’s behind the investor. They’re cash flowing $16.5K annually on a property that’s giving them zero problems. All the updating they did to the unit paid off. It’s easy to maintain and easy to rent because it’s located in a desirable location, an appealing unit (did I mention they installed a steam shower!) and it’s easy to rent because they have the flexibility of renting it out as mid-term or short-term rental.
After this deal the investor became an agent themselves. They’ve gone on to crush 2 more deals and working on a 3rd. Bonus – now that they’re an agent they get to keep their commissions….so each closing is now a pay day for them too!