Hey everyone, Thank you for tuning in to the Collier Case Study! This episode is on a property we purchased to hold as a rental. Check out Collier Case Study and let us know what you think. We are trying to do more in-depth coverage of our wholesale, rental, and retail flips this year. Some of these episodes are probably best to be watched so don't forget to check us out on YouTube as well here: https://www.youtube.com/discountpropertyinvestor We publish each of our episodes there as well.
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David: Alright guys, welcome back Discount Property Investors episode 2!
Mike: Season 2, episode 2.
Mike: So we are kicking off a new season here with our first episode.
David: It's good to be back!
Mike: It does indeed, man. I love when we get a finished product and get it out there. Kind of like the wholesale when you close it, and you get that check, that's fun. It's the rentals when we finish that project, and you start looking for tenants, shopping for tenants, that’s fun. Again, it is just like this finished project. Same thing with the podcast, we are finally getting some new content out there. It's the same feeling of completing something and sharing with everybody, good times. Hopefully you guys like what we're putting out. What are we talking about today, Dave?
David: Today we are talking about a rental that we just finished. This is 2250 Collier, here in St Louis Missouri. Mike, you know way more about this than me. You were actually managing this project. This is a property that we bought off market. We rehabbed it. It was a rental grade rehab.
David: It wasn't a rehab to flip, it was a rehab to get a tenant in and collect rent. So this is just a rental our company bought as a company purchase. At this point we have bought it, we have rehabbed in it, we have tenants in this property?
Mike: Uh huh.
David: We are getting rent at this point too, right?
Mike: Yeah -- I think we got the security deposit and first month's rent. They are moving in March 1st, so yesterday.
David: We are working on the re-fi. Just got the appraisal back, so all our numbers basically in.
Mike: Our numbers came in, we basically got the appraisal last night. So that's pretty exciting and we will share all that with you. So here is kind of our strategy on rentals, guys.
David: Let's hear it.
Mike: We haven't talked a ton about this in the past. But what we do is buy, rehab and refi. The reason we do this--
David: Buy, rehab, refinance.
Mike: BRR there ya go.
David: Something like that, a couple of extra R's in there maybe.
Mike: BRR, it's getting chilly. Anyways, yeah so Collier, this was a great one. We bought off market like Dave said. I will jump into the numbers here, we paid I believe was 60, let me look at my spreadsheet. 66,000 and then we paid someone on our team a little bit for going up and locking it for us. We said, hey we would like to buy this one instead of wholesaling it. So we paid them a couple of thousand dollars, our input price on this one was $70,000.
Mike: So $69,000 was our purchase price on this. We then did the rehab; we had a private lender help us out. So again, we used private funds instead of our own cash or bank money. Again, it is always more fun to--
David: It's easier.
Mike: And it's always more fun to use somebody else's money. I don't care how much you have. OPM right? Other people's money. So then the rehab budget was pretty tight, we will talk about this. You actually have us walking through the property together. We will talk about what we did to the property, but our rehab budget when we estimated it was about $12,000. So we expected--
David: That's not much at all. Looking back in hindsight
Mike: When you look at the finished product too if you're watching. We encourage you to watch the video, check us out on YouTube, Discount Property Investor Podcast, you will be able to find this video. It is definitely going to be a little bit-- you are going to get a little bit more out of it.
David: Right, you will see the materials we use.
Mike: As we walk through the property we try to describe everything for you guys so you can listen to it. Again we know we're a podcast. We try to spend 12,000, we expected the ARV was going to be about 115,000 when we were done with the project. Our actual numbers came in pretty dang close to that, and I am looking at the spreadsheet here. Our actual repair numbers, plus our holding costs ended up being $15,000. So again, those holding costs--
David: A little higher than we expected but not much, we expected 12, 12,500 or something like that.
Mike: 12,500 for rehab, and I think we separate out in the beginning our rehab and holding cost.
David: Okay gotcha.
Mike: Our holding cost, I am not seeing it real quick. But we are into it for a total of $84,000. We bought it for about 70, put about 15, $84,000. So again, we just got the appraisal back last night and it was a little bit lower than we expected. This one I believe is a split level is what it's called. So the square footage was calculated a little bit different, it was bigger than the surrounding houses in the sub division. I guess the appraiser clipped us a little bit, because this is one of the larger in that sub division. Which is fine, we got $105,000 appraisal.
David: We were hoping for 115, but we got 105. Which is fine, we are into it for 84. Our re-finance would be-- we have several banking partners we are working with.
David: But the banking partner that gives us the best deal at this point in time is 80%, right?
Mike: It is, 80% is what we're getting, but we want to have some equity in these properties too. So even if a banking partner said you can do 85-95%, again I don't know if we would necessarily want to do that. Our goal is twofold; one to get the passive income from the rental properties and it is also to have some equity build up--
David: And pay them off. So if you are leveraging yourself too high, you are putting that second goal further away.
Mike: Exactly. So on this one; this is a great example, well a pretty good example anyways. We have got 84,7170 into the property; the bank will give us 86,000.
David: Which is 80% of 105.
Mike: So that would be approximately $1200 over what we had into the project. Again, most banks don't like to give you cash back, because it is not a cash back re-file and all that. But we could, we actually could get money back on this property. That's the question internally; do we want to do that? Quite frankly we probably don't, because again we have two goals with it; one is the equity capture as well as that rental passive income.
David: How much equity are we capturing on this particular property? Basically 86 minus 105?
David: Almost 20,000? 19 grand, something like that?
Mike: So our goal is 20,000 or 20%.
Mike: Math and spelling, we are not good at either one of those.
David: And we're real estate professionals.
Mike: Yeah, this is really exciting. We bought it, this meets our formula perfectly. If we can buy it, rehab it, and get most or all our money back; that is a really exciting project for us. So let's go ahead and jump into the onsite video, and we will go ahead and get started with that.
David: Awesome, check it out.
*** Walk through ***
Mike: Alright guys, we are doing a little rental property walkthrough today. This 2250 Collier, this is a property we picked up for a pretty good price. We are little bit tight on our rehab budget, so we will show you some of the tricks we used to really stay low on our rehab budget on this one. Let's go ahead and walk inside. It was real cold here in St Louis, so we didn't do too much to the exterior. But as you walk in, you will see we tried to save this linoleum floor. So we are pretty going to keep this for one tenant possible two. As you walk through there was carpet covering up these stairs as well as the flooring. So the flooring we really lucked out, was in pretty good shape on this one. So what we did was instead of having a professional flooring company come through, we had just our general contractor buff the floors, then add a coat of [00:08:44.19 - inaudible]. So you still get that look like the floors have been re-finished, but again it saves a little bit of money on that as well.
The railings, those were old and black. So we had them paint everything white that matches all of the trim in the housing. Didn't remove the trim because we didn’t have to re-sand the floors.
So same thing in the kitchen; since our linoleum floors were in pretty good shape, we went ahead and stain the linoleum. Again, [00:09:16.28 - inaudible] hopefully with this flooring. Again, if it gets beat up it's not a big deal because we never had to put it in initially.
The cabinets we got from a discount store here in St Louis, always shop for sales. So this is actually two models up from the cheapest level of cabinets they had on sale, so it matches their cheapest level, but you've got solid wood cabinets.
David: Where did you get those from, Mike?
Mike: This is from Hoods, local in St Louis. So again, total kitchen, this is another great one over at Bernard’s. We paid $19 for that fridge, a used appliance. Put ceiling fans up in all of our properties from Lowes. We got the 42 inch ones for most of the rental properties because they are large spaces. So something like that is $59. So really inexpensive.
David: Not really in the kitchen necessarily. Offset, so it's not really a big deal.
Mike: So this one it is traditionally going to be centered more over the eating area whereas this one isn't. Track light over the kitchen cabinets, so you get more light.
David: You can aim them down when you're cooking. So all we are missing is a stove or a dishwasher?
Mike: Exactly and there is room for a stove or a microwave to put in.
David: What about the stove? Oh right there.
Mike: No dishwasher, there wasn't one so we didn't bother replacing it.
Mike: So that is pretty much everything in the kitchen. Again, the fridge, that's my favorite part, I picked that up for $19.
David: That is cheap.
Mike: I didn't even know this, as the lumber yard they get the old appliances when they go in and pick up other people's appliances. They just threw this one out there for 19 bucks.
Mike: You can't beat that. Press switch five times, we are going to go ahead and reset our water filter. Brand new water filter in there for them.
Mike: Going through, same thing on the house. The flooring was in really good shape.
David: Looks great, man.
Mike: Then Dave if you want to come into one of the bedrooms. You will see the same ceiling fan we used throughout. We used the stainless, and again we go for the ones that are least expensive and that is a $59 ceiling fan.
David: Looks really nice.
Mike: Put one of those in each bedroom, you got a great light fixture. Again we always encourage as many lights as you can get on the ceiling fan. So we have three LED's, so it's nice and bright in here.
David: Yeah, it's really bright in here.
Mike: Again they get the get the ceiling fan. This one we stained as much as we could. Again this is a budget; we are real tight on budget. So normally we would replace the doors. On this one all the doors were in really good shape so we just painted them white.
David: Painted them white.
Mike: So again it looks nice, it's clean. Same thing with the bedroom doors themselves. Instead of going and replacing it, just have them replace it, put new hardware on. Looks nice, looks clean. It is going to get a decent appraisal out of it, but again we are not breaking the bank.
David: Three bedroom one bath?
Mike: Four bedroom two bath.
David: Four bedroom two bath?
Mike: This is a raised ranch, so we have three up here, and it is going to be an interesting Jack and Jill bathroom.
David: We have bedroom two, which is the master here, Mike?
David: Here's bedroom three. The bedrooms are all pretty much the same size. Master is a little bit larger.
Mike: The only reason I call this the master is you have two closets, I guess it is the master. You have two closets in this one. We saved the doors that were in here. They are mirrored, not great, not in great shape, but cleaned them up. We still need to get our cleaning crew in here to finish everything. So this is the master because it is has access to the Jack and Jill bathroom, which is a little bit funny-- let me find a light switch around here. So again Jack and Jill, if you come through here I will turn on the light on this side. This had a single sink when we bought it. Again, had one sink and just an extra space for them to put stuff.
Mike: We said let's go ahead and put a double sink in. This is the only bathroom on the main level, it's the master bathroom, just comes in a little bit nicer here.
Mike: So that's the bathroom.
David: How about the flooring?
Mike: This is a neat trick Bill our rental guru uses. It is a peal and stick vinyl tile that is groutable. So that means you can literally peal it, stick it down, leave a little bit of space and there is a grout that you smear through it. It looks just tile, holds up a little bit better than--
David: A hell of a lot cheaper.
Mike: Exactly, it's much cheaper. The skill set to do is handyman.
David: Okay cool.
Mike: Let's check out the downstairs. Again this is our budget buster house, so everything had to be done on the download.
David: So this is a raised ranch.
Mike: I believe it's called a raised ranch.
David: I have never heard that very often, but that is what this is here.
Mike: This is a split level.
David: I suppose it could be either one.
Mike: This ranch is a little bit different. Bedrooms are up, main stuff is on the floor. So again, this is a huge bedroom down here in the basement.
David: This is nice.
Mike: Still got the mini fan. Just painted up, cleaned it up. The carpets were okay. We decided to try and save them for at least one more go around. So we had a carpet cleaner, rather the handyman did the carpet cleaning for us on this one.
Mike: They're not perfect, but they are pretty clean, it smells good and clean in here, it's great. Same thing over here. We have one ceiling fan in this area, then a couple of the dome lights. Those are about 19 bucks. Clean it-- this paneling was old wood paneling before. Just a quick fix, no one likes to look at the old panel, so we just painted that same agreeable grey color that we use throughout the rest of the house.
David: Looks awesome.
Mike: You got the grey and the white trim. Looks pretty good. So overall rehab budget on this property was $10,000. That's for everything including the kitchen, the bathroom, all the labor. $10,00 for the whole house, completely rehabbed, looks like almost a brand new house.
David: Yeah that's super low, that is a great number, 10,000.
Mike: Not too bad, oh I forgot we got another bathroom.
David: What did we purchase this home for, Mike? Do you remember?
Mike: This one I believe was-- I don't remember.
David: No problem.
Mike: It was either 55 or 58 I think.
David: I think you're right; it was one of those two.
Mike: I know that we had to keep the rehab budget low on this one to get most of the money back out of it.
If you look at the flooring, it's the same as upstairs. A little bit cheaper vanity we used than the basement bathrooms. Same thing for bathroom lighting; whenever we have a basement bathroom, we go for a much cheaper lighting. This was an exception, we did put a vanity light in because it didn’t have one.
David: But you don't need one necessarily because that there, and you have a window right behind the door here.
Mike: Plenty bright.
David: Plenty of light coming in.
Mike: Basement bathrooms, just to keep it lower on the budget.
David: Cool, utility room, let's jump in there real quick then we can wrap.
Mike: Utility room, oh I guess on that $10,000 budget we didn't even mention that we had a pipe burst. So the day we closed on this property, if you want to take a look over there.
David: I remember.
Mike: Yeah so we had a pipe burst, the exterior spicket, because it was so cold outside, the seller had turned off the water on us, not the water the heat. We didn't know about it, we switched our utilities over like we are supposed to, but they turned it off. Again, what can you do? So we came over same day and turned it, damage was already done.
David: You can actually see a little bit of difference of paint color. Oh well, so what.
Mike: It's so-- definitely handyman quality work.
David: It's a rental.
Mike: It's not finished work we would put in a rehab type project.
David: Just a rental, no big deal.
Mike: The back room, the only thing we had them do-- had a decent furnace in it. Again, this is what we call a grandma and grandpa house. You walk into it, everything is well maintained, just not new, it doesn't look nice. So we-- nothing much back here, we have got the electrician scheduled, he is going to replace our panel for us. The only thing I had to do was add a new shut off valve to the water line. Again, we had that pipe burst.
David: Prevent that happening again.
David: So what's going on with this-- is this a washer or a dryer? Just left behind?
Mike: Just left behind by the owner. So left for the tenant. We don't provide a washer dryer.
David: So we just leave it behind, if they don't want it we will just pick it up. If they want a washer dryer they got to bring their own.
Mike: Yes sir.
David: If that one works they are welcome to use it.
Mike: Right so that's Collier, let's wrap here and jump into the next property.
David: Awesome, thanks guys.
Mike: Alright guys, that was a quick little walkthrough of the property. Again a couple of little ending notes. It was kind of funny we reset that fridge filter. We did go back and put a new filter in there. There are things like that. You can see if you are watching the video, some of the finished work isn't 100% in this video, because at the time we were out there a couple of days ago, hadn't had everything done. So we did get a stove in, we get-- what else did we do that wasn't finished?
David: Stove, microwave--
Mike: Electric panel was swapped out, microwave, proper electric put in for the electric stove and microwave and things like that. So again, the property is completed now. It's a solid little house; we have got three bedrooms on the upper level and one bath. It's kind of a jack and Jill, so you got a master bedroom up there that has access to it as well as hall access to that bathroom. Then there is a big basement bedroom which is nice, as well as a bathroom down there. So we got a four bedroom, two full bath which is a just property. A lot of people want that extra space, be able to move a lot of people in.
The rent on this one, I believe we are collecting 1200.
David: That is a big basement bedroom.
Mike: It was huge basement bedroom. So again, it's just one of those things that makes it a nice little rental for someone, or a nice little house for someone to live in. So again, we are getting about 1200 in rent, our mortgage should be with taxes, and insurance, it is going to be close to 800-900, in that range. Really depends on the final financial numbers, insurance taxes and all that stuff. But again, we should be capturing about 400 a month in cash flow. So really ended up being a pretty good project for us. Dave, any other kind of thoughts you had on it, or comments?
David: No, not at all. This was a great project, a great case study. It was a success. We purchased the property, we rehabbed the property, we rented the property. We are in the process right now of re-financing the property. So we are going to get all our money back. We will probably not cash out any of our money as far as over the top. Not make money on the deal, but we will get all the money we invested into both the purchase, and the rehab back. So we will basically be into this property for nothing, zero money out of pocket.
Mike: Exactly, just our efforts.
David: Right, then we have added an asset to our portfolio. We have a tenant in place that is paying us roughly $400 more a month than what we owe on a debt service. Which also includes all the expenses, tax and insurance. We do have a management company helping us with this. So we do have to pay the management company out. So after we pay the management company maybe we will be bringing in 350.
Mike: Right, I forgot about that number.
David: But it's great because someone else is paying our mortgage. So not only are we getting to capture about $350 a month in cash flow, which is definitely taxed a lot lower than income. But we are also getting a property that someone else is paying off the mortgage for us. And we can de-appreciate on our taxes at the end of the year. So there are so many advantages to real estate investing, it's crazy. But this is a great case study, guys. Thanks for watching. There is going to be more and more of these coming.
Mike: It's a great case study, but this is also the reason why we were not podcasting as much; we were out--
David: Out doing these deals.
Mike: Doing this side of the business up, so we could share this with you. This is what we were teaching some of our other students. Bill is kind of focused on this side of the business. Just very exciting, so this is a home run for us. I am super excited about this.
Mike: We have got about ten of them now. Again, we are going to keep doing these type of case studies, walk throughs for you guys. We will delve more into the rental side of the business. So how you secure the private money, how we use it, why we use it, that sort of stuff. So thanks for listening guys.
David: Thanks guys, we will see you in the next episode.