David: Alright guys, welcome back.
Mike: Discount Property Investor podcast. This is your host Mike Slane, and co-host over there--.
David: Hey guys, David Dodge.
Mike: Today we are going to talk about real estate investing. One of our favorite things, favorite way for people to get started is by wholesaling real estate. Dave, do you want to briefly summarize what wholesaling is for everybody?
David: Absolutely. Wholesaling is buying a property primarily off market but not always, at a great price, and selling that agreement or house to purchase at a good price, and they can spread in the middle.
Mike: It is very simple but it is not always easy. We put together a great course--.
David: To help make it easier.
Mike: To help make it easier. A free course, freewholesalecourse.com, visit online, check it out, and give us a little bit of feedback, we have had thousands of people take the course, most of them have told us--.
David: Four thousand to date.
Mike: Most of them have told us it's good, haven't been very many negative ones.
David: Almost 150 five star reviews.
Mike: That's pretty good.
David: But yep we are doing pretty good, guys. We are helping a lot of people out there learn how to get started investing and do real estate, primarily via wholesale. Why? Because once you get a good deal you have options; you can rehab it, you can keep it as a rental, you can wholesale it, you can do a lot of things. But it all starts with finding the deal. So that's what we like to touch on.
Today's episode of the Discount Property Investor podcast is going to be the rental rehab strategy. So we are doing a little mini series on the BRRRR strategy. As of today Mike and I own over 40 rental properties, will have 40 being online soon, we own them and we are using a strategy called BRRRR. What is it? It's buy, renovate, rent out, refinance, and repeat. So if you want to check out the previous couple of episodes, we talked a lot about buying. This particular episode is actually going to be like a three part, but it's about rehabbing and today we are going to talk about the rental rehab strategy. So what exactly are we doing with this particular rehab? Why? How? All of the above. We are going to give you guys a bunch of pro tips if you want to start using the BRRRR strategy, or if you are rehabbing your rentals as well. Lot's of great information we are going to give out in this episode, I'm excited.
Mike: This is one of my favorite things, this is what I do day in day out--.
David: Mike you're really good at this too.
Mike: Thank you, sir. Dave does a lot more of the wholesale day to day stuff, and I do a lot more of this rental rehab stuff day to day.
Mike: We divide and conquer.
David: I love it, divide and conquer. Again, another lesson we can kind of take away from this is-- by dividing and conquering, creating a team, we can do more together.
David: If we were trying to each do this on our own, of course we could do it, but it would be slow. By working together-- so build a team if you don't already have one, even if it is just one other person. Teams get things done.
Mike: Absolutely. Again, with that comes all the conflict of working with other people. Sometimes me and Dave get on each other's nerves, it happens.
David: But at the end of the day, having a team, it's awesome.
Mike: I wouldn't go back.
David: I wouldn't either, man. Having a team is the way to go. So, today we are talking about the rental rehab strategy. We are going give you guys some tips along the way.
Mike: Let's walk around a house together.
David: Let's do it. You go out into a property, talked a little bit in previous episodes about knowing your numbers, as well as knowing your area. So let's just assume that we find our next rental, rental 41. We find it, it came in from one of our off market marketing. So we went direct to the seller, we went out, we got a great deal on it. Most of the time we buy rentals they are are good deals on the properties from the get go, and we could easily wholesale them, or we could maybe even rehab these to sell them. But we decide hey we want to build a portfolio of rentals to provide passive income, so we can really truely have freedom, that's why we got into this business in the first place was to have freedom, and that's what we're doing; we are building our freedom door.
Mike: Absolutely, like Dave said, we are around 40 right now, we are going to be at 150 in hopefully--.
David: Next 24 months. We are going to put it out there. Under 24 months at a max, right. So we have found a house that we are holding as rental, what are we going to do next? We are going to walk the property, and we are going to figure out all the things we need to do to this property to A, make it look nice and welcoming, B, be safe for the potential tenant, C, be welcoming to that tenant, and probably most importantly but last but not least, pass an occupancy inspection so we can do it legally.
Mike: Did you mention-- get the refinance?
David: That's later.
Mike: What I mean is, if you're rehabbing it, you want to make sure it appraises high enough--.
David: Correct, you want to put together a plan for that rehab, that is going to be-- it's going to be in conjunction with your entire plan, which is I need to have my appraisal be at least this number, in order to get an 80% loan, or a 75% loan, or a 70% loan to be all in at, to where I can get all of my money back. So the whole reason that we use the BRRRR strategy, is to take a small amount of money to buy a property, rehab it, get it rented, rehab, refinance, all of that money back to pay our private investors, ourselves, to basically get a rental property which is an asset by the way for free. We are getting all of our money back, yet we are not controlling the asset. So yes, Mike, I love that you brought that up. You want to know your numbers, and this is all part of the process, know your numbers. What is the rehab that I need to do to get to this final number? Love it.
So we bought this house, it makes sense, we know our numbers, so we got it at a great price. We know we need to spend at least $15'000 on the rehab in order to get the entrepreneurial credit, which we talked about in previous episodes, to even to be able to get to the refinance table properly. So what are we going to do, Mike? We are going to walk around and start taking notes one what? What we going to do?
Mike: Let's do it. First off, here is kind of like a tip, what I would say is that I'm an Apple guy, and I love the notes app for this. So the notes app is great; you just open it up and hit that little microphone button, and I'm sure the Android users have a very similar thing.
David: Or Ever note is similar, you have to pay for that, but yeah very similar.
Mike: So again, we almost all have Smart phones in our pockets, that's probably how you're listening to us right now on the podcast, 99% chance.
Mike: So go ahead and get the notes app open, and I like to start with the address, then I walk around the property and take my notes. That way--.
David: It's not hard, take notes on your phone.
Mike: Super easy, super fast, saves you from having all that paper, helps you stay organized. I think organization is one of the most important things in kind if the project management--.
David: Absolutely, very important.
Mike: So take that notes app out and walk around the house with it. Right now--.
David: So let's do it, let's do a virtual walk around. We are going to start doing the exterior.
Mike: Yeah we are walking around the outside of the house. Nine times out of ten you have got a lot of old plants, bushes, weeds that are overgrown, overgrown on fence lines, all that stuff. So the easiest thing to do is you get a laborer, or you do it yourself, you trim back a bunch of the landscaping--.
David: Or remove it even, just clean it up.
Mike: Exactly, look super clean, not very expensive.
David: We are not saying you need to go and buy 50 plants and redo everything. This is a rental; you want to clean it up or remove it. If you have to put down some mulch that's fine, m.ulch is cheap. But the idea here is to spend the least amount of money to look the best. So what is the highest and best use of what I already have here, how do I make it the best?
Mike: That is very important. So your goal is not to make these beautiful--.
David: Not at all.
Mike: Your goal is--.
David: You want to make them appealing, nice as Mike said, but you don't need to spend any extra money on the outside that isn't necessarily. So certain things will be necessary of course. But, if it's not needed, if it's not broken don't fix it, look at it that way.
David: So you are going to do an extra walk around, Mike mentioned landscaping; that is always the first thing. Next I typically look at roof, [00:09:24.23 - inaudible], [00:09:26.10 - inaudible] gutters. Why? Because the inspector will flag those items. If it has a hole in the roof, probably going to need to fix that, they are not going to give you an occupancy permit. If your gutters are hanging off the house, well A the inspector is going to flag it, but B, it is going to probably lead to a flooded basement.
Mike: Yeah. This is important guys--.
David: You want to make sure your water negation is in place too.
Mike: Not just the gutters too that can be falling off, but look for gutters that are clogged or stuff is growing out of. You want to clean out the gutters. So it's clean up the landscaping, clean out the gutters, make sure they are attached, make sure your down spots are connected, and make sure oyu have water diverted away from the foundation of the property. Here in St Louis we have basements. So it is very important that we keep the water out of those basements. If you have a slab it is going to be a similar thing. You don't want water underneath of it.
David: Cause it to crack.
Mike: Or getting into the house.
Mike: Again, you are going to have wet flooring and destroy the property. Those are very important things.
David: I walked through a flooded slab a few weeks ago, it was nasty.
Mike: It's not fun. So that's the first thing. Walk around the outside, determine what needs to be done. Most of those things we just described, I mean this is under a thousand bucks if you pay somebody nine times out of ten to do--.
David: All that stuff, absolutely, don't over think it.
Mike: -- that includes throwing some mulch down and some plants a week before you have your open house for rentals, so it looks really nice, some place that somebody wants to move into. So we have walked around the outside of the house, let's say there is a-- no garage, there is a fence, it's looking a little rusty. Here is a cheap way to fix that, spray paint.
David: Or just take it out.
Mike: If you have a chain link fence-- now personally I like to keep them if they are there because of pets. People love their pets.
David: People love them, right.
Mike: So again you can get a little bit more pet rent if there is a fence there. Again, if it has kind of gone rusty I like to spray paint them, at least the front section of the fence, maybe not the entire fence, but just from the street you are looking--.
David: It makes it welcoming, guys. Not only for the tenant, but for the inspector. You don't want them to flag and have to rip the whole thing out and redo it. It's going to be costly to do that-- and the neighbors, you want to keep the neighbors happy.
Mike: Home owners don't like to look at junky rental properties. Nobody wants that, nobody wants to live near that. So again, you want to make it look nice. So again, clean up everything on the outside. So now we are walking into the house. We step into the house and we have got-- let's call it a three bed one bath house, we walk into the family room dining room area, it's split off and there is carpeting. There is an old bronze light fixture. So this is an easy one; we're going to rip out the carpeting, and we are going to replace the light fixture. So I got my notes out, my notes app out, I am going to say, 'family room remove carpeting, replace light fixture.'
David: Nine times out of ten I would say-- 95 times out of 100 we are painting a house, and we are doing something to the flooring. So when I walk in, the first thing I notice always is the floors and the walls, okay? Typically we are going to be painting the walls, and we are either going to be sanding down floors, refinishing floors, adding flooring, or redoing carpet. So those typically are always going to happen. Now, the cost of painting and the cost of doing floors can add up obviously due to the size of the home, the square footage matters. But, in all reality those costs are pretty low in terms of the entire budget.
Mike: Yeah so let's talk about flooring a little bit. So I just said we are going to replace that flooring, right? I didn't say I was going to replace that carpet, I am going to replace that flooring. If there is hardwood under it, we can get hardwood re-sanded, and refinished for approximately two dollars, two fifty per square foot here in St Louis. We can also get the luxury vinyl tile, or the luxury vinyl planks, which is just vinyl flooring that clicks together.
David: Some peal and stick some click.
Mike: We like the click together, and you want a little bit more rubbery, not a harder one. The harder ones tend to break and harder to install. I like the rubber backed ones; easier to install, this vinyl your cut with a knife--.
David: Tenant proof, we talked about this last episode. This is tenant proof, so if someone drops a glass of wine on the ground, or they drag a fridge across it, it is way more likely not to scratch or stain because of the fact it is not wood it's rubber essentially, it's vinyl.
Mike: They can still tear it up, but most of these products are guarenteed in residential for ten years, I think that's the lowest gurantee I have seen on them. We are pretty young into using this product, but I know it has been around-- Alure I think were the first ones to hit the market several years ago. But we have been using this in all our rentals. Like Dave said, it is to tenant proof the property. You want hard surfaces, you want hard floors, because that carpet gets gross. If you get cheap carpet, or even expensive carpet, it is probably only going to last one or two tenants. I mean-- people who rent properties often times live a little bit harder than an owner.
David: They care a little less about it because it's not theirs which is okay, you just need to go into it knowing that.
Mike: Just the way of the world, you know? People tend to treat their own possessions better.
Mike: Again, you want to make it tenant proof and that is the hard surfaces for the flooring is very important, we will talk about some other stuff.
David: Right, you've got your walls, your floors. Next, Mike, you had mentioned light fixtures. Just in general, looking at the big picture here. First thing I'm going to do is look at my walls, look at my floors, then I am going to notice my light fixtures. Light fixtures are relatively inexpensive, and they will make a house look a lot more new and updated by swapping them out. Old light fixtures are hard to clean, they get dirty, they are hard to clean, and often times cleaning them leads to frustration and or breaking them, at least with me. I don't like to clean light fixtures I like to take them out and put new ones in.
Mike: I love it.
David: Again, it makes the home welcoming, and the cost to put in a light fixture versus lots of other things in the whole rehabbing aspect world is minimal. So walls, floors, light fixtures. Next we are going to get into a little more granular when it comes to the kitchens and the baths. But the bedrooms, the family rooms, all the hallways-- you are basically looking at floors, walls and light fixtures, guys, that's it. Very simple when it comes to that. One thing we didn't talk about was windows, talked a lot about the roof, the [00:16:01.20 - inaudible], the gutter, the landscaping. So the windows is typically done on the outside in my opinion before you go in, but if the home has older windows you should replace those.
Mike: Again-- so let's--.
David: It depends though, depends on your budget, but it also depends on what else is there. We talked a little bit last episode about knowing the area. If that area doesn't have all new windows in all the homes, then it won't matter for the appraisal so much. But if you are the only house on the street with old windows; that will matter. So again, know your area and know your numbers.
Mike: Yeah, there are a couple of things to consider with windows as well. So one of them is-- in St Louis we have the occupancy inspection. We have talked about this in a lot of areas now. They require a safety inspection, make sure the house is safe to live in. One of those things is the windows. If the window cannot be opened, like it has been painted shut, that's a bit problem. Or if it opens and falls shut, that is a safety issue as well, because what if there was a fire and people can't get out? So windows can be something that needs to be replaced, but again, if they are functional--.
David: And they look okay--.
Mike: And if they look okay, often times I would leave them.
Mike: It is kind of a grey area too. A lot of times to paint a window it costs more than you would expect. So I had an older house with painted windows that were kind of a dark wood color, we were going to save some money and paint the windows. Well the amount of time it takes for somebody to put two coats of paint around all the windows, you have got different panes in the center of the older windows, it's all wood.
David: The detail work is a freaking nightmare.
Mike: Again, if you are paying somebody hourly, or whatever to paint that window, it can be a nightmare.
David: You might be better off to just replace it, and it would be cheaper and you are going to have a new window.
Mike: You are going to want to find a good window company, you are going to want to call around. A lot of the ones that advertise are not going to be the lowest price--.
David: Because they are paying for the advertising, right?
Mike: You are going to want find a good window company that can help you out on that.
David: Right, that's it. We don't need to dive too deep on windows. Just know that in certain scenarios it is not worth replacing them, and in other scenarios it is. So know your numbers, know your neighborhood and know your ARV, because that's where you need to determine that, and or for safety. So we got walls, floors, light fixtures, windows. Next we have bed and bath-- sorry we have bath and kitchen.
Mike: Bath and kitchen. So bath and kitchen, there is probably where you are going to spend a little bit more money, but you can definitely overspend. So you want to be very cognizant of this property. So we are walking through this one, and let's kind of think back to the property we mentioned before, we walked in and the cabinets are in pretty good shape but they are old, they have got a really dark stain on it and they have that brass hardware. Well what are we going to do to this--? The cabinets are all dinged up. What am I going to do to this house? I am going to pull the counter tops off, and I am going to make my notes in my Notes app, I am going to say, 'replace counter tops, paint the cabinets, new hardware.' Appliances, depending on the condition-- if you have really old beat up appliances, maybe you have to replace some of them, maybe you can save some of them, maybe the fridge is black. Guess what? I am going to go in and replace just the oven that needs to be replaced.
David: Mike, one thing we haven't really mentioned yet, and I think it's a great time to talk about this for a second. We talked about doing your rehab-- knowing your numbers of course, but putting together a rehab plan that aligns with your ARV or your appraisal.
Mike: Love it.
David: But one thing we didn't mention is doing your rehab plan, also to be cognizant and thinking of the amount of rent you can collect from the work you're doing. So appliances is a great point. If you leave your old appliances in there, you might not be able to collect top of the market rent for the property, it might be a little less. However, if you put in some nice stainless steel appliances. You might be able to collect another $100-150 a month. So again, having your plan, you need to be aware and thinking of two things with that plan. One is, what is the ultimate goal with this rehab to get my property to value at a certain number? But B, these updates that I'm doing are making a difference on the welcome factor and the demand for that property as well.
Mike: Love it. One thing I will say in ours, we almost never use white appliances, because--.
David: They just get dirty.
Mike: They get dirty, you also-- if we are going to pain like on our lower end rentals, if we're going to paint the cabinets, try and save some money there, you are probably painting them white. So if we have white cabinets, black appliances just kind of pop a little bit.
David: They pop.
Mike: So we use black appliances and we actually use a black for the counter top. It just looks pretty sharp with stainless handles on it.
Mike: Or brushed nickle rather. So that's what we do in almost all of them, and that would be a great example. In this house we are going to paint the older cabinets white, we are going to replace black appliances in there, and we are going to put the brushed nickel--.
David: Yeah change the hardware. Paint the cabinets, change the hardware, get some appliances that are nice and they pop, again, think of it this way, guys. If you have a stove that is just a piece of crap, versus a nice new stove; any mom or anyone that is interested in doing a lot of cooking at home, they are going to want that unit, they are going to want that house way more than one that doesn't have those nice things.
Mike: Guess what?
David: Dish washers and microwaves.
Mike: Guess what? New appliances, less likely to break than the old ones.
David: Less maintenance too.
Mike: Less likely to get a call to say this doesn't work anymore on my stove, can you get someone out to fix it? Guess what? I don't want to waste $200 sending a repair man out to fix a burner on a ten year old electric stove.
David: Let's talk a little bit about dishwashers and microwaves.
Mike: This is important.
David: Both of these things are not requires in order to get and occupancy permit. However, by providing a dishwasher and a microwave, it is going to increase the value of that kitchen, it is going to make somebody be more likely to want to rent that-- and or pay more. So we typically try to add those two. However in some scenarios it doesn't make sense to do so and we will leave those out.
David: Another thing we like to leave out--.
Mike: This is a big one.
David: -- if possible is garbage disposals.
Mike: I would say leave out and take out.
David: Leave out and or take out, remove if you buy a house that has it already, why? Why do we want to remove a garbage disposal?
Mike: Garbage disposals are my least favorite appliance in rentals. People clog them up constantly.
David: They are hard to clean and they are dangerous to clean-- if you don't know what you're doing.
Mike: They frequently get jammed and break.
David: It's a great reason for the tenant to call the property manager or you to increase your maintenance. So just remove it completely and tell them, hey don't flush anything down, or don't put any food down the sink, throw it out. It is going to save you a lot of time and money in terms of maintenance down the road. Can the sink still clog? Of course. But all you have to do is snake it out or take the bottom P trap out and it is fixed. With a garbage disposal, you can troubleshoot for hours. It is not worth it.
Mike: And a couple of hundred dollar appliance that needs to be replaced.
David: So we remove those, alright? So dishwashers, microwaves, things to consider, garbage disposal-- again, something to consider, okay? That's more on the kitchen side.
Mike: Let's talk about the total cost of this kitchen we just walked through. One thing we didn't talk about and we will segway into the bathroom. The flooring in the kitchen most likely, I am going to try and slide that-- if it's the same height, I am going to try and slide that vinyl in. If not, if it is kind of a different height thing, I might use a vinyl peal and stick that you can put grout-- which is what we use in a lot of our bathrooms, it looks like tile, looks like a tile floor because you can use the grout in it, but it is a vinyl that peals and sticks, so it is a little bit cheaper.
David: Groutable peal and stick tile is a God send for rental properties.
Mike: Very cool, let's talk about--.
David: It looks nice, it's durable.
Mike: Let's talk about total budget in the kitchen. We didn't buy new cabinets, we saved most of the cabinets. But we did paint them, so let's say 500 bucks for someone else to paint the cabinets for us. We replace the counter tops with a black solid [00:24:33.17 - inaudible], let's say that's 500 bucks plus a sink, we reused the sink it was in good shape. New faucet about 100 bucks. Appliances, appliances are our big one here, because we decided the black fridge was in good shape, let's get a new gas stove, let's put a microwave vent microwave above it, and let's out in a dishwasher. So appliances we spent let's say 2000 on, and that is probably a bit high, we probably spent a little less.
Mike: So all in we are probably--.
David: Plus labor.
Mike: Plus flooring, plus labor, light fixtures, we are probably 4000 or so, maybe 5000.
David: Four to six is usually kind of where we're at. But that includes the light fixtures in there, that includes the flooring, that includes new counter tops if needed. In this scenario we didn't do cabinets, but sometimes we will. Therefore it could be six thousand instead of four--.
Mike: Or ten.
David: Or ten. Sometimes it can be. Try and keep the kitchen around four to six grand. Again, sometimes it will be less, sometimes it will be more, but we have kind of covered it all. We talked about the flooring, talked about the cabinets, talked about the counter tops, the plumbing fixtures which would be the sink and faucet, the electrical fixtures which would be the lighting in the kitchen, then the appliances. That's basically everything.
Mike: This rental again I am probably talking in St Louis market under 100'000.
David: If it's a bigger rental you are going to spend more, of course.
Mike: If this is a 110-150 kind of price range, we are probably going to replace the cabinets, and we are probably going to try and get all stainless appliances in there, again because it's a higher priced property.
David: Why though? Because we know our numbers, and we know that we are going to need to do nicer things for two reasons. One, to be able to get it to appraise out where we want. Two, to be able to hit a price point in terms of rent, got to have it be equal to what the market is supporting. If other houses in the area are renting for X, why? Are they nice, are they not nice? That explains it right there, it's all supply and demand.
Mike: Cool, let's--.
David: Let's segway into the bathroom.
Mike: Segway a little bit with the vinyl peal and stick tile. This is really good for bathrooms because it's a small space. So I am not as worried about it getting beat up as much. The kitchen, there are people constantly walking around on it a lot. The bathroom again, there is not a lot of foot traffic like there is in the kitchen, so this vinyl peal and stick is really really cool in there. Honestly, we have used it for a long time and haven't had any issues with it being--. I think we get it from Home Depo for the most part, yeah it has been a real good one for us. So the bathroom. This is our sub hundred thousand, the tub is in decent shape, it is a little bit chipped up. The tile on the wall around the tub is in decent shape. But it is just that really old color, those old green and pink tiles that used to be popular I guess back in the 50's and 60's, I don't know when. Seems like forever. So you have a really ugly green tile on the walls, you have an older vanity and toilet that is okay. Well here is what we're going to do, we are going to spend a thousand dollars in the bathroom, and it is going to look like ten thousand. So what I'm going to do, I'm going to replace the toilet with the higher height and the elongated bowl. Again, it's a little but more modern, you don't realize it but there is the the round toilets and the elongated bowl, the round ones are a little bit nicer.
David: The round ones are real ancient in my opinion, elongated bowls are newer, they are nicer, people like them.
Mike: Yeah, it's very handy for us, big American butts, we like--.
David: We typically replace the toilet and the vanity, it is pretty cost effective, guys. Vanities are anywhere from 250 to 500 bucks, toilets are probably less than 200.
Mike: Again, for rental grade, I am probably going to spend 200 tops for the vanity, and I want a sink-- sorry I want the vanity and the sink combo for around 200-250, you can usually find those at Big Box stores. The toilet around 150 bucks usually tops for a low end rental. Then I am going to have one of our guys come and glaze the tub--.
David: What does that mean, Mike?
Mike: So the glaze-- it's not painting-- it's similar to paint, but it's just a higher quality, it is made for these surfaces, for the fiberglass--.
David: For hard to stick surfaces.
Mike: Hopefully it holds up in the wet environment which is the bath.
David: It does hold up better; it's thicker than paint and it is designed to keep the moisture on one side of it.
Mike: Yeah so you need a professional to do that. I've paid anywhere from $500-1000. I am not going to use bath fitters, a totally different process where they come in and suction around and over your tub. I am just going to recommend glazing on this--.
David: You don't necessarily need to replace the tub. A lot of these older homes that we buy that are rentals, they may have the old cast iron tubs. If you have ever tried to remove one of those, you have to take a sledge hammer and break it into pieces.
Mike: They are heavy.
David: They are heavy, and if you do that you are typically going to be screwing up flooring, typically going to have dry wall work, a lot of painting, it's a pain in the ass so we just leave them, and if they are rusted out or if they have four different colors on them; glaze them, then they look brand new. It's iron, it's sturdy, it's not going anywhere. The guys we hire to come in, they sand them down, glaze them, they look brand new. Your cost of doing so as Mike said, between 500, mabe 1200 bucks, but the cost of replacing that tub is going to twice that.
David: All the extra things that you are adding to the list by ripping it out. And you are going to need a plumbing permit.
Mike: One of the things we talk about in our meetings frequently is the time too.
Mike: So it is going to cost more, but it is also going to take longer.
Mike: So again you are talking about-- well one the labor, but two the dry wall. You have got dry wall set up, you then have to put the mud on it and let it cure, then sand it, then do another coat and sand it--.
David: Not going to happen in one application.
Mike: It takes several days just to get it back in the right shape. Skip that if you can, if it's not destroyed. So bathroom, let's talk about what we spent in the bathroom. Let's call it $1000 to glaze the whole tub and surround. Let's call it 250 for vanity, let's call it 150 for a toilet, let's call it 350 for the light and the flooring.
David: Under two grand.
Mike: All in-- yeah about 1800-1900 bucks. So let's say $2000 for your bathroom and it looks like a brand new bathroom, huge!
David: That's awesome, guys.
Mike: Again, 2000 for a bathroom, 6000 for our kitchen, everything else, the materials probably another 5-6000 for flooring throughout the entire house. You are going to be right around 15'000 all in for everything.
David: Right, so we shoot to spend at least 15'000 on our rehabs. Again, we do this because we need to get the entrepreneurial credit that the bank offers in order to make the refinance process work for us. We are looking at the big picture the entire time. Some of our rehabs are 20-25k, but we always shoot to spent at least 15.
Mike: I want to talk about basements here in St Louis. Basements everybody-- oh they are gross, right? Basements just get this dingy nasty feeling in a lot of older homes, like oh it's gross, there are spiderwebs, all that stuff. Fix that problem.
David: Make them welcoming, guys.
Mike: Your basement does not have to be gross, it's super easy. Get down there--.
David: Paint everything.
Mike: Paint is your best friend as a rentable rehab. Literally-- again, this also-- if you did something that might have required a permit, and you forgot to get it pulled. Say for instance you had a new electrical line put in by your handyman and he didn't get a permit, well if you go down into the basement and you have painted the ceilings, this is the big one, paint the ceilings all black, just kind of looks nice, paint the walls all white, paint the floor gray, you have a nice area.
David: Essentially you can turn a basement that you don't want to walk down into, into a nice place by as Mike said, you clean it up. Get all the cobwebs out, paint the ceiling, paint the walls, paint the floor. Then all of a sudden it's not dirty and dusty down there, because the paint encapsulates everything, and it kind of keeps it--.
Mike: It looks nice--.
David: Looks nice, smells nice, all of the above. We don't go in and redo basements in terms of putting up walls and dry wall and all that stuff. In the event that it has panaling or it has walls; of course we might leave those and paint them. But, we are typically not doing any construction in the basement. If anything it is demo and removal.
David: Clean it up.
Mike: Well said. Again if you are in a basement and some of the paneling is knocked out and has a little water damage from years of whatever--.
Mike: Just rip it out, it's cheap.
David: Rip it it.
Mike: Just like the landscape--.
David: We have tenants-- they will do crazy things like partition a part of a basement to put a bedroom in there. You know what? We don't care. We just want to provide them the canvas so they can do something with it. Often times that might just be a place to store their junk which is fine.
Mike: It's a nice clean--.
David: The amount of money that we spend to make a basement clean, assuming we are not doing a ton of demo; if we are just cleaning out stuff, what's that, Mike? Maybe 1500 to 2000?
Mike: Two grand tops.
David: Two grand, so again, this is something that is also going to do two things, guys, two things. A, help you get a higher rent, you are making it more welcoming. B, your appraiser is like whoa, yes it is not-- livable square footage necessarily, but it's clean. They are going to look at that with other comps and give you a higher value for that property.
Mike: It's nice, it looks nice, that's what is important is that it looks and feels nice. It's not a place like ew I want to get out of here. You want to keep it all the same.
David: Keep it all the same.
Mike: Real quite, here is something that is really important, and I wanted to touch on it earlier, but I was holding back. Scaling up. This is something we talked about with our previous episode talking about hiring GC's, you have to scale up. This one is your products and what you order. Scaling up you want to start having a standard. So we use the same paint color in every one of our rentals.
David: This has a lot to do with stress and also-- sanity, right? If you are doing eight projects, and you are trying to put in a different floor in every project, and different light fixtures; you are going to loose your mind, and your accounting is going to be crazy. Doesn't it make sense to say hey, here is five different light fixtures that I like to use over and over again? Guess what? We have one paint, maybe two, but that's it. So when we go in, we paint it all the same. Why is that important? Well A, it's easier. B, when the tenant moves out, I don't have to figure out what paint I used, it is always the same paint.
Mike: Yeah it's huge. So again, if we use the same floor, if a tenant scratched up and managed to destroy some of it--.
David: I've got a bunch of it in our storage unit already. Guess what? We just swap out that one piece.
Mike: Super easy.
David: Super easy.
Mike: So again, that's the scaling up thing. Keep things the same, try and use the same appliance supplier as well. Then it's like, oh did I get a new fridge? Oh yeah I did.
David: After you have bought 40 refrigerators from somebody, they are probably going to start giving you a discount. There are advantages here in everything that we're doing, I love it. So let's recap guys; start on the outside, do a walk around, look at the roof, look at the windows, look at the landscaping, look at the gutters, the [00:35:57.19 - inaudible], it's not that hard, okay? Just walk around, does it need to be repaired? Does it need to be replaced? Does it need to be painted? Does it need to be removed? That's what you're looking for.
Mike: Often times I would say removal is your cheapest option.
David: It is.
Mike: If there is an old shed, why are you going to replace that? Just rip it down.
David: Just take it down, right, absolutely, get it out of there. That's your exterior. When you walk inside, walls, floors, light fixtures. 75% of the house is walls, floors and light fixtures. Your biggest rooms are typically your bedrooms and your living and family rooms. Pardon me, I have the hiccups here. But don't over think it, you don't have to replace the baseboards, or all these little minor things. Just stick to the major areas; flooring, walls and light fixtures. When you get into the kitchen, you don't have to replace the cabinets; you can paint them, you can change the hardware. We typically like to put in new counter tops because it makes it look fresh and clean. Next would be decent appliances, okay? Again, that is going to help in two ways. It is going to help with your appraisal, and it is going to help with your rent, okay? Next we do the light fixtures in the kitchen. That is basically it, maybe a dishwasher, maybe add a microwave, remove the garbage disposal, okay? Garbage disposal is not going to get you anymore in rent. But what it will do is increase your maintenance, so we take those out. Moving along to the bathroom. We are typically already going to be doing the flooring. We try to leave the tile and leave the tub. We just glaze it white. I don't care if you have the pinkest or bright green tile there is, the glaze, and the people we hire to do the glazing, which I'm sure you can find in your local neighborhood, they cover it up with a beautiful white glossy finish that makes it look brand new. If you didn't know that we glazed it, nine times out of ten you are going to say, damn this bathroom is brand new, because we paint over it, it looks great. We do typically replace the toilet, we do typically replace the vanity; those costs are relatively cheap, people are going to spend about the same amount on labor to install the toilet and the vanity as you are buying those items. That's really it. Last but not least, basement. Don't build it out, don't spend a bunch of money down there, clean it out, make it look welcoming for somebody to build a bonus sleeping area down there, or a little living room down there, or even just storage. How do you do that? You clean out all the old and the ugly. Get rid of the cobwebs, paint it, hire a painter to go over there that has a spray painting gun, and they will spray the ceiling, they will spray the walls, they will roll the floor and even spray the floor. This will make that basement look welcoming and inviting. So people will want to spend time down there. That's it.
Mike: I've got one pro tip.
David: Keep it simple and chose durable.
Mike: Got one really good pro tip.
David: Share it.
Mike: We buy frequently, we will two bedroom one bath. They don't stay two bedroom one bath all the time. It's very inexpensive to throw up one wall--.
David: We do this sometimes too.
Mike: -- and one door, and create a third bedroom.
David: We are not putting dry wall around the entire basement and doing the cieling.
Mike: I'm not talking about the basement, I'm talking about--.
David: Or anywhere, right? One wall one door.
Mike: If you have got a good size house, 1000 square foot and it is two bedroom one bath; often times the dining room--.
David: Family room dining room combos.
Mike: Right exactly. Often times there is a seperate dining room, and there is a family room kind of living room combo. It is very easy to turn that old dining room into a third bedroom.
Mike: So we do this pretty frequently, this is huge; you have added another bedroom which adds value, not square footage to the house but it adds value--.
David: It adds value though.
Mike: And it increases your rent. You are then renting a three bedroom property as opposed to two--.
David: Which you will typically get 25% more rent!
Mike: Again, this is something that is probably a couple of hundred bucks worth of materials.
David: Yeah with the labor you are going to spend $1000-1500 to add a wall, add a door. When we do this we are not putting electrical in there.
Mike: There already is electric in there.
David: Right, there is already electrical in that room. You don't need an outlet on that wall-- and the cool thing about doing the conversion with the dining room; typically a dining room, not always, sometimes, I should say sometimes there is a pantry there. A pantry can convert really well too, or a closet.
Mike: Yeah, super super nice.
David: So in order to have a bedroom legally, you have to have three things; you have to have it be a minimum square footage, which is pretty easy. If it looks small it may not work. You have to have a closet for somebody to store their clothing and items, and three it has to have a window that you can climb out of in case of a fire. Those are the three main things that are needed in the bedroom, but that's it. So typically a dining room has a closet already in it, it's a pantry. Typically it already has a window which is perfectly sized already because-- most windows are. By just adding a wall and a door, boom! Another bedroom.
Mike: That's a huge one.
David: Pro tip, love that.
Mike: If it's a small house you-- but yeah. Thanks guys for listening, hope you enjoyed this episode. If you haven't already, check out freewholesalecourse.com, that is our favorite thing to direct new people too.
David: That's right, that's where you learn how to find the deals, which is what all the things we talk about comes from. Without having a deal, we can't do any of this stuff, none of it, love it. Check us out, freewholesalecourse.com, we hope you enjoyed this episode of the 'Rental Rehab Strategy and free tips'. Signing off