My 1st Rehab

Written by: Danielle Johnson
Joboja Staff Writer

I had always wanted to “get into” real estate investing. Like everyone else, I had seen the late night infomercials and heard all the “get-rich quick” schemes where everything sounded so easy. I was never truly convinced by any of the so-called gurus, so I bided my time until about a year ago.

It was in February 2006 that I completed the investor training program taught by Guy Williams of Williams Realty and Investments in Hyde Park. This program forced me to master principles of time management and money management which led to the purchase of my first investment property on 9/28/06. I acquired the property for $77,750, rehab costs were $20,000 and the After-Repair Value was $145,000. This left me with a gross profit from this deal of over $45,000.
In addition to mastering the principles stated above, I also put in a lot of hours looking at properties. I looked at 60+ properties before finally closing on my first deal. I had to look at so many properties for the following 2 reasons. First, I was working full time so that only left the weekends to look at properties.

As a result, a lot of properties were snatched up during my hours spent at work. The other reason I had to look at so many properties is because I had limited funds and I had to locate a property where purchase price AND rehab were provided by my lender.

In terms of renovation on the property, my initial budget was $15,000 which was somewhere between a cosmetic rehab and a full gut rehab. I completed the following work on the property: new windows, new carpet, and fresh paint throughout the property. I remodeled the kitchen and the bathroom as well. On the exterior, I put new vinyl siding on the property and redid parts of the roof. When the rehab was about 90% complete, I uncovered extensive plumbing issues which added an extra $5,000 to my budget. Fortunately, I was able to go back to my lender, explain the situation and was able to receive the additional funds to complete the job.

Rehab began on the property immediately after closing and was 80% complete in about 4 weeks. The contractor that I ended up using, I met quite by accident. Since I had rehabbing on the brain so much, I was trying to pick up as many useful contacts as possible. So whenever I came across a white van or anyone or anything that looked like a contractor, I obtained their business cards. This is how I located my contractor. I basically served as the general contractor and he hired individuals as needed to complete the work. Of course, I made sure to see his driver’s license, a copy of his license and a copy of his insurance. Of the 4 bids I obtained, his was the most reasonable.

My contractor had the property fully complete by 12/1/06 and I officially became a landlord on 12/9/06. In January 2007, I refinanced the property and pulled out $10,000 in equity, which was the exit strategy I ultimately decided to go with. My initial strategy was to sell immediately, but due to the implementation of HB 4050, I decided that it might be easier to simply refinance the property and rent until it became clear how the new law would play out. I felt the refinance would be the easiest to accomplish and would allow me to see much-needed funds right away. Currently, I have $29,900 in equity remaining which I will pull out upon the sale of the property later this year. I plan on listing the property for sale within the next 3 months. The current rent is $1200 per month which provides nearly $200 per month positive cash flow after the mortgage payment and hazard insurance.

I know that a lot of the time neophyte investors get burned during the rehabbing process. I was fortunate, however, to have mastered certain principles beforehand, which made rehabbing a lot easier. During the last year, I have since acquired my real estate license and joined the staff of Williams Realty and Investments, where I now teach my clients the same principles which allowed my first rehab to be a resounding success. I believe that acquiring the property is the easiest step of the process. After all, anyone with decent credit and earnest money can acquire an investment property. It has been my experience, however, that few know what to do with the investment property after the acquisition. Due diligence is absolutely key in real estate investing and it can prevent a lot of headache and frustration down the road.

Since completing my first rehab, I have come to the conclusion that rehabbing becomes far less challenging when pursued in the proper manner. I don’t mean to imply that the process is simple because rehabbing is inherently challenging. However, it is my belief that if certain principles are followed – success is just a matter of time. I will close with one of my favorite quotes: “If an individual cannot master their household budget, it will be very difficult to master the budget for a rehab project.”


Danielle is an Investor and licensed sales associate with Williams Realty and Investments. She has a passion for coaching others on building wealth using real estate investing. She can be reached at 773.551.4769 or d_n_johnson@yahoo.com.

You can also visit her website at www.investchitown.com