Learning to Landlord (Unit A)

After closing on the property Unit A was already vacant.  Unit A is a 2 bedroom 1 bath unit that has its own laundry room around the side of the house. The unit has windows facing out on all sides and a rather large front yard.  Before leaving the previous owner had cleaned Unit A fairly well.  It was definitely not rentable in its state but it could have been far worse.

We conducted an inspection of the unit and came up with a list of all of the repairs that would have to be made to make the unit rentable.  The to do list was fairly extensive.

TO DO:

–  Replace carpet

–  Replace broken window

–  Mesh screen for windows

–  Purchase/Install blinds for 6 windows

–  Patch up tub in the bathroom

–  Kitchen stove barrings

–  Paint the entire interior of the unit

–  Purchase/Install kitchen cabinet

–  Install counter tops for the kitchen bar

How?

While these repairs may seem easy when written so concisely, each item is more complicated than it implied.  It is important to have a plan as to what is going to be fixed and in what order.  For example, the entire unit first had to be painted before replacing the carpet.  To have the handyman save time a spray gun is used when painting.  While more paint is consumed, I believe the amount saved in labor costs and time makes up for the paint.  This also allows the handyman to focus on other projects for the unit.  If the new carpet is installed before the paint is complete, you risk staining the new carpet.  That is a headache one can easily avoid.

Replacing the carpet does not simply include purchasing and laying down the new carpet.  The old carpet must first be removed (and disposed of) before the new carpet can be placed.  This new carpet must have the correct measurements to make sure it fits properly and to be sure that you are not overcharged because extra carpet was purchased.

To remove the current carpet and install new carpet I chose to use a company that specialized in this work.  The total cost would be $800 for the removal, disposal, and installation of new carpet.  This work would all be completed in a single day.  It is often better to use a company that specializes in carpet installation as they can get prices on carpet.

Each broken window costed about $50 without installation.  Windows are easy to install on their own so I chose to do the work myself.  The blinds were each about $25 and I also chose to do the installations.  This is simple work that saves plenty of money on labor costs.

Patching up the tub in the bathroom was a tougher issue.  If water leaks into the wood under the tub it could cause a mold problem.  Once the mold spreads it is likely the entire bathroom’s foundation would have to be removed.  This would be a costly expense so it was very important that the hole was sealed properly.  I left this work to the expertise of the handyman.  They recommended the tools and materials that would be need and then sealed the hole.  The same was done for any holes in the walls.

The bar in the kitchen was one of the costliest expenses of the rehab of the unit.  The purchase was made at Home Depot after having done the measurements of the size that was needed.  There were not exact sizes of the material available so the handyman had to cut the material himself.  The entire work was finished in a day.

Discounted Material

The kitchen cabinet that was purchased was found in the discount area of the local Home Depot store.  Both Home Depot and Lowe’s have a certain aisle where they place reduced items.  Oftentimes great deals can be found in these areas.  Newly discounted items are placed everyday and they can range from a new shower head to a laundry machine.  Every time I visit these stores I visit this aisle for discounts.

All of the material purchased for the rehab, except for the carpet, was purchased at either Home Depot or Lowe’s.  I recommend applying for a credit card at either or possibly both.  These credit cards usually come with a payment plan that allow interest not to accumulate for anywhere from 3-12 months on purchases over a certain amount.  These are great if you want to use the money from the rent to pay off the cards.

Rehab Complete

The entire rehab was completed in less than two weeks.  The projects can likely be completed quicker if another handyman is hired.  Upon completion the entire rehab costed roughly $2,000 including labor costs.  The unit is to be rented at $650 so one can see how quickly this can be made up.  While initially this rehab price may seem steep, it was nothing compared to the cost of rehabbing Unit B.

Learning to Landlord

Purchasing your first property is a very stressful experience. After escrow closed I felt very relieved and was ready for the next step in the process. I will explain my situation immediately after having acquired the property.

The Units

My duplex had one tenant currently occupying my larger unit which had 3 bedrooms. The other 2 bedroom unit was vacant but in need of some repairs. During the inspection of the property I found the tenant to be extremely dirty and a major liability. The house smelled of cat droppings and marijuana. They had beer cans thrown directly outside of their door and they also had a pitbull. Dogs are a definite liability and I believe landlords have a very difficult time insuring a property with those types of animals. Nonetheless now that I was the owner of the property I thought it´d be best to give them an opportunity to stay in the unit. It was made clear that they had to get rid of the animal and that they would be held responsible for any trash on the property.

The Lot

The lot itself was rather large with amples space in the front yard and backyard with an open parking garage.  In the front there were two dry trees that needed to be cut down, and there was plenty of drying grass.  This could all be fixed without too much trouble but with money invovled.  The problem with this parking garage was that it was not fenced around.  In this part of town this means that there are habitually vagrants walking through the lot and that there is illegal dumping constantly. 

In a matter of two days I had my go to handyman chop down both of the dried trees and clean the back lot of any trash.  I was given a very good price for both days of work and the place immediately looked far better.  In total it was about $300 including both days of labor and the cost of trash dumping which is approximately $45 per dump (a truck and gas is also needed).  This did not include the cost of the saw that was approximately $400 but that will obviously be reused in the future.

Now that I had taken care of the lot, I needed to begin working on the state of each unit.  I´d see that one unit would need more work than the other but I was ready for the challenge.  I will explain the work done to each individual unit in my future posts.

The Appraisal

What is an Appraisal?

An appraisal is a formal evaluation of a property by an expert who then gives the property a final value.  The appraiser will first conduct a personal inspection of the property.  During this inspection the appraiser will measure the size of the home and check the number of rooms and bathrooms.  The appraiser will also look for major faults with the property such as a leaky roof, mold, or termites.  An appraisal can take anywhere from ten minutes to over an hour.  The buyer does not have to be present during the physical inspection but it is an interesting learning experience.  After the physical inspection the appraiser will review his data and compare it to county records to ensure his findings are correct.

Who?

An appraisal is a third-party expert who assesses and estimates the value of a real estate property.  For a residential property the appraiser is usually chosen by the lender but the appraiser does not work for the lender.  The appraiser works on a property by property basis and some specialize in estimating certain types of properties.  It may be wise to look into the background of an appraiser to make sure they are experienced with the particular type of property you are attempting to purchase.

Where?

The appraisal takes place at the particular property’s location.  The appraisal will inspect the outside of the property including the backyard and parking lot.  The interior is also inspected even if there are tenants currently present at the time.

When?

The appraisal takes place after the seller and the buyer have negotiated and agreed to a certain price.  This price should be looked at by your broker to make sure it is comparable to other similar properties in the area.  After the deal is agreed to the lender will order an appraisal.  The appraisal costs approximately 300-700$ and it is paid by the buyer.  This money will not be returned even if the deal falls through.

Why?

To give a value to real property.  This value is then viewed by the lender and compared to the selling price agreed to.  Many times if the appraisal price comes in lower than the selling price than the lender will not provide the loan.  In this case the lender is protecting the buyer by not letting them overpay for the property.  The buyer must either provide more money as a down payment or negotiate with the seller to lower the selling price.  The appraisal is a major step of the purchase process and often times a headache to deal with.  Be prepared to renegotiate or to front more money upfront.

The final report of the valuation of the property will show the appraiser’s reasoning behind the property’s value.  Comparable properties in the area should be noted and they should have been sold within the previous six months.  If the appraisal is not to your liking it can be appealed to have the appraiser’s work reviewed.  Oftentimes this will bring in another value for the property but it can be either higher or lower.  Always try to negotiate with the seller after the initial valuation especially if the price is lower than the price agreed to.