How Much We ACTUALLY Spent on Our $65k House

Unknown Speaker 0:02
This is the digital nomad quest podcast with Sharon Tseung. teaching people how to build passive income, become financially free and design their best lives.

Unknown Speaker 0:13
Hey, guys, it’s Sharon and Sean with good sweet homes. And today we’re gonna talk about how much we actually spent on our $65,000 house. So let’s rewind a bit. I know I’ve made a few videos on this property already, but let’s talk about it. So this was listed as a three bedroom, one bath and it was a small property around 900 square feet when we walked the property. Turns out it was only a two bedroom, one bath. So for all of you who are getting to real estate investing, it’s really important to walk through properties, or at least have someone you trust walking for you having a third bedroom would increase the rent amount we can get as well as the property values itself. So when we saw there’s only a two bedroom, one bath, we were pretty sad and disheartening, but at a $65,000 price point, we thought it was a pretty good deal in that area. Initially, you plan on making this into a short term rental property. Unfortunately, in this particular city, there’s a short term rental ordinance which says that you cannot have another short term rental property within 500 feet of another one. And at first we got the map online, everything looked good and dandy. And it wasn’t till after we closed I mean call the city itself as was impermanent questions. That’s when they said oh, there’s actually a neighbor 480 feet away from you who is already in process for it’s permanent. So with this property, we decided to make it into a long term rental. Now initially, we had estimated around 30 to $40,000 of renovations, but unfortunately, we weren’t correct. So this episode is really to help you guys learn from our mistakes and see what you guys should and shouldn’t do, especially when it comes to working with new contractors that you don’t know, it’s not uncommon that your estimated renovations are going to go a bit over budget. So you should definitely set a buffer for that. Well, when we first walked the property, it was pretty disgusting. There was a bunch of poop smell really bad there cigarette stains on the walls is really messy and disgusting. But because it was a smaller property, we thought that it wouldn’t cost like a ton of money to fix up the bones are okay, but the foundation had a bit of problem and there wasn’t a central H vac system in place. Initially, we also noticed a den so that we thought maybe we could convert that back into a three one because it was listed as a three one. But we found that the space was not big enough for that. And we decided to convert that into like a laundry room property also had a garage but the garage was slanted on one side. And you know, the first contractor said yeah, no problem, we put some foam on it to lift it up. And when it came down to it turns out that garage was not salvageable. So we had to tear it down and build a brand new carport there instead. Now one thing is we did meet this contractor on site, they were actually touring the property when we were thinking about buying it and we thought maybe we could work with him. But I think we could have done better on our due diligence around this contractor, we should have definitely hauled his references done a bunch of digging to kind of see if he was the right choice for us. Because we kind of just went immediately like, Alright, let’s go with him because he said all these really nice things. But we really should have done a lot more background check on him. The thing is, when we were working with him, we would come visit the property, we drive like two hours to check out the property and found out that like nothing was really being done. And that was over many months. And we kept trying to give them second chances. Like he just kept giving excuses sometimes not even picking up his phone. That’s something you guys should definitely know that if a contractor is doing something like this, you should definitely just cut it off and try to find someone new. So one of the reasons why our project this one went over budget was because you had to fire the initial contractor bring you another one. So all the work, the first contract did was basically invalidated, you have to pay another contractor to come and redo all the work that the first guy did, because they were really incompetent, a lot of the work he had done, the new contractor had to kind of redo so it was like paying double almost for some of the work. So the actual number in renovations ended up being $74,000. So that was over budget by maybe $34,000. Because we expected 30 to 40 grand. And when we break it down, it looks like $28,500 ended up being for the materials. $19,900 went to the first contractor and then $25,500 went to the second contractor. Besides a financial loss, we also lost a lot of time to because this project should have been done within six weeks, you’d have taken us only six months to actually complete it and have it finally rented out. Yeah, we bought it in July. And then we finished it in late November. So it was a very long process. It was stressing me out. Because when you’re trying to talk to the first contractor, you just like never pick up and it was so annoying. And every time we went to that property, we were just disappointed. We were just like we need to find someone new. It took us way too long to kind of make that pivot because we just kept thinking, you know, it’ll be better, it’ll be better next time. Another thing that really held us back was the fear of switching contractors because we didn’t know what to make out there who’d be willing to take over someone else’s project but you know, going from our experience now I always say you definitely need to try right, you should always try to build as many contacts as possible because even if you have one crews you really like always in a backup crew in case something happens to your first you know, maybe they’re too busy to take on your project or again, maybe if they go bankrupt or suddenly their business practices aren’t as good. You do need that backup team. So with this second contractor, we ended up calling his references checking his online presence and kind of testing whether

Unknown Speaker 5:00
He was responsive and communicative. And turns out, he was always texting us always calling us. So it was a really good thing. He also sent us a lot of pictures to keep us updated, where we didn’t feel like we had to micromanage as much. Whereas with the first guy, we had to continuously bother him, like what is going on with the property every time we visited and like what’s going on. And he was also very weird with his payments. So apparently, he has some issues with his bank account, I couldn’t do Zell quick pay. And that’s where you get a red flag there. So asking for Venmo, or cash app or business transaction is kind of sketchy. So one of the things is, you guys noticed that the way I broke the amount was that we paid for materials ourselves while we paid for labor with the contractors. So that’s what we normally like to do, because we don’t want the contractor to like up charges for materials. So we’d rather just pay for it when it happens. So anytime they visited Home Depot, they would call us and we would just give them the payment information so that he could pay for the products. So to your point as well, it’s actually really important that we did this payment schedule, because if we had paid him a large deposit 50% of project upfront and then he goes to us what can we do, like it’s so hard to get your money back from someone who’s like that versus okay, we only paid him for the work that was completed. Granted, the work wasn’t that great. And he did we love our time, but we didn’t pay him more than when he actually worked on the project. So if we didn’t hire the first contractor and just started with the second contractor, that amount looked like it was around $54,000. And I feel like we may have paid extra in materials to for the first contractor. So another big expense that we had was that it was a trade on the garage and you know, tear down the debt and build it back up. But I wonder if we had a better contractor on site, maybe they could have actually fixed the garage in the first place and stuff tearing it down. You want to find a contractor who’s really able to like understand if they can keep something salvage something and not have to overspend by replacing everything. It was really like a red flag when he just over promised and under delivered the first contractor like he would say that he can salvage and then oh actually can’t it’s pulling down the whole house, we have to replace everything. So it’s good to get a second opinion. Now I know you guys want me to break down the numbers of the $74,000 in renovations, I’m gonna give you guys a bit of a glimpse. But it’s actually kind of all over the place since we had two contractors and some were doing the same things. And some of the work from the second contractor was in replace of the first contractor so it was just like a lot of mess. So I’m going to try to break it down as much as possible. So it looks like we spent $6,100 on the AC that’s for a full H vac system. That’s pretty good because it includes the actual new heater includes the new condenser unit for the air conditioner, and also includes the solid all the vents for the property. And it looks like we spent around $3,300 for the appliances. So that includes the dishwasher, the refrigerator and a new water heater. And then we spent 2165 For haul off. So I think we could have spent less on this because we actually bought a property recently and we’ve gotten quotes around 550 For haul off or a pretty big property. So I think we could have lowered this looks like $4,800 for foundation or $1,000 for the garage demo. Now like Sean mentioned, we don’t know if we could have salvage that garage that would have been nice to have because we’ve been nice to just allow the car to park there instead of in the carport driveway thing and speaking of which we spent $1,900 on that carport so that ended up being a huge part of the expense which I did not appreciate. Yeah, because the end result was also not what we expected to you know, I thought it’d be a nice carport though attached to the house but when you see it it looks like just some flimsy piece of plastic and you know going back I probably would have done that. And then for flooring, it looked like $2.50 per square foot for the materials and flooring labor was $1,500 That looks about right so usually two to $3 for flooring material and then about $2 for labor it just depends on who you use for the contractor and also what finish you want for the flooring but when it’s a rental like we’re not going to do anything fancy and luxurious so that looks about right for the flooring and then we spent $3,475 on labor for paint that also includes like sheetrock repair texture so some of the walls we had to open up and move like there’s law of like tear love rat’s nest inside the walls which is pretty gross so we had to remove that and there was some random holes in the walls that we had to patch up as well so all those patching she rocking texturing and paying over cost how much money yeah and then material for the paint looks like about $500 I would say that initially I thought that labor for the paint seemed kind of high for a 900 square foot property but like you mentioned there was repairs that had to be done so it makes sense but we also had to pay $2,240 on exterior siding repair and paint so the paint and siding repair and all the sheetrock repair seemed to have cost a lot when you add all that up but like we mentioned before to the exterior of the house parallel holes unfortunately rats got inside the house because of those holes so it’s good thing we repair them you know like water lines are being exposed to the outside because of the outside the open so it had to be done. So I think it’s a lot more modern now. definitely way more livable than before. It was disgusting. smelled really bad before where I almost wanted to throw up like it was really bad. So now it’s so much better. We’re pretty happy with the outcome. It looks like the ARV

Unknown Speaker 10:00
Like we estimated 130 to $140,000, which I think is on point because I looked at comparables that are pending right now and is $145,000 listed $160,000 listed around the same area with the same specs like 219 100 square feet, as you can see here with Texas, it’s a non disclosure state. So I can’t see exactly how much it sold for unless I had MLS access. But this is pretty good for me to kind of gauge. So it’s looking pretty good in that sense. Like, I don’t feel that bad about it. We’ve also rented this property out now it’s at 1350. So with the purchase price plus the renovations, it was about $140,000. In, we also paid all cash for it. And with the 1350. And rent, it looks like it’s almost meaning that 1% rule, which is pretty good. And because we don’t have a mortgage on it, we should be cash flowing pretty well, we might do a cash out refinance in the future to pull some money back out to reinvest. But I would say I’m pretty okay with the results. Like it’s not the best, but it’s not the worst. So we were actually wrong with our estimation. But luckily, since we did like offer for a higher air V, it ended up meeting it, I would say. So we ended up buying it basically at market price, we definitely learned a lesson from this one, again, caused a lot of mental anguish, even though it didn’t cause a lot of financial problems for us, it causes some sleepless nights, some very annoying phone calls with the old contractor.

Unknown Speaker 11:24
So I would say you know, going forward, we have learned from our mistakes, and we’ve created more processes. So for one, definitely interviewing a lot more contractors, we don’t just trust the first person we go with call all references now we actually have contracts in place that we make their contract of sign that you know, have terms of like when deadline should be done. So now we have contracts in place, we have a definite scope of work created. And actually it helped us a lot to because we actually learned a lot about what we need to as far as putting things down on a contract or on a scope of work. So yeah, I think normally like we work with the property management company, and they will handle like renovations, a lot of times he’s done flips before but like generally with our buying holds, we would trust the pm company a lot. We’ve done a couple of projects where we really manage the renovations. But we are definitely learning a lot from this experience getting a lot more hands on and like knowing what to do in order to build the solid team for future projects. So for example, we did buy $253,000 property recently, and we interviewed over six contractors, we called a bunch of references, we took notes on everything we checked how timely they were their pricing, how they were measuring the square footage of the home and all these different things to see like who we wanted to work with. And we ended up having two contractors that we really liked, we decided between the two of them. And it’s so much better when you have like good candidates that you are actually choosing from versus just like picking whoever. So you definitely should have that process in place. This is a very important part of this whole renovation process. You got to choose the right team to work with. And that was good for us too. Because we have two options and we’re trying one person first. If you don’t work out we can go back to the other crew too and have them come on board. So I hope you guys enjoyed this episode. Please make sure to rate review and subscribe. It really helps our podcast grow. And thanks again. I’ll see you guys in the next one.

Transcribed by https://otter.ai