Rehabs and Rentals: Newberry Drive

Newberry was our fourth real estate purchase, inclusive of our first residence and first commercial building. Our first three purchases were before the financial crisis…in the easy lending days.  

BEFORE & AFTER


PROPERTY NARRATIVE

Now it was 2010, and while our existing real estate was in the toilet, we knew that it was a great time to be buying. The problem now was that getting a loan was very hard. Stated loans were gone, and conventional loan requirements were super stringent.  

Man..if you had tons of cash in 2010, you just cleaned up in real estate! Luckily, we managed to buy at least one property in the downturn.

At the time, since lending was tough and the market was tougher, we were able to work a deal where we put very little down to get into this property. The purchase price was 141K, which included an allotment for initial rent ready improvements, as well as the seller picking up a bunch of closing costs. 

At the end of the day we only put a total of $5828.59 down on this property. Now, keep in mind that the flip side of a low down payment is often negative cash flow. So in essence what’s happening is that you are putting that extra cash “down” over time instead of all upfront. You can see this in the numbers on the property.

This investment proceeded to have a solid rental history for 8 years. Then cut to 2018, when we decided to move to Austin and try it out as a place to begin our new phase of life (Act 3 of 4 we like to call it). 

Part of the reason we chose to move to Austin, was because this house had more than doubled in value in that time, with a potential sale price of 300K. But in order to get that price, it would need a major spruce up, so our plan was this…

  1. Move to Austin and stay in a rental nearby, so we could manage the renovation.
  2. Decide if we liked Austin as a place to live. We had actually been to Austin for work a few times, and also bought our first rental there, so we were familiar with the city and it was fun to visit. 
  3. If we liked it there, we would either move into this house, or sell it and use the proceeds to buy a house in a different area that we preferred.

Well long story short, we finished the renovation in three months, didn’t like living in Austin at all (oh well), so we hightailed it out of there and moved to Florida! Kind of a wild ride really.

The renovation (as is often the case) grew in scope as we learned the house really needed a more significant spruce up than we had hoped. So we ended up spending 80K to get it ready for a top dollar sale…which we thankfully achieved!

It still seems like a big number to me, but I supervised every aspect of the renovation, and don’t think I overpaid for the work (for the most part), and that’s what it came out to. 

You can see a breakdown of renovation costs below as well. I will admit, we didn’t choose the cheapest materials available at every turn, but I did feel we were very prudent on that front nonetheless.

We were hoping to spend 50K, which would have netted us (all in over the 8 year period) about 70K profit, but it ended up being 40K. Part of that difference was a new roof and soffits, which were unavoidable. As well as having to re-drywall most of the house for some non-visible issues.

So this house went from what would have been one of our top performers to…somewhere in the middle. That’s the way it goes sometimes. 

We learned a few lessons for sure. If you look at the numbers below it still produced a compound annual growth rate of 12%, when factoring in tax savings. 

Now this does not factor in my personal time to manage the renovation, which is worth something for sure. The house had property management along the way, so I didn’t have to invest any time during that period.

(This property has been sold)

PROPERTY FINANCIALS

This is the overall financial picture of the property, or the IRR.
This is the annual cash flow from 2010-2014, not inclusive of renovation costs.
This is the annual cash flow from 2015-2019, not inclusive of renovation costs.
These are the costs for the pre-sale renovation.
Check out our real estate before and afters, including this bathroom remodel now! #realestate #realestatebeforeandafter #homemakeover