REI Mentor Student Learns Rehabbing Pays $40K
Dave: Hi, I’m Dave Dinkel. Today, I’m here with Allen. Allen is one of our mentor students and he’s just completed his first rehab. Now, let’s talk about it. You paid 380 and sold it for 525.
Dave: While you had it under contract, almost the day of closing, you had the opportunity to wholesale for a gross profit of about $37,000.
Allen: That’s right.
Dave: But because of the potential spread in it, you decided to go ahead and rehab it.
Dave: So, tell us about the rehab. How did that go?
Allen: Well, the rehab went well. You just end up holding the property a little longer than you anticipate. There are items that come up that you don’t really anticipate. There’s are a lot of things that come up that you don’t really anticipate.
Dave: And you had a high-end property, so the rehab costs were higher and holding costs for a little longer but still your budget for the rehab was pretty close to being right on.
Allen: We were right on budget. With what we spent, just the other things that add up – taxes on a higher end house and the …
Dave: Commissions for listing agent.
Allen: … the commission for the listing agent, right. So there are a lot of things that come up.
Dave: So it goes on and on in terms of cost.
Dave: This is what a lot of new rehabbers don’t realize. And I think you went through and actually had Viju go out and look at the property with you to have a pretty good estimate.
Dave: So that’s what came in accurately. What was unexpected was the other stuff that came up, just expenses that you have to – when you’re doing a $500,000 home, everything costs more. I just had one where the cost to paint the house, I didn’t know how big the house was when he told me this, but he spent $8,000 to paint it.
Dave: Did you paint yours all the way around?
Dave: What did it run you, do you know?
Allen: It didn’t. Well, I’m real good with my – with our cost. It was about $3,000.
Dave: OK. How much of the work did you do?
Dave: OK. So you had a handyman guy come and do it.
Allen: I did. I came in and did some cleanup behind him. I was there every day, that we were at Home Depot every day. It was a lot of work.
Dave: You spend a lot of time rehabbing. OK. So, go through it with us. What were the biggest surprises?
Allen: Biggest surprises, big house. So everything is bigger. The flooring, we were not going to put in flooring. But everyone who came out, we ask for opinions, “Take a look at this.” Crazy tile they had in the house. But the foyer was nice. The living area – the family room was real nice, the tile. But then they put in this funky wood-look tile with big grout lines all around so it doesn’t look like wood. They didn’t put it up against each other everywhere else in the house but you could tell it wasn’t original. So something must have happened. Maybe there was carpet there. Maybe they got a deal on tile or maybe the guy worked in tile place. I’m not sure.
So they had these really ugly tiles throughout the house. So even though we were making everything look nice, everyone said, “You need to do something with the tile.” So now, we’re looking at laminate. This is a house that’s over 3,000 square feet. So it was a high-end laminate too so it would look really nice with beveled edges and things. So that ended up costing more than we thought.
Allen: The air-conditioning, the painting on the inside also because it’s a large house. Kitchen, kitchen has to be dead on. So white cabinets, granite, also size of kitchen so you need more granite. Granite, the appliances, you just can’t go with the basic, stainless steel $1,900 on sale package. Because it’s such a nice house, we ended up spending, which was still a great deal for a nicer appliances than we have in our house. We spent over $5,000 on the kitchen appliances.
Dave: And you live in the neighborhood.
Allen: Yeah, I live in the neighborhood.
Allen: If my wife found all these things, you have to do it now.
Dave: Why don’t we have those, honey?
Dave: So to make it short and simple, when all the smoke cleared, you just came by to show us the results of it.
Dave: And you grossed about $40,000 after all expenses and cost.
Dave: Netted, all right. Netted $40,000. So with magnificent hindsight, we could have said, “You should have wholesaled it.” But the reality is, it was a great learning experience and you still made money.
Allen: Absolutely. And I wanted the experience. I wanted to experience it all, the good, the bad, and the ugly.
Dave: Yeah. You have another rehab in the works.
Allen: That’s the ugly.
Dave: That was the ugly, yeah. That’s because the spread was smaller when you started.
Allen: The spread is smaller and it hasn’t sold yet.
Dave: OK. Do you have a third one going?
Dave: OK. Are you going to start looking at wholesaling?
Allen: For sure. I have a lot of, they’re close. I have a lot of close funds.
Dave: OK. All right. Anything you want to say to anybody who might be a student in the future?
Allen: It works. Do it. Stick with it. It has taken me a little bit of time but it’s also very part-time as I work.
Dave: Yeah, you work full-time.
Allen: Full-time plus. But it works.
Dave: OK. Thank you.
Allen: Thanks. Thanks, Dave.
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