David: And we're marching. Hey Mike!

Mike: Hey Dave!

David: How you doing?

Mike: I'm great, I am feeling good, I love recording these podcasts again. I love what we are doing with our business; divide and conquering. We have got another rental property to talk about today. I'm excited.

David: I am super excited, Mike. Great day had my coffee this morning.

Mike: I am all wired up, man. I had a coffee with a couple of extra shots of espresso.

David: Taking it to the next level there.

Mike: Feeling good, feeling good today.

David: That's right. Welcome back guys, thanks for tuning in, thanks for joining us this morning. We have another rental case study that we are going to be talking about today. This one is 1632 Langholm. This is a property here in North County, St Louis Missouri that we bought.

Mike: Yeah this one you actually went out -- you were the one who bought it, weren't 'ya?

David: I was. It was actually one of our field guys were paid out on. So he T’ed up, it was a for sale by owner on Craigslist. He T’ed up for me, I went out and closed it. We decided -- were going to wholesale it originally, then we decided it was a decent property; let's hold it as a rental, let's put some money into it and get it fixed up and hold it. So we just ended up paying him out, small commission or finder’s fee because he's not an agent to locate this property for us. 1632 Langholm is the property.
We are going to change up our format just a little bit, we are going to do estimated project repairs and budget, then we are going to do our video walkthrough, then we are going to come back at the end of the video.

Mike: The idea is this is what we actually do. So before a project we look at all the numbers, we look at the ARV, and we actually put the budget together. So we have all this before we actually do the project.

David: That's right.

Mike: So you get to see the whole process. We are going to give you the estimated-- what we estimated the project to cost, and what we purchased it for, what we expected the area to be. Then we are going to walk through the property, show you the final result, then we are going to back and look at our actual numbers.
Again, let's jump into the estimated project.

David: So we paid what for this property, Mike?

Mike: We paid-- you did the negotiation right?

David: I did, it's been a while, a couple of months.

Mike: It was $79,000.

David: 79, okay.

Mike: Then we paid out our field guy so we were all into it for about 82.

David: Gave him a couple of thousand for locating it for us.

Mike: So purchasing price is $82,000. That is a pretty high number for us.

David: It is a four bedroom two bath.

Mike: And that's why.

David: That's why.

Mike: It's a big house.

David: It will rent for more, it is going to bring in more income, therefore is should appraise for more, therefore all the numbers can be a little higher. So it's a big house; four bedroom two bath, two car attached garage, although the garage is attached you have to walk outside which is kind of a bummer.

Mike: You do. There is a nice little patio in the back. Again, if you put one of those $200, $400 [00:03:38.29 - inaudible] from Lowes or Home Depot, it will be covered. That's up to the tenant; we didn't do that for them.

David: But it is a big space, four bedroom two bath, with a big unfinished basement for storage. It's a nice property as you will see here in just a minute when we do our walkthrough.
Our property was 79, paid a couple of thousand out. So we were in it for about $82,000 just at purchase. Then we estimated how much for repairs, Mike?

Mike: We put $12,000 on the budget for this one.

David: $12,000 was the rehab to rental grade.

Mike: The reason is, this was in really good shape. When you bought it, there were no major repairs needed. Mainly just paint and flooring. But we really like to try to do as much as we can to spruce it up to get a good appraisal number out of it. So we usually go in with new appliances or we will update the bathrooms, paint the cabinets. Just make it look nice so we can get a good appraisal number.

David: Right.

Mike: So that's kind of what we expected. So we expected to be all into it for that 82 plus 12, so we expected to be all into it for around $94,000. Like Dave said, because this was a bigger house we expect the ARV to be a bit higher. This is up in the same area as our previous two episodes.

David: Bigger houses, or bigger house than the previous two episodes.

Mike: Much nicer, and it's in a little bit of a nicer subdivision as well, or a pocket of a subdivision with some nice houses.

David: It's got bigger lot sizes too.

Mike: Bigger lots, bigger houses.

David: Off main roads.

Mike: So we expected the ARV, the after repair value to come in around $120,000. That was our expectation on this one. Again, we thought after the [00:05:22.12 - inaudible] we would leave $5000 in this project. That was the plan from day one, to leave a little bit of money in this one. That was our plan, let's have a look at how we did on the rehab.

David: Let's have a look at our walkthrough, then we will come back afterwards and go through the actual numbers, guys. Check us out, thanks for watching.

**** walkthrough****

David: You are at 1632 Langholm. This is a property we picked up for $57-58,000. Our rehab budget on this particular property was $15,000. I have actually not been in the house since I bought it, so I am looking at this stuff for the first time just like you guys. I am going to have Mike who is holding the camera help me a little bit--

Mike: No problem.

David: -- with some of this stuff. We came in and painted the entire house and put in these new floors. Mike, what kind of floor is this again?

Mike: So this is a rubber backed vinyl flooring.

David: Not a peal and stick?

Mike: No, not a peal and stick. It clips together a lot like -- most people are familiar with Pergo(?) how it snaps together. So this has the same pattern on it where it just kind of clicks together.

David: So it floats?

Mike: Exactly, floating floor.

David: It looks really nice. When we bought the house there was a divide right here, not a wall; that had already been taken down, as you can see where one point it was. But there was a divide and carpet over here on this part of the house. In this part of the house there was Pergo(?) I believe.  We just said screw it, we are going to make a clean slate, we put in this flooring throughout. The bedrooms we will get to in a minute, but those are original wood flooring.
So the paint, the flooring and the baseboards -- are they new?

Mike: The baseboards -- looks like there are some new ones here.

David: The fact everything is fresh and clean looks awesome. Here is our kitchen. We got new appliances as you can see here. Stainless steel appliances, however we did not touch the cabinets or the countertops in this particular scenario. It's in good condition and we didn't want to waste money. This is a rental property; the idea with these rentals is to get them rent ready and in good condition for the least amount of money. More money you spend, the longer it's going to take to get it back. So we just decided we were going to leave these counter tops and cabinets until they don't work anymore, until they are busted or broken.
Painted the doors, painted the trip, that all looks good, moving downstairs last. Here is the bathroom. The bathroom has new flooring, new toilet and new vanity and also new light fixture. We didn't touch the tub; the tub was in really good condition so we just cupped it. We did replace the toilet and the vanity, the mirror, light fixture and the flooring. It looks really nice, a really nice bathroom.
This is our master bedroom here, as you can see these floors are a little different. The flooring in the bedroom was already wood, so no reason to put other flooring down in this. Can't really squeeze in here but I could get in the shower. This is our master bathroom. As you can see it's a smaller bathroom. But they did the same thing in here with the flooring, the toilet and the vanity, looks like a new light fixture too. So that look's really good.
Couple of more bedrooms, as you can see they put in new ceiling fans in all bedrooms. This is a four bedroom house, this whole side of the house all consists of bedrooms. So the flooring, paint, these baseboards, these baseboards were originally here, right? New fan, closets in the corner.
So the fact this is a four bedroom two bath is really going to help us out getting higher rents. This is our fourth bedroom here. The bedrooms are all pretty much the same. Ceiling fan, finished the floors, painted the walls agreeable grey. In this house we didn't have to worry about the windows because they were already pretty decent, these are vinyl windows. Probably need to get blinds because these are a little damaged. Blinds are like three bucks a piece so we will go grab a couple sets of blinds when we are getting ready to rent out.
People are already marketing this property to be rented.

Mike: I think we just got a tenant leased up.

David: Did we?

Mike: Well they are going to sign for about $1400.

David: Okay cool. Let's go downstairs real quick. So our basement over here is awesome, super big. I don't know if you can see me alright, but it's super big. We didn't do anything down here, not a single thing. Am I right on that, Mike?

Mike: Correct.

David: But it is a big basement, it's wide open. The floors are already painted grey, the walls are white. If they were dirty we would have probably just painted them the exact same color they are now. But they are not; it's open and clean and there wasn't any clutter down here. In the event it was we would have hollowed out, haul some stuff out on the shelf over here before we rent it. But it's in good condition. As you can see here in the middle we have our water heater, we have our [00:10:56.05 - inaudible]. Both of them look good, not too old, dirty or rusty. Which is usually what I look for in those items is old, dirty and rusty. Over here we have our hook ups for our washer and dryer, our 220 outlet line if we have a dryer, our waterlines and our electrical panel. The electrical panel we didn't touch, it already had an updated breakers, it doesn't have fuses or whatnot. So that is pretty much over here, guys.

**** Podcast****

David: Alright guys, so you just saw the walkthrough of 1632 Langholm. That is a rental project that me and Mike were working on here. You will notice that in the video I hadn't got the numbers right, because I hadn't been to the property in several months. So I thought I bought that property for way less than I did, but it doesn't matter, no big deal.

Mike: It's because you didn't run comps on it. Again, we were just out there looking at the property.

David: We were just out in the field one day.

Mike: It's kind of funny. It's amazing what you think you bought it for and what we actually did. We knew it was a good deal. Here is the actual numbers what we wanted to talk about after the video then.

David: What was--

Mike: Out estimated project, then we are going to show you what it is, then talk to you about how we actually did on it. So Dave, if you want to jump into this?

David: So what was the purchase again, Mike?

Mike: Purchase was $79,000.

David: $79,000. Then we paid a couple of thousand so it ended up 82 give or take.

Mike: Correct.

David: So we estimated 12-15 as you notice in the video I said 15.

Mike: Correct.

David: We actually spent about $18,000 on this rehab. So we went over a little bit, but not a ton.

Mike: Part of that is the appliances. We did brand new stainless appliances, then we updated the bathrooms. Some of the stuff we probably could have cut. But I think we did a nice job.

David: It helped our appraisal which we get into next year. So we spent 18, we got estimated 12-15. We were over just a little bit. Our actual all end cost put us at about $100,000. We had paid mid 85, 82,83. We put 18 in it, so we were actually all into this project for about 100,000 then some change, a little over 100,000. We had an appraiser come out and gave us a great appraisal. It appraised for 130,000. Is that right, Mike?

Mike: Estimated again around 119 or 120 at the beginning.

David: We have done really good on our appraisals last couple of case studies here. So our appraisal came back at 130,000. The amount we left in the loan was 104. So we actually walked away from this project with 4000. Is that right, Mike?

Mike: We could, so again this one is -- I think it's still pending. Our goal isn't to walk away with money.

David: Our goal is to break even basically, take all of our money out. If we have to leave a little bit in the project we will. But this case study is a great example of how if you can get an 80% loan that is higher than what you have in the property, you don't necessarily need to take that money out. So what we will probably do is say, hey we don't need the 104, we need 100,707. That is what our loans for, our exact all in cost. Which may change a little with holding costs in the mean time.

Mike: Sure.

David: But as of today, that's where we're at on this property. So we will get all our money back for the purchase, for the pay out of the field buyer, for the rehab and the holding. Basically be in this property for nothing, zero dollars out of pocket, 100% of our money back.

Mike: Lot of sweat equity though.

David: Lot of sweat equity absolutely, that's a great point though. We spent a lot of time and energy over there working on this project.

Mike: The thing I would like to stress, really emphasize is the reason we are able to do this, is because we are discount property investors.

David: That's a great point guys, you can't do this paying retail, it doesn't work that way.

Mike: Dave went out; he negotiated a hell of a deal on this property. Again, this property appraised for 130,000. He picked it up for around 80, that was our purchase, right?

David: I remember this one now we start talking about these numbers. The owner of the property owed 87 on it. So he actually brought 5 or 6,000 to closing. He brought some money to closing. He owned it as a rental, so obviously in the long term made money on this project too.

Mike: Sure.

David: But he had to come to closing with money because my offer to him was lower than what he owed. I just told him I would love to pay you what you owe, but as an investor it is going to put me -- it's going to be too risky to try and get my money back after I rehab it and re-finance it. Here is where I need to be.

Mike: It was spot on.

David: It was spot on. He said, you know what? I'm okay with that, I am tired of dealing with it, I don't want to have to fix it up like you're going to do, re-rent it. I want to retire. He had some health issues, so he said cool, let's do it. He came to closing with some money.

Mike: I think another thing to point out is the numbers on our rehab projects. We estimated 12 I think and we ended up putting 18 into it. We are pretty good at being frugal. So that is one of the skill sets that Bill one of our other partners has help me learn.

David: Right. I would have probably spent 30 on the property if it was me. I don't have that trait, but that's why I am not in that role guys. That is why I don't do that job, Mike is better at it than me.

Mike: I have seen some of Dave's projects, they look good.

David: Divide and conquer though. But that is a great point though, we try to be frugal.

Mike: That really helps us. Because if this home owner had tried to rehab the property to get that amount. I am guessing it is probably going to be 150% of our budget. He would have probably spent closer to $30,000 to get to the same--

David: To do the same rehab we did.

Mike: Again, I really think that is another thing to point out. We can delve into some of those ways to save money in upcoming videos as well.

David: That's a great point. This is a good one. We bought it, we re-financed it-- sorry we bought it, we rehabbed it, we rented it, then we re-financed it. We got all our money back, will be coming back. We have a tenant in place who is paying the mortgage; cash flow is roughly 350 after we pay our management company. That is kind of the goal we shoot for is between 3-400. After all expenses paid which is essentially is your net/cash flow, which is what's left over after all the bills are paid; taxes, insurances, management, maintenance, vacancy, all that good stuff.

Mike: So it's funny because these projects take -- we are very frugal but we are also very efficient. We come in and do these projects in six weeks or less which is really our time frame. I think the average person is going to take a little bit longer than that, especially if it's a one man crew. I lost my train of thought -- the point of that is, the longer it takes you to do the project; the more expensive it's going to be as well with the holding costs. So it's another way we keep the costs down.

David: Do it fast. And you got to think, if it's your money and it's not borrowed money, you have opportunity cost on that money. You could be using it for other projects, lending it out, or investing it elsewhere.

Mike: I love these rentals; it really excites me to be building this passive income. 350 a month, we're not getting rich on it. As you guys know, we have partners, 350 divided by four, it's not a lot of money. If we do two or three a month, we start getting up to speed, it quickly adds up and we are marching up to 100 properties. So that is our goal and we are going to keep talking about these as we go. Alright guys thanks for joining us today, Dave have you got anything else to add?

David: Nope that's it guys, this was a good one. We have done three rental projects at this point which we are doing case studies on. Mike and I are determined to continue to put out these awesome case studies for you guys. Rentals, we are going to have some rehabs coming up soon, even some wholesale case studies, all of the above.

Mike: In the courses I think we will add some before and after walkthroughs. You will really have to sit down and watch those to see exactly what we're doing.

David: Cool guys thanks for watching, we will see you on the next episode.