So now we had 4 properties that we owned, all of which needed rehab, none of which were rented out, and all of which were losing money each day by sitting empty. We had a contractor that stole our money and skipped town and this had all occurred in the span of a few weeks.
We needed to figure something out and figure it out fast. The original contractor if you recall had us write the check in his partner’s name. In hindsight this should’ve been a red flag, since now it looked like our business was with his partner and not the conman. We also had no written contract (again, can you say newbie, naïve investors)?! We told the partner that since it’s in his name, he’s on the hook for the work. While he obviously was not happy either, he also didn’t want to go to court. So, over that first summer, he (and us) started the grueling rehabs. Rooms that had cut pipes, urine bottles, falling ceilings, partially drywalled walls and broken stairs turned into houses I would literally have been okay with living in myself. I joke (only partially) that when I met Michael he was the fancy French guy who knew WAY more about fashion than even changing a lightbulb. That summer I ripped up carpet and nails myself (a nail ended up going through my knee one day on the stairs), we painted, we learned how to lay floors… we learned because we had to. We learned because our money went to buying the houses, paying the back taxes, losing money to the contractor. We learned because we didn’t know what else to do. When you’re in a hole, you either sit in it and die or you figure out how to climb out. We climbed. Before / after pics below of those first houses.
We rehabbed the houses, we rented them out and we got our first rent checks! We read David Green’s book “BRRRR: Buy, rehab, rent, refinance, repeat.” And we executed. What we did is bought those houses cash, rehabbed the shit out of them (actual pun intended), rented them out and now came the refinance part. This seems like magic, but it’s just ONE of the absolute beautiful things about real estate. Once the property is stabilized you then go to the bank (remember local banker we met from yesterday’s post?) and you take out a loan (mortgage) on the property. We will use property #3/4 as the example. We bought it for 20k like we said. We spent 10k total in rehab (these were a light rehab – think paint / floors only) and then took out a mortgage on the property. The houses appraised for much more than what we bought them for and put in. So when we got the mortgage for 75% loan to value we actually got ALL of our money bank that we had put in. We now had ALL of our capital back (including the amounts we had stolen) and had the tenants paying down the mortgage. The rent covered the expenses so now we had cash flow after all of our debts each month on the properties. We did the same for properties #1 and #2 (squatter house). To this day, we still own all 4 of those first properties. To this day, we have INFINITE returns. We have hundreds of dollars coming in from each property every single month.
After the refinance we were feeling confident (overly). We were ready to implement our first direct mail campaign – tomorrow’s topic and post!
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