It is has been a while since we did a video walkthrough of one of our properties, but back by popular demand, we recently launched one on our You Tube page and on this blog. These property videos give a sneak peak into what a finished product would look like. If you have followed us over the years, you know that our business model is to renovate houses so that our clients enjoy more consistent cash flow by reducing maintenance and vacancy. How is this done? Let’s take a look at how we reduce maintenance. On some of the items below, I broke out the cost of particular upgrades of the items we replaced. Notice how spending money can increase your cash flow and those upgrades are bought at a discount in the sense one would not be paying full price for that particular item because of leverage. While getting equity is always something every investor would like, that equity could actually cost you more if you are having to spend your cash flow on maintenance items AND pay an mortgage on the property.
Reducing Maintenance
— The first thing to notice when watching the video is the new roof. A new roof on your property purchase, according to the manufacture of the shingle, will be good for up to 25 years. Think about how many months of cash flow you will lose by having to replace a roof. Depending on the size of the house, a roof may cost you $4,000 to $6,000 (that is our in house wholesale pricing). If you are getting financing on your house with 20% down, a $5,000 roof only cost the buyer $1,000.
— As the video enters the house, notice the hardwood floors. They are refurbished with a coat of polyurethane. A refinished floor should last you 10 to 15 years, with only having to put down polyurethane every so often, which is very cheap to do at about .25 a sq ft.
— The kitchen is the next standout feature. We kept the broken tile flooring which is a common floor for houses in this era, especially this neighborhood. This type of floor is a landlord’s dream as it is concrete and virtually maintenance free. Notice in the kitchen the dishwasher, stove, fan, countertop and faucet are all new. New items = less maintenance.
— At the 1:06 mark, check out the white box under the cabinet by the pantry door. That is an washing machine outlet box to which your washing machine hoses are connected. In a lot of older homes, the pipes and valve are exposed on the outside of the wall and are very old. What we did here is install new supply lines and DWV (drain, waste, vent) pipe from the ground to the box and recessed this connection behind the wall. Not only does this protect the supply lines and valves, it also allows for the washing machine to be further recessed, thus looking better and saving space. Cost of this upgrade was $400. With 20% down, this cost the buyer was $80. Great way to spend $80!
— At the 1:15 mark, you can’t tell, but that electrical box is brand new as we upgraded from fuses to breakers. Fuses are outdated and will create extra maintenance or possibly even a fire if the tenant does not replace the fuses with the right AMP capacity. This is an upgrade of $1,100. With 20% down, it cost the buyer $220.
— At the 1:38 mark, notice the new faucet, new toilet and if the camera panned over a little more, you would see a new shower head.
— Throughout the video, you will see new fans and lights. Again, new is better.
— At the 1:51 mark, it may be hard to tell, but the exterior has been scraped and painted. You should get 5 to 7 years out of new paint job.
— At 1:57 you will see a new AC unit and what you can’t see is the new furnace and hot water tank. The combined value of those items at our price is around $4,000. Again, going back to the roof example, think about how much cash flow it will cost you having to replace those items within the first 15 years of your investment. With 20% down, those $4,000 in upgrades cost the buyer $800.
All of the big ticket items we replaced and even some of the smaller ticket items still had lifespan left, however, our business model is to increase cash flow. The only way to increase cash flow is for us to spend money while we are doing our renovation. As a investor myself, nothing is worse then having your cash flow go the other way to replace big ticket items or simple routine maintenance items on older components in the first several years of your investment.
Vacancy Reducing
This one is more straightforward. As a Property Owner, vacancy kills cash flow. When your home is vacant you will get prospective tenants visit your home, but they will visit other homes in the area too. That tenant is going to take into consideration price and condition. If your home is tired looking and dated and is priced within $50 to $75 of other nicer homes in the area, then you will likely lose out. Typically when homes are dated or feature no updates, that house will need to be at least $105 cheaper then the competition. Also, you are more likely to settle on a tenant who may not have as a great of an file because they are shopping for the cheapest home in the area. While $105 does not sound that bad, it can be a big number over an 18 to 24 month lease, especially if that comes with an tenant file who may not be as strong. Your goal is to provide a great looking property that will attract the most showings and the best applicants for your property. As you can see, our homes with upgrades such as ceiling fans in bedrooms, kitchens and living spaces, new appliances, brush nickel faucets, painted exterior, landscaping, new lighting, updated kitchens, etc. are positioned for success to find the highest rents and best tenant files.
The best advice I can give for a property owner is to make sure it is best positioned for success on the front end. Is everything 100%? Of course not, but your chances of having a successful investment or really any business, starts with how you position yourself from the beginning.