If you have followed my 5 part series you would understand the process, costs, and complexities it takes to buy, rehab, and rent a rental home. I am going to summarize the process and completion along with expenses so that you get a real understanding of what it takes to invest in property.
Summarizing quickly…I purchased a home in a downtown Tahoe town with great restaurants, walkability, and location. It is not a joke, location, location, and the location is huge with rental homes! I picked up the home for $510k right when Covid was freaking everyone out. I usually purchase when others are suffering because prices go down and people get desperate. So $510k for this home was a steal. Using a margin loan, I paid cash for this property which makes the entire process fast and simple. Margin loans are about 3% which is cheaper at times than a mortgage.
Next, I found a local building contractor via referral, made sure he understood that all I want is honesty and quality work and we started the process of rehabbing the home. (An honest contractor is very important; you want to know the truth about issues, time tables, and billing). This home is not only zoned residential but commercial too, which is a bonus. It was used as an office when I purchased it. The plan was putting $60k in for updates, repairs, material, and knowing from past projects that I would probably bust that budget. I was right…I ended up spending $100k in rehab costs which also includes insurance, property taxes, etc. But the quality and durability of these updates will increase the home’s value and rentability.
So, with a total of $610k into the entire project, I created a cute downtown home that gives me an option of either selling or renting. My realtor gave me an estimated sale cost of around $715k which makes me comfortable if I wanted to flip. I do not..this home will be an easy rental for a lifetime.
Renting this home, I went on the high side of the market rate. I knew the pricing is higher than most homes but I am providing a completely new place with a great location that also gives renters a “Covid escape”. After much interest, I ended up renting the home for $4000 a month and the tenant furnishes and takes care of utilities. That is $24k in 6 months and then I can re-exam if I want to long term rent or Airbnb the property.
This home will pay itself back in the long term. And that is the MOST important thing to remember when investing in properties. You have to think about real estate like a stock or savings account. The home is always worth something if you need to sell. Property always goes up in the long term and investing in a home or building will increase in value over the long haul. Look away from the HGTV quick buy and flip programs because they are not showing the real-time, cost, and energy it takes to buy, rehab and sell or rent a home.
So you want to get into real estate? I will not sugar coat it, it can be hard, expensive, and especially nerve-racking if you are pushing your financial limits. I have learned over the years with other projects the ins/out of what it takes to do these types of projects. In the end, I love the ability to bring back to life an old home or building for someone to live in comfort and security. I am also dumb enough to take those risks!!