This afternoon I went over an looked at the property I’ve been watching for a few months. From the outside looking in, it appeared to be a rehab project that simply ran out of money. It’s typically opportunities like this that widen the margin on a deal, as most of the expensive stuff has already been taken care of by someone else.

Walking in through the front door, it was evident that the place had been lived in since the renovations took place. The carpet was dirty and stained, and there were remnants of belongings (crayons, broken pencils, etc) left in the kitchen drawers.

The walls in the front living room were cracked (as they typically are for the area) and are in need of a patch job and paint, but all in all it didn’t look too bad.

The basement reveals all.

Then I took a trip down stairs. The basement will always give you an idea of what’s really behind the walls because it provides the most access to the structure.

The plumbing had been redone fairly recently, as the new-style PEX (essentially plastic) plumbing that all the new houses are being built with today was running among the floor joists on the ceiling. The electrical had evidently been redone recently as well, as the 100 amp breaker box still shined and the wiring still looked new.

The furnace and hot water heater were new within the last couple years, so there wasn’t much risk in all the basic services and utilities.

A quick look between the joists and everything went south. About half of the joists were brand new, indicating to me that someone really did an overhaul on the major structure. It’s not easy to just replace a bunch of floor joists, especially on the lower level, as these joists typically bear the load for the rest of the structure. Replacing them is like swapping out the bottom level of blocks in Jenga. It’s a very delicate procedure that carries significant risk. The question then becomes: why were they replaced in the first place?

At first, it appeared that the sub floor was rotten. Perhaps water damage rotted the floor, and while the floor was being replaced, it was a good time to replace some joists that were over 100 years old. My curiosity kicked in, and it was while digging around in the rotten floor that I noticed that this was no water damage, this was termite damage!

Termites had turned the old sub floor to a fine dirty powder in most places, and a soft wooden sponge almost everywhere else. Yikes. I was starting to become deterred, but not completely put off. I could pull the carpet up (it needed to be replaced anyway) and replace the rest of the sub floor, no problem.

One thing about termites, though, is that if they had enough time to chew out an entire floor, chances are they didn’t just quit eating after the first coarse was through.

Back on the first level, I noticed there was a small hole in the wall in a lower bedroom. I stuck my finger in the hole to see if the lathe was still in good shape. I ended up poking at a dry spongy material inside the wall. What once was the lathe behind the plaster was now leftovers from the termite feeding that I was now standing on.

The entire structure of this house had been dissolved from the inside out by termites!

If it weren’t for the termites!

The house had so much potential. All the expensive components had been fixed, remodeled or replaced. All it needed was carpet, a few patches in the walls and a fresh coat of interior paint… and oh yeah, it needed to be gutted and rebuilt.

There is now way my conscience would let me rent this place out to college students knowing there were some major structural problems with the floors and walls, and completely re-doing the structure would not leave me with enough margin to rent.

Oh well, there are other fish in the ocean, and I can afford to be picky.

Real Estate, Rehab Projects, Rental Property investment property, Real Estate, rehab, rental, termites

I’ve been casually looking for another rental property next to the one I already own. For a long time, the people in the area have been very proud of their houses, asking nearly 5 times what they’re actually worth. Needless to say, those houses are still on the market, many for as long as 15 months and counting.

But there is one property just a block or two away from my first one that has been on the market for 4 months, and its price has been dropping like a rock. The reason? The bank wants out!

I remember back when this property was on the market the first time around, and was purchased for nearly $100,000 by someone with intentions to rehab it. Evidently, they got half-way through with the job and ran out of money. The foreclosure process began and the bank ended up with their very own, half finished rehab. Just what they wanted, I’m sure!

The initial list price was $89,900 and has come down $10,000 each month for the last three. The current list price is $59,000 but I’m sure the bank would take less if the terms were right.

I’ve got an appointment to take a look in the property on Saturday, but I got bored today and started snooping around outside and looking through the windows.

The stucco exterior is in good shape and has been recently painted. The windows look brand new all the way around, and with the exception of a couple of torn screens, won’t need any work.

The bushes in the landscaping have died off due to neglect, but it wouldn’t take much to spruce things up.

The air conditioner looks fairly new, as the finish on the side of it is still shiny.

The property lacks guttering all the way around, but it wouldn’t take much to fix that. The last guttering job I had done ran me $800, but I wasn’t terribly pleased with the workmanship.

Peaking through the windows, the kitchen has been completely upgraded with new tile and counter tops all the way around. It’s not contractor-grade stuff either, which may explain why they ran out of money during the rehab!

The carpet in the lower level looks like it needs to be replaced or at a very minimum steam cleaned, and there are a few holes in the drywall, which is an easy fix. The original trim is still intact and has been recently painted, but I’m not a big fan of the pinkish color.

Naturally, I wasn’t able to see the bedrooms in the upper level, or the basement.

A few things I’ll be on the lookout for on my visit Saturday:

1. The condition and extent of the electrical wiring.
2. The condition of the plumbing. Anything but newer copper could pose a problem.
3. The condition and structural integrity of the foundation. The stacked-rock foundations in the area are fairly robust, but this is a major area that could bust a deal really quick.
4. Overall integrity of the structure. Drywall I can handle, major structural issues, not so much.

The property is in a better part of the neighborhood than my first rental, but it’s also further away from the local campus.

More to come…

Investing, Real Estate, Rehab Projects, Rental Property foreclosure, investment property, Real Estate, rental propert

One challenge facing rehabbers of older houses is whether or not to keep the old plaster and lathe or replace it all with drywall.

It really depends on what kind of feel your shooting for, and whether or not you want to keep some of the charm of the old house in place.

In the case of my first rehab project, the entire house had plaster walls, most of which was overlaid with wallpaper and painted several times. Older techniques used to wallpaper over plaster leaves two sheets of wallpaper overlapping each other, producing a visible seam.

Since this house was destined to be a rental I chose to keep things simple and replace plaster where needed, cleanup the trim and give the walls a fresh coat of paint.

If your goal is to flip a house, you may want to spend the extra time to strip off the wallpaper and plaster any loose spots you may uncover.  In many cases this is easier said than done, and multiple coats of paint on top of the wallpaper compound the problem.  In the spots where I had to remove the wallpaper to get at some crumbling plaster I used a common wallpaper remover from the local hardware store.  Other products, like DIF work really well, and come in gel or liquid form (check out this forum for a discussion on the difference).

I found that hand-held steamers (like this one) work well too, and for really tough spots, use both the steamer and the chemical stripper.

Stripping out all the plaster and lathe will be very time consuming, and replacing it with gypsum board (drywall) may not be as cost effective as it sounds.  Personally, I like the appeal of the plaster in older homes, but if you’re stuck upgrading the rest of the house, the plaster walls may not fit with the modern upgrades.

Plaster is much more robust than drywall, and I found it very easy (yet messy) to use.  In addition, the lathe slats behind the plaster make it very convenient when hanging pictures, as you’re not hunting all over for studs.

Plaster ceilings are another story.  Remember, the plaster has to support its own weight, and depending on what’s above the ceiling (kids jumping on the bed in the upstairs bedroom) it may work it’s way loose because of vibration.  In my case, I had some places that were sagging, but decided that if they hadn’t fallen, I’d leave it until it got worse.  Working with plaster over your head makes for a long day, and an even longer shower.

When deciding which route to go, take into consideration the following things:

• The value added by replacing with drywall
• The time it will take to strip out the plaster
• The character of your house

Plaster is not hard to work with, if you can decorate a cake, you can plaster walls.  By the way, sanding plaster is never pleasant, so make sure you smooth out the ridges with a damp sponge once the plaster has set up for about 15 minutes.

Rehab Projects