As we know, there are known knowns. There are known unknowns; that is to say, there are things that we now know we don’t know. But there are also unknown unknowns – there are things we do not know we don’t know. —Donald Rumsfeld

Over the next few weeks, I’ll talk more about the processes we went through on the Tudor street property.  But today it’s time to talk about where we are.
The first time Mitch (that’s the realtor I bought Tudor through) and I walked through the house I said two things: 1 wow, this needs a lot of work; 2 it’ll take right around $120,000 to put back together.  And with that 20 minute visual inspection and a few pictures we went on to the next house. 

Well, last Monday we finished construction and spent two days on clean up.  Thursday we took pictures and either today or tomorrow we are listing the property.  Not bad considering we started work January 6.  The contractor thought we could get the project done in six weeks.  So I gave him seven before any penalty kicked in and he got it done with a whole day extra.  But considering the size and scope of the house I’m not complaining. 

Let’s break down the numbers

The biggest variable in a project like this is construction cost.  Or unknown unknowns.  We had a few on this project, but there is a great deal of value in having a little experience.  Our original bid for construction was for $96,000.  I got him down to $93,000 (hey, a thousand dollars is a thousand dollars).  And, by the time we were done with fixing the unknown unknowns (and putting in $6,000 in appliances) the renovation on this property cost me $115,500.

What had I told Mitch in an off the cuff statement?  I could do the place for $120.  Not bad. 

Comps in this type of neighborhood are a little subjective.  That’s one of the fun parts of real estate.  All the “gurus” say you make your money when you buy (you have to buy right) but really, you don’t actually know what you’re going to make until you’ve sold.  You can buy right and still mess up.

Anyway, comps range from $570 to about $650.  There are a few listing comps in the higher sixes but I’m not sure if they count.  Now, the location is a little rural.  I think some comparable listings are a little unrealistic.  Also consider, I only make money on the next house if I have money out of this (or another) house to go again.  So, I can’t afford to shoot high and hope.  I have to turn the place over and buy another property.  I am listing right at $570,000.  I’m probably not going to come down off of that too much and it’s possible I could have multiple offers.  And right now, that’s more important than the extra 20,000 I might make if I hold on for another four months. Because how long did this house take? Less than that to put together.

So let’s add everything up

  • Bought for: $288,000 (I think.  Maybe it was 286.  I’ll have to check)
  • Repairs: $116,000
  • Sales price: $570,000
  • Potential Gross profit: $166,000

Now, out of that we are still paying realtor fees, closing costs and financing fees (ya I didn’t buy this one in cash). So, that’ll eat up a little here and there.  I also haven’t included utilities, insurance or property taxes mostly because I haven’t figured them out yet. 

But, it looks like even if I have to dump the place I should have enough equity to get out at break even.  These numbers are all good, but they mean nothing until the place sells. 

The listing isn’t up yet, but see the finished pictures here.  It really did turn out pretty nicely.

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[Do you have real estate investing questions? Ask Kosen below. He’s happy to help.]