The Kaplan Project

I bought my townhome on Kaplan Drive in November 2015 for $145,000.  It has 4 bedrooms and 3 full baths and is on NC State University’s free busline – the “Wolfline”.  Sadly, it was an estate sale – and there had been some offers before mine, but nobody was willing to come up to $145,000 which was the seller’s bottom line.  In this complex, there were many 2-3 bedroom units, but a 4 bedroom unit was very rare.  The top floor had been a finished attic that the prior owners had converted to 2 bedrooms, but never permitted.

The surrounding 2-3 bedroom townhomes were renting in the $900-$1100 range, but I knew I could get more than that by renting by the room and doing individual room leases.

After I closed, I put about $4,000 into the crawl space repairs to clean up the junk down there, spray anti-microbial solution on the wood beams, and install a vapor barrier.  My home inspector had found high humidity in the crawl space, which is basically the case in every crawl space in NC, but I wanted to go ahead and take care of it before I had tenants move in.  I also re-painted, which I did myself for a couple hundred bucks in paint and a few weekends.

I ended up renting it for $1800 to 2 separate groups of tenants.  In between the first and second group, I had laminate floors installed at the tune of about $8,000.  However, the kitchen really got on my nerves every time I saw it… the cabinets were grimy and outdated, the kitchen tile was chipped, the bathroom vanities were vintage… so I decided to pull the trigger on a major renovation of the kitchen and 3 bathrooms when my tenants moved out in June 2018.

I went about $10,000 over budget on this – half of which was to fix a problem that my contractor discovered by surprise.  Here is the break down of what I spent and on what:

  • General Contractor: $11,350.00 (This was for all the labor done on the project.  Re-tiling floors, demo’ing kitchen and baths, installing new kitchen cabinets and sink, installing new bathroom vanities, etc)
  • Kitchen Cabinets & Countertop: $2619.99
  • Paint: $2,557.96 (David & I painted most of the rooms.  This was for professional painting of the kitchen, entry way, and vaulted living room ceiling as well as some minor popcorn repair by the skylights)
  • Materials: $2,925.60 (This includes the ceramic tile floor in the kitchen and baths, Home Depot trips by my contractor, and 3 new bathroom vanities)
  • Appliances: $1,933.06 (Stainless steel refrigerator, dishwasher, and range/stove)
  • Piers/Structural Repair: $4,350.00
  • Total: $25,736.61

Before I get into the rent numbers, I am sure you’re dying to see pictures.  Here’s a couple before…

      

And after….

     

Rental Numbers:

Before Renovations:
-Purchase Price: $145,000 with 20% ($29,000) down.
-Mortgage Payment: $744.25 PITI
-HOA: $138
-Original Rent: $1800
-Cash Flow: $887.75

Before the kitchen & bath renovations, I had approximately $41,000.00 invested in this house.  Accounting for repairs ($100/month or $1200/year), 8% ($1728/year) property management and 5% ($1080/year) vacancy, my annual net profit was around $7,005.00.  When divided by how much cash initially invested, that gives me a cash on cash return of about 17% ($7,005.00 / $41,000).

After Renovations:
-Mortgage Payment: $744.25 PITI
-HOA: $148
-Rent: $2100
-Cash Flow: $1207.75

After the big renovations, I had $66,736.61 invested.  The HOA dues went up by $10/month but most other expenses stayed the same.  By doing the renovations, we were able to increase rent to $2,100.00 per month for a 2 year lease.  My new annual net profit is $10,485.00 which makes my cash ROI about 15%.

In between those two periods I did end up paying this house off, but for ease of comparison I kept the mortgage figure in there.  My ROI actually went down from the renovations, but I am not too worried about that.  There was a large influx of cash I made, and over time I will be able to pay myself back.  I don’t plan on such large infusions of cash into my Kaplan property any more after this.  There’s also room for future rent increases.

As the icing on the cake, the property also increased in value as a result of this renovation.  When I purchased for $145,000 in 2015, it actually ended up appraising at $150,000 – score! At this point in time, it is conservatively worth $215,000-$225,000 based on area comps and rental income.  While having that much equity in one property is super conservative, it is one of my financing strategies – meaning I can re-finance at any time and have the funds to buy more properties instead of going the traditional bank financing route.

I was super pleased with this project – I think it turned out really well.  Heck, the kitchen in Kaplan is nicer than the kitchen in my own house!

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