Renovating a Foreclosure – Part One

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I can officially say… we are landlords!

This post is long overdue, and I’ve seriously been neglecting this blog but hey, life happens right? Now that we’re all stuck inside for the COVID-19 quarantine, I figured theres no better time than now to get back into writing my thoughts out for you to read than NOW!

And I know there was tons of interest over on my Instagram about this reno, and I promised I’d share it all with you here, so here you go!

Let’s start from the beginning, shall we?

I grew up in a house that was obsessed with HGTV, DIY renovations, and Scott McGillvray. My dad always said the one thing he wish he did while he was younger was get a rental property. I agreed this was a great idea, bought some books, then took a hard look at my financials and the income I was making at the time and thought there was no way that was ever going to happen anytime soon (wrong, it’s possible, but we’ll get to that later).

Fast forward a few years, living in Edmonton with my boyfriend where the housing market is much more realistic, we both had been talking for years about getting into real estate investing. Over the past year and a half we had gone to numerous showings, put in a few low ball offers, and became obsessed with learning as much as we could about the process, mostly through the BiggerPockets community (podcast, forum, books, etc).

Multi-family investing (more than one unit under one roof) is what we want to specialize in, specifically 8+ unit buildings, however for new investors it’s definitely a daunting project to take on for your first time investing. Especially because the budget we were looking at meant low-income neighbourhoods with really run down properties that would need a lot of TLC. Nothing wrong with this, but that type of project can quickly become bad if you don’t know what you’re doing.

We didn’t want to have blinders on just because a property wasn’t a multi-family, because we knew doing something was better than doing nothing. We wanted to get our feet wet and start learning as much as possible by getting our hands dirty. And of course, start generating some cash flow.

Rob found a bank ordered foreclosure property that was in pretty rough shape. It had just come on the market a few days prior, and we set up an appointment with our awesome realtor Justin to take a look at around 7:30 pm. Lucky for us, the electrical to the property was still on so we were able to see the property with some lights, however, they were very dim. So we viewed the details mostly through the flashlights on our phone. We were in and out within I’d say 30 minutes.

And that was the last time we saw the place until we had the keys…

I’m not joking. We got back to our place and talked over all of the work we could foresee the property needing. We already had our personal finances worked out so we knew how much money we had instant access to through our HELOC (home equity line of credit), and how much we were approved to get for a second mortgage so we did some rough estimates of what a reno would cost, what our ideal purchase price would be, and what our after reno expenses would be to see where the break even number was. The property was in really rough shape, it stunk of cat pee, and it needed to be basically completely gutted. We had never renovated an entire property before, let alone a bedroom, and we decided to go for it.

We inquired with our amazing agent Justin Griffith about the property on November 24th, saw the house on November 25th, and submitted an offer below asking, with no conditions, on November 28th.

We had been the “put an offer in on a foreclosure” route multiple times before, and it’s not fun. Foreclosure means that the bank has taken possession of the house due to an excessive amount of late payments. Typically they aren’t out to make a huge profit off of the property and are just trying to get rid of it for at the bare minimum what they’re owed, which means there’s not always a ton of wiggle room with them. Plus, they release all of the offers on the property to the public before making a decision on which offer they are going to accept, allowing time for new and updated offers sometimes for as long as a week.

This time around, we knew there were two other offers but didn’t know when they would be releasing what the offers were.

After what felt like an eternity, we were issued a court date. The bank’s lawyer would present all three offers to the judge, and would let them know which offer they favoured, and the judge would make the final decision. Court was set for the 18th of December.

After some back and forth with our realtor & their lawyer before the court date, we had a bit of a hint that our offer would be the one favoured…with a catch. The bank wanted to get this property dealt with before Christmas, and were wondering if there was any way we could close before then… they were asking for a week closing date (typical closing dates on regular properties are 60-90 days).

From the start I had a good feeling about this place, but after hearing that is when I started thinking hell yes, the universe is really working in our favour here. If we were to close on December 23rd, it would line up perfectly with both mine and Rob’s 3 week holidays, and we would have 2 solid weeks to put into the property right away before our vacation in Florida. And since we had our finances ready to go regardless, it all just felt like it was meant to happen. So we said hell yes.

They released everyone’s offers, and we saw the other two offers were about $20,000 below our offer. Unnerving? Juuuussst a bit. I was pretty confident neither were going to up their offer above ours, but we were a bit worried that we badly underestimated how much work needed done.

I attended with Justin to the court hearing on Monday December 18th and got to hear with my own ears that we had just successfully purchased our first rental property, and would get the keys in a week!

We were thrilled, and immediately got to work researching materials and making lists of what we needed, and scrambling to talk to our mortgage broker and lawyer to get everything in order for the following Monday.

Then, four days later, we were thrown a bit of a curve-ball. We found out we were pregnant! Definitely not the timing we were initially planning for, and all I could think about was holy shit how are we going to renovate an entire property while I’m pregnant?!

The following Monday came, we not-so-patiently waited to pick up our keys, went to the property and began the demo. You ready for the pics?


The Before:

The view when you walk in, and yep, thats water damage on the ceiling!

Stairway

Main floor bath

 

The kitchen!

And moving on upstairs…

2nd floor bathroom, not in awful shape.

Bedroom 1

This bedroom didn’t have half of a window, which wouldn’t have been a big deal.. if it weren’t for us taking possession during a month of -40C over Christmas .. we lost a couple hundred dollars in heat due to this since it was a custom window build and the window company was closed for two weeks for the holidays.. we stuffed the window with old carpet and covered with garbage bags but theres not much that’s going to stop the bitter cold from coming in!

Bedroom 2.. this room was interesting as you can see

The master bedroom, it’s thankfully a great size!

Master bedroom

Master bathroom

Now, I don’t want to judge, as I don’t know what the previous owners were dealing with here. But cleaning was not one of those things. For a foreclosure, it was in pretty good shape and nothing left behind which was nice, however.. it was definitely not clean. We waited until the end of the reno to clean everything, and dusted/wiped down walls as we needed to. But just to give you an idea…

The copious amount of cat hair in the window tracks

Plus, keep in mind here that I’m in my first trimester of pregnancy and was doing all I could to keep my gag refluxes in order. Thankfully since I was in the mindset of “I’m not living here so I shouldn’t be bothered by it”.. I was actually kind of excited to clean it!!


Here’s a list of what was needed to be replaced:

Main floor floors – the laminate was in pretty rough shape in some spots, scratched and pieces lifting.

Baseboards & trim – damaged from a previous pet, dusty and stained. We figured it’d be easier to replace it all.

Appliances – The fridge was at least 20 years old. The oven was in rough shape, and the dishwasher was also very old. For the area that the house was in, we knew we’d get a better return with updated appliances.

Walls – we thankfully didn’t need to rip any out, but we spent a LOT of time patching

Paint – desperate need of new paint to freshen up the space on the main floor. Upstairs, you’ll see that there was lots of artwork on the walls, and, well that’s just a given that it needed repainted.

Carpet – Also was in rough shape, we thought we could just replace the carpet and keep the underlay but after we ripped it up, we realized every room was marked with cat pee and stunk. So up it went.

Kitchen backsplash – They had some stick on backsplash up there that was not sticking nicely and just not ideal

 

And this is what didn’t need to be replaced, but would be nice..

Countertops – the countertops were in pretty good condition, but didn’t match the vision we had for the house

Cabinets & vanities – cabinets are expensive, so we said if we could find something cheap or an easy way to fix them up, we would

Toilets – they were from 2006, dirty, and just better peace of mind to have new toilets that we know weren’t going to clog and overflow causing water damage.

Faucets – definitely not needed, but again we wanted to upgrade to match our style

Bathroom tile – it was in good shape, but we wanted to update the look of the bathrooms

Linoleum – Technically we didn’t need to replace this, I don’t recall there being any damage, but it was just not nice looking.


Overall, for a foreclosure this one seemed to be in pretty good shape. Our plan for this place was to BRRRR it. For those of you who aren’t familiar with BiggerPockets, I highly suggest giving them a follow on IG, a subscribe on your podcast app, and your credit card number for their books. We learned a large bulk of what we know about real estate investing so far from Josh Dorkin, Brandon Turner & David Greene. While they, and their content, are American based, it’s still a fantastic set of resources for starting out!

BRRRR stands for Buy, Rehab, Rent, Refinance, Repeat. The Coles notes? Buy the property, reno it, rent it out, go back to the bank and say “hey, check out our property it’s worth a lot more now cause we made it look nice!”, get the money that you put into renovating the house back from the bank, and repeat the process. I highly recommend not just going with my Coles notes version though and picking up a copy of David’s book here. Another great Bigger Pocket’s book is this one.

Anywho, since we were doing most of the work ourselves, we wanted to salvage as much as we could to save costs, but had to find the fine balance between making the place look nice, and being excessive.

Luckily we got the keys at the perfect time, and since we were off of work and our families both back in Ontario, we had no Christmas plans. So we made our list of must-buys for boxing day and headed out to our local home improvement stores and raided their shelves. We ended up saving thousands of dollars buying the large items like our appliances, countertops, tile and needed tools on sale. We also hit up a popular home improvement store that was closing down across Canada and took advantage of their clearance sale for things like a ladder, cabinet pulls, and a jigsaw (the store was pretty bare by the time we got there, so very slim pickings!).

And then, we spent the next three months trying to figure out what the heck we were doing.


Okay, so at this point I’ve gotten you caught up on the before. But I wanna keep the suspense for a little bit! So you’re gonna have to wait a little bit for the “big reveal” (spoiler alert: theres pics on my Instagram).

Theres lots of tips and how-to’s that I want to share with you, and a lot of progress pics, and I don’t want this post to be a novel, so you’re gonna have to wait!

If you want to be the first to find out when the next reno post is live, subscribe to my email list!

Thanks for reading! Let me know in the comments what you’d like to know about the reno, and I’ll make sure to include it in upcoming posts!

 

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@caraodonnell_

I'm Cara O'Donnell – Your YEG Real Estate Specialist. I'm a mom, real estate investor, and licensed REALTOR® affiliated with the Müve Team – Royal LePage ArTEAM Realty, specializing in Southwest Edmonton. I can't wait to help you on your journey home, whether you're ready to sell, buy, or just getting started! 

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