The moment has arrived. My favorite part in REI…
In fact, if you read about renovating properties, this can be quite fun!
I am very excited to say that the second renovation phase of RP#3 has finally begun!!! In this post, I will go through the nuts and bolts of the renovation and the deal itself.
I have bought this property more than one year ago, but at the time I only renovated part of it. This property has 6 different units and I only renovated two of them when I bought it. I rented out those two units quite fast, for a total of €515/mo, which eventually became €500/mo as some problems popped up in one of the units and I decided to lower the rent to keep the tenants happy.
You may recall that the cost of that renovation was largely undercalculated, and I ended up spending way more money than I anticipated at first. The first renovation covered two units and one common area inside the building.
The building is divided into two parts, each of which contains 3 units:
After the renovation, I decided to put off the renovation of the second half – or right half, in the figure above – of the building (and I actually ended up renting out one of the units as it was (LINK)). The main reason was to preserve liquidity. Now, that my real estate company did well, I decided to cash out some monies and go ahead with the renovation on the second half of the building. This second half is promised to be rented out to the sub-leasing company I work with, for €540/mo, which will be instrumental for me to hit €2,000/mo until the end of the year.
First, the costs:
- Labor: €24,000.00 (this includes renovating the facade, the electric part, plumbing and all the material for the walls and ceilings);
- Tiles, tubs, taps, vanities and what not: about €4,000.00;
- Kitchen cabinets and countertops: about €3,300.00;
- Windows and outdoors: about €2,000.00;
Total: about €33,300.
To pay for this renovation, I will withdraw as many funds from my RE company as possible. At first, I thought I could cash out €30,000, but due to the amount of taxes I will pay to do this, I will only be able to cash out around half of that (unless we have big sales until the end of the year). I am also relying on a €2,500 work bonus that I will collect by Christmas. At the end of it, I will have no money in the bank, which means that I will feel comfortable – remember, if you have money sitting the bank something’s wrong! 🙂
This is a building in the very center of a mid-east city in Portugal, with a very big and reputable university. The building is also relatively close to the university, so renting it out will be easy in the long run. Just to let you know, I wrote a post entirely on this unit a while back ago.
How much I spent so far
This has been my biggest deal so far, if we account for renovation costs. I have bought RP#3 for €31,500 but I was 100% financed. Here’s the rest of the costs I’ve had with this property so far:
- Closing costs summed up to €3,900. These were especially high, as closing costs in Portugal tend to be lower, especially if you’re 100% financed.
- Renovation cost to this day €26,600. Keep in mind I do clever renovations.
- Appliances and equipment €500.
- Total mortgage costs paid to this day €1,700.
Total invested to this day = €32,200.
Given that I will invest another €33,300 into this renovation, at the end of it, I will have €65,500 invested, and I will have a mortgage of €31,000.
As this property will safely yield €1,260 in December, we’re talking about a 23% cash on cash return and a 16% yield. I am not sure about you, but this looks like a great investment to me!
As I will write off the expenses with the renovation of the property, I will get, at least, 2 years of tax-free rental income on this property. This means that the 16% yield will be net. Well, to be fair, we need to deduct the property taxes and the insurance (together that is something like €500/yr). Therefore, the net yield is 15,15%. Still awesome, right?
Next year I will pocket €14,520 after all the renovations. I will get a line of credit on this property, of about 175k. On a 3%, 13-year credit line like this, I will pay €1,220 every month, which is essentially the rental income of the property. Note that, in the first year, €837 of the €1,220 is principle. After this, it allows me to have about 150k to go out for shopping. 🙂
Aspects of the renovation
I didn’t want to show much of the building online, but here it goes a little bit of unit. This is the lower unit of the right side of the building, which we just guttered:
As well as part of the 4th unit in the picture above:
We are still working on guttering it, actually, as we simply torn some walls down up until now. As you can see, they seem like a very small 1-bedroom (which in fact they are) that you would typically rent out to one student.
I have actually decided to start by tearing down the walls of every unit, so that we can plan the several rooms in a better way.
More to come soon! Stay tuned!