Intelligent Investing with Glenn Leest

Glenn’s First house renovation project updates 11.22.22

November 22, 2022 Season 1 Episode 56
Intelligent Investing with Glenn Leest
Glenn’s First house renovation project updates 11.22.22
Show Notes Transcript

Glenn’s First house renovation project updates. Where are we at in the process and what does the next 3-4 months look like?

 

What is a renovation loan?

What resources have been helpful for me during this process?

How to pencil out if the project will be successful or not. 

What things are out of our control and what things can we control in a project like this?

 

Glenn Leest

Senior Investment Adviser

928-225-2474 Office

INTELLIGENTINVESTING@WTWEALTHMANAGEMENT.COM

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...

Welcome to Intelligent Investing with Glenn Leest. It is the, uh, week of Thanksgiving. I'm going to give you guys a quick update on what's been going on with my house build and the construction project. Um, going to be a lot of fun talking about, uh, all the things that we're doing over there. So stay tuned.

 

Going to be a great episode of Intelligent Investing Today.

 

All right. I kind of want to let that music go a little longer. It's like my rock music for the day. All right. Welcome to Intelligent Investing with Glen Le. It is, uh, the week of Thanksgiving. I wanted to give you guys a quick update. Um, I told you, I'd give you kind of updates along the way on my building project that I have.

 

The, um, house that I bought behind me, um, back in September I bought it and have been doing a lot of the demo work and been getting kind of things in order, um, for the renovation phase of it. So kind of with where we're at right now with the house is, I've probably got maybe another. Two to three weeks worth of demolition, uh, worth to do.

 

Um, and when I say demolition, that, that, that is, uh, means we're taking everything down to the studs to the wall. So we're pulling off all the drywall. We have already pulled off all the fixtures, um, pulled off all the door jams, everything we're, we're taking it down to the, uh, the studs. Um, and, and one of the reasons why we wanted to do that is because it's an older house and I just didn't know what I was kind of getting into and I really wanted to make sure.

 

That I knew what the electrical was like, what the plumbing was like, what the insulation was like, and it was kind of older drywall. Anyways, it had been around for like 50, 60 years, um, in this house. So I was like, well I'm going to need to pull off the drywall, um, take it down to the studs, you know, because we're going to have to get to anything, everything anyways.

 

But in the process of doing that, um, one of the things that, that was interesting that I found out is the entire house didn't have any exterior insulation. So usually when you have the outside wall, um, there's the two by four framing, and then in between that is usually some sort of insulation. And then you have the, uh, the drywall and on top of the drywall is all your, you know, your internal, uh, wall stuff.

 

So you know all the walls on the outside of the. I was, you know, I popped open the drywall expecting to see a bunch of insulation in there, and there was none. And so I kind of chuckled and thought to myself, well, that's probably why this house is so, so cold, is there's not any insulation in there. So, um, as part of the, the renovation process, obviously we're going to put insulation in there.

 

And so I don't know if it was maybe in the 19th. Sixties when this house was built, that they didn't have the same codes for insulation. Um, no idea. But we're going to go ahead and, and put the insulation in. So, uh, as we're going through the house, you know, we are taking everything down to the studs. Um, so we have to pull off the drywall, pull off all the nails, pull off the ceiling.

 

Uh, we're, we're taking everything down. Um, we may even take the floors out too, but we haven't got there yet. The floor seem like they're in pretty good shape. I may just resurface those. Um, but as part of the project of getting everything down to the studs, it's. Create a lot more of a, you know, kind of like this said, open blank slate for the house.

 

So that way we can look at it and say, well, how do we want to configure this? Do we want to reconfigure any of the rooms? Do we want to, um, expand any of the rooms, make them smaller, make them bigger. Push out any of the walls, which is exactly what we're going to be doing with the house. So, um, this house was built, like I said, in the 1960s and it was very boxy, um, inside.

 

So they have like walls separating each of the living areas. So, you know, there's a wall separating the kitchen, the dining room, the living room. They're all kind of like, Boxed off. So as part of taking it down to the studs, obviously we're going to remove those walls. Um, with part of that, we have to obviously make sure that they're not load bearing, and if they are, we have to put in a new beam to, to account for the load.

 

So that's going to be something we're going to be working on the next month. But right now we're just kind of doing demolition work, pulling off all the drywall, which is actually a lot, bit of work. Um, I thought it wasn't going to be as bad, but we've been hitting it, you know, every day, a couple hours, and then on the weekends and, um, we filled up.

 

I. Three 40 yard dumpsters already and we got maybe another one that we need to fill up. So it's, it's a pretty messy and intensive process. So, um, as we have everything completely down to the studs, um, which we're going to have to, like I said, we're going to have to do that no matter what because we're going to replace the plumbing, electrical, and all that's inside the walls.

 

Um, we may do some reconfiguration of the house itself. So that's something that was actually exciting to me. I was looking at the house plans, um, earlier. Last week. And I thought to myself, well, um, should we take one of these bedrooms and, and knock down the wall and make it a bigger living area? Um, because the way the house is structured, it's a two bedroom, one bath, all on one floor.

 

Um, but there's like a little attic space up above on the second story, but it's unfinished, uh, unfinished. There's nothing up there really. Um, so we were going to actually finish that attic out and make it a bedroom. So technically if we do that, it'll be three bedrooms. Plus an attic, there'll be a a half bath.

 

So it'll be actually be going from two bedroom, one bath to a three bedroom, one and a half bath. So with that thought in my mind, I said, okay, well should I scrap one of these, these rooms in the actual main floor to make room for more living area? Because I was looking at the floor plan in the house and thinking there's just not a lot of space to live.

 

Um, and then, you know, you don't live all your life in your bedroom. You know, a lot of it's in the living area. So I think that's what we're kind of going to be looking at doing. We're meeting with a contractor and interior designer to kind of shore up those plans. But that's kind of the status of where we're at.

 

Um, we, uh, have to take down some of the, the back patio. There's a back patio and front patio that are kind of dilapidated. So we'll, we'll be doing that demolition, um, as well. And I, I'll probably, we're going to replace the roof so there's another, you know, couple weeks of demolition to just, uh, remove the, the roof.

 

Um, and get it ready for it to be reroofed, um, by the professionals. So, um, that's kind of the status update of where we're at. We're still very deep in the demolition phase. Um, but, but as part of going through this, this whole process, I actually got connected with one of my, um, clients who does real estate, um, mortgage lending and, um, We're looking at doing what's called a renovation loan, um, for this project, which is kind of interesting because um, I don't know if you guys recall previously this, this house could not get traditional lending because the nature of the work, um, what it needed, it didn't have any central heat, it needed a new roof.

 

So, um, just banks didn't want to lend on it. So I had to go private lending, um, which was a lot more expensive of an option, but at least I got the deal done, got it happening, and um, now I'm looking at doing what's called a renovation loan. So, What a renovation loan is, is basically I want to refinance out that first mortgage and, and the person who fronted me the money want to get them their money back, get them paid off, get them done, and um, be able to also get some more capital too, to finish the rest of the project because the rest of the project is, um, You know, on the low side, another 200 on the high side, another 350,000 of work.

 

And so that's, that's quite a bit of money. And, um, if, if money wasn't an issue, like if it wasn't an issue as far as like, Hey, we have all the cash now. I mean, it's a six to nine month project, but if I'm paying cash as we go, It may be a year, year and a half, two years, you know, if I'm cash flowing it out, you know, all throughout the process.

 

So I'm looking at that renovation loan because the way the renovation loans work is they will, um, finance you for whatever you need to pay off that first mortgage if there is one, um, you know, through private lending. And then they'll also give you some capital. To do the actual renovation process itself.

 

So, um, the, the renovation loan, you have to coordinate very, um, intimately with your contractor. And the contractor has the bid for the, the work they're going to do and the scope of it. And it's all detailed. Floor plans, costs, all that. And then that gets submitted to the, uh, underwriting for the mortgage company.

 

And then they take that into consideration to say, okay, we're going to. You know, finance enough money to pay off the, you know, the first mortgage plus give an extra, say, $200,000, you know, on this mortgage to, uh, do the renovation project. Um, and, and the, the, that capital goes directly to the, um, the contractor, you know, as like as draws.

 

So all throughout the year they get kind of, Paid from this loan. So it doesn't necessarily go directly to the, the, um, person getting the renovation loan. So that's, that's the one caveat. Um, but the, I, I never even knew a renovation loan existed until I was talking with one of my clients. Um, and I think we quoted the other week, we were looking at my renovation loan.

 

It was like eight and a quarter percent interest, um, which is high, but my current rates right now, On the regular note is 10. So my thought is, well, eight is better than 10 plus. The, the way the current note is structured with the current, um, uh, lender is it's a balloon payment, meaning it's, it's pretty much interest only.

 

And then I have to pay the entire amount a. All upfront in order to, uh, to satisfy the loan. So quite a bit of money to, to pay all up front. I mean, so I'm pretty much just paying interest until I can get it refined. Um, because a traditional loan, if you do a, a lending on a house, you can pay extra, you know, and pay down the principle as you go.

 

Whereas with that current loan that I have, it's, it's just balloon payment only. You know, I have to pay my interest payments every month, but then the only way I can actually. Partial payments. And so it's like you got to pay off the entire principle. So that, that renovation loan is actually very interesting to me because that will provide a, a better path forward to be able to have the capital to finish the project, to complete it, and not have to strap myself so thin on the cash.

 

And, and part of the, the things that I did too is I did what's called a comparative market analysis. I had one of my clients, um, good friend of mine, um, Billy McGraw. She, she's amazing. She actually, um, Went in and did what's called a comparative market analysis, where she looked at that property that I had bought and said, if you do all this work and if you bring it up to this level, what would it compare at as far as comparable?

 

And so we looked at that number. And really kind of backed into the deal from there, because what we want to do, so here's some kind of some figures. So, um, bought the house for 200, um, sorry, two 20, bought the house for two 20. Um, first leg of the renovations is probably going to be another 200. So, you know, was it four 20 plus, whatever work I do.

 

Um, and then in the second phase, probably going to be like another a hundred, 150. So, All in at the end of everything, we're probably going to be in the mid five hundreds for this project. And so we did the comparative market analysis and said, Hey, if we do phase one and phase two, um, which phase two is actually going to going to be converting the garage and the upstairs living, uh, space above the garage into living space as well.

 

So it'll be like, uh, Four bedroom, two bath, four bedroom, three bath sort of thing for the whole house. So, um, we did a comparative market analysis and said, Hey, if we do all that work and this is the square footage and based off of your neighborhood, what would it go for? And it was like that six 50, $700,000 range.

 

So what that tells me is, is that the comparative market analysis pencils out that, you know, the work is going to be worth it, you know, is what it comes out to. So, um, what you don't want to do is spend. Buy a house for 600,000, spend $200,000 in upgrades, and then the house is still worth 600,000. That's what you don't want to do.

 

You want to get a return, especially if it's an investment property, you want to get a good return on your investment. And so doing a comparative market analysis, we just did that like a month ago, and so prices have already started to cool off and we accounted for that as well. So, um, one of the biggest things I need to do with this project is making sure that the.

 

The costs are as reasonable as possible, um, for all the work that we do, um, because it's getting more and more of a tight real estate market. And what we don't want to do is put in 800, $900 million into our project and it not even be worth that. That is just. That's not what anyone wants to do. So you really have to be sure to when you go into a project like this as to if you have a real estate contact, is to call them and say, Hey, um, you know, we're looking at this property if we're to do X, Y, and Z, and it was all upgraded and looked nice and, you know, uh, landscaped and amazing.

 

What, what might it sell for? And then from there you can say, okay, well you. If we did all that work, it would sell for X and if we bought it for Y and then we just need to make sure that our renovation budget is, you know, within those, those, those two numbers. And then there's a profit margin there. So, um, that's kind of where we're at with the project.

 

Um, I, uh, been going over, like I said, every evening on the weekends, um, whenever I have a spare time, just kind of busting stuff up, getting it ready. And then, um, hopefully the start of the year we'll be able to actually start the, um, construction of actually building things, uh, back up again. Um, so I'm not, I'm not in too much of a rush during the holidays cause I know it's another month, month and a half of demo work before the contractors are even ready to come in and start rebuilding it back out.

 

Um, It's been an exciting project so far. Learning a lot. Um, I'm finding out that I'm capable of a lot more than I thought I was. Um, I grew up not really having any kind of, um, handy skills. Um, I didn't have like a dad showing me, here's how to swing a hammer. Here's how to change an oil. And so that's been a very challenging spot for me, you know, as an adult is I just, that wasn't the skill set I had.

 

I mean, when it comes to people and money, You know, all the other things, you know, I've got those skills developed, but, you know, talking about, you know, switching out a light switch or, uh, you know, um, fixing the plumbing underneath a sink was always kind of like scary to me. So this project has really kind of helped me build my confidence in that area because it's not just me, it's me and my dad.

 

And, um, we're able to actually, um, work on it together and, and it's stepdad. So later in life he came around and so he's been really kind of helped. Building those skills of mine as well, because he is actually very good at that stuff. So, um, that's been the exciting part of the project, is just learning more and growing and things that I.

 

Maybe didn't think I could do. Um, I'm actually surprised that I, you know, I'm able to do some of it, um, or more of it. I mean, I'm not going to , I'm not going to frame an entire house and build a house from scratch. I'm not there yet, but at least some of these small little items, these demo works, you know, some of the planning, some of the configurations, I've been actually very excited with the whole project.

 

So, um, it's, it has been also very, a little bit nerve-wracking too, um, because there is definitely a lot of risk there. You know, we're. I'm doing this project going into a declining market, and so I have to always keep that in the back of my mind is I got to keep cost down, keep cost down, and keep cost down because that's the one factor I can control.

 

I can't control, you know, what the housing market flags have going to look like in, in, in a year or two years, but I can control how much I'm spending as far as cost, and so that's why I've been doing a lot of the work as I can myself. The demolition work. Cause it was going to need to be done regardless. And so if I do it and my dad and I do it, you know, we can save a significant amount of labor and costs, um, to do it ourselves.

 

And then all the things that we can't do, you know, obviously we'll hire out, we're going to hire an electrician and plumber and all that, and a contractor. Um, but some of these things, you know, we've been out there doing. And, um, it's been very cold over there for sure because as I've been pulling off the, um, the, the, the drywall.

 

There's even less, uh, less barrier between the house and the outside. So it's been very cold. I have like a little, uh, thermometer thing that I have in there, and then I also have a, um, carbon monoxide detector in there, just in case. But I was in there the other day and it was like 32 degrees, 33, and so I turned on like the little space heaters and it got up to like, 39, 40

 

So it's uh, it's been cold over there swinging a hammer. You know, when it's, uh, when it's cold like that. But it's been fun. Um, been working on the project. Um, we're going to start doing some landscaping in the backyard. That's also exciting cause it's got a huge backyard. Um, so we'll be, that's stuff that I could do for sure.

 

You know, I can, we can buy a chainsaw and start chopping some small trees down. Um, the big stuff, obviously I'm not going to take down the big trees, but some of the smaller ones, I think some of the trees on the side of the property had what's called intrusive roots, is what my wife was saying. And so they, they tend to, um, be really destructive towards the, the plumbing if they go too far.

 

So, um, since it's on the, the property, the, the investment property, but also shares our, our normal property, you know, we're thinking let's just take those trees out and we can replant something different that's not as intrusive. So that's kind of the status update of where we're at. I've been learning to.

 

Call and ask for help more. Um, I've got, actually got a lot of great people that I know and contacts and so that's something that I've been trying to leverage more is just saying, you know, Hey, um, can I buy a cup of coffee or can I, you know, pick your brain for five minutes on the phone? You know, I've got a question about how this works and I know you're really good at this area, or you've done this before, or, you know, whatever it may be.

 

And so that's something that I'm just learning through the process too, is being able to, Call and just ask, you know, and the worst that someone can say is no, um, sorry I don't have time. But the best they can say, sure, what, what can I help you out with? And I think most people, they, if they, if they know you and have a good relationship with you, they want you to be successful.

 

And so they're happy to give you some pointers. I mean, even when I first got into the investment, Industry. Um, I sat down and talked with my friend's dad who'd been in it for like 20, 30 years, and I just asked him, Hey, what's this industry like? What should I expect? What do you like about it? What do you not like about it?

 

You know, you've known me for 10 years, you know, do you think I would be a good fit? All these things. And he was very candid and, and really helped me, um, answer a lot of those questions and. He just wanted to help. And so I, I definitely would encourage people, um, if they're kind of embarking on some of these new things, is finding out who can be those resources in their corner so that they can call, that they can contact, reach out to, and that are willing to help.

 

Um, and, and, and there's only, you have to also, Uh, understand that you can only ask for so much help, you know, until you have to start paying someone. So you always have to be conscious of that too. You don't want to be calling someone every second of every day asking for help and then not expecting to compensate them for their time.

 

But, you know, here and there, a cup of coffee or a conversation with someone that's a professional that can really help, I think will go a long way. So with that, um, hope you guys have a great rest of your day. Um, feel free to, um, like, subscribe. We've got some other episodes. Getting posted about the stock market, what's going on, the economy, everything else as far as the world.

 

And, um, just want to do a fun episode today talking about my renovation project. So with that Intelligent investing with Glen Lease signing off, have a great day.

 

Hey, thanks for listening to Intelligent Investing with Glen. If you like today's episode, please make sure you like, subscribe, and if you want to give me a call, love to talk with you about investing and how we can help you become the most intelligent investment investor possible. So number here is 9 2 8 2 2 5 2 4 7 4, or you can email me at Intelligent investing@wtwealthmanagement.com.