“Transformation is hard at first, messy in the middle, and gorgeous at the end.”

Robin Sharma

The Hard Part

Although it’s only been 1 year since we acquired our 2nd property, The Peel at Lexington, we have experienced a full life cycle of ups and downs, leaps of faith, tons of growth, and many triumphs along the way. To recap, here’s a summary of what we faced at the start of our journey with this property.

• The deal came to us from our wholesaler contact the same week that we closed on The Jefferson (in December 2020). Asking price was $65k. We offered $43.5k and it was accepted.
• The property is located in a working-class neighborhood just down the street from where we all grew up. Both units were occupied with no indication from the seller that the tenants were in distress.
• We were set to close at the end of January 2021.
• When we went under contract, our strategy was to let the tenants stay as long as they wanted (and stayed current on the rent). We would complete repairs and upkeep as needed, but reserve securing the financing and initiating the effort for the major renovation after they chose to leave the property.
• After we received the results of the inspection, however, we were able to see the extent of the distress the property was in. We knew it needed work to make it stylish. In actuality, it was… deplorable! There was no way we could sleep at night knowing that people lived in those conditions in a READI-owned property.
• With the Jefferson remodel underway that we were already securing bridge funds for, we had a strong feeling that trying to get financing at the same time for the full scope of The Peel would have been a stretch.

The Messy Part

Real talk… Nothing in textbooks, webinars, or courses could have prepared us to manage what we faced at the beginning of this project. Standard Operating Procedures simply don’t exist in the world of real estate investing. Nothing is truly known until you actually “do” something.

Here’s what we did.

Think Outside the Box… then give it a shot!

Financing

We knew we needed time to secure financing, renovate the property, get it rented, season it, and refinance it before the loan came due. We also needed time to figure out how to remodel the property, find contractors, get quotes, prepare a scope of work to submit for financing, and go through the financing process ALL before our closing date. We also knew that only one of those approaches could exist… but not both together.

With time being the essence, the solution we came to was to ask for seller financing. We offered $15k down, 6% APR, an amortization schedule of 25 years, with a balloon due at 18 months. This would allow us to give sufficient notice to the tenants that, after 3 to 6 months, we would not renew their leases (both were month to month). When the properties were vacated, we could figure out what would be required to bring it up to our standard, secure financing, complete the remodel, find a tenant, and season the property.  

Even though this was a wholesale deal where he was promised a quick, cash sale (Not our terms. That was on the wholesaler.), the owner accepted! Because he was motivated to just get rid of the responsibility of the property AND we offered specific terms and a clear, timely exit strategy, it was a win-win for everyone involved. 

Property Management

Originally, our property management company that had signed on to help us with The Jefferson had agreed to manage The Peel. However, with the eviction moratoriums in effect at that time and the change in execution strategy to terminate the leases with the tenants, they decided it was best to wait until the remodels were compete before they took over management of the property.

So we had to undergo a crash course in property management – laws, lease documents, abandonment, break-ins AFTER we had deemed the property abandoned, non-payment of rent, etc. We’ll share the details of that experience later. To make a long story short, we aren’t ready to add property management to our list of service offerings yet 😆

Remember that Faith > Doubt

Most of the homes in the neighborhood where the Peel is located are valued below $50k. And before we forced the enhanced valuation with our remodeled property, there were no comps in the neighborhood for investors to reference for a potential After Repair Value (ARV). Therefore, there was no incentive to inject a lot of capital into a property in that area because there wasn’t hard evidence to show what a profitable ARV would be.

We had to create it… So we did 🙌🏾

Using our purchase price, plus the estimate of the full remodel effort to bring the duplex up to stylish, safe, quality housing, we told the bank that, at a minimum, that is what it should appraise for. It would have been nice for the sum of those 2 values to equal 75% ARV. But when you don’t have an ARV to work with, you’ve got to do what you’ve got to.

It worked! The appraiser simply went 4 miles down the road and had no trouble giving us the valuation we needed to secure the financing. Sure it was a risk… most gurus mandate that new investors only target neighborhoods that are already at the ideal price point and find an undervalued property there. But the value add has to start somewhere. As scary as it was to push forward without any certainty, our faith pulled us through and we pulled it off! 😊

Don’t Quit

From contractors “passing” on work for our project due to it’s location (even though they had done work for us at The Jefferson)… to the aftermath of the great southern freeze of February 2021 preventing our tenant from having running water for 2 weeks… to our remodel coming to a complete halt for 3 months due to our painting contractor falling really behind… to The Jefferson refinance and The Peel construction portfolio loan closing 3 days before our 1st hard money loan was due… we had a number of times during this project where we questioned our sanity 🤪.

But we never quit.

Now we are on the other side… with a completed unit that is leased to a quality, working class tenant, with equity and wealth building potential added to a neighborhood that others were content to leave in distress, and with a community excited and proud about the new, nice house on their street.

The Gorgeous Part

If you’ve reached the end of this lengthy tale, I’ll keep this part short and sweet. Here’s our blight to bright before and afters. Enjoy!