Podcast Summary: Real Estate Rookie – Episode: "How I Spent My $36K Home Renovation Budget for the Highest Rents"

Release Date: January 15, 2025

Hosts: Ashley Kehr and Tony J. Robinson

Introduction

In the latest episode of Real Estate Rookie, Ashley Kehr and Tony J. Robinson delve into the real-time journey of rookie real estate investor, Renee Hosman. Unlike typical episodes where investors discuss their experiences post-investment, this episode offers listeners an authentic, in-progress look at Renee's renovation project. The focus is on how Renee managed a $36,000 renovation budget to maximize rental income, providing invaluable insights for first-time and budding investors.

Renee’s Investment Portfolio and Acquisition of the Property

Renee begins by outlining her existing real estate portfolio, emphasizing her strategic approach to property acquisition within her residential building.

• Renee Hosman [01:24]:
  "This is a property across the hall from my very first property that I bought to live in, that I was doing a house hack in. It's a two-bedroom, one bath condo... I purchased the property for $190,000 using a hard money lender to match the original cash offer required by the seller."

Key Points:

• Renee acquired the condo through a first right of refusal clause in her building's agreement.
• Utilized a hard money lender to meet the cash stipulation of the probate-sale contract.

Renovation Timeline and Completion

The discussion progresses to the renovation phase, highlighting the timeline and Renee's ability to stay on schedule.

• Renee Hosman [02:45]:
  "We're completed with the rehab now... My original deadline was January 15th, three months, and we were able to complete it pretty much by New Year's... I was still working on furnishing it to be fully up and running by the 15th."

• Tony J. Robinson [05:04]:
  "Giving yourself enough time up front is actually one of the biggest hacks that you can leverage."

Key Points:

• Scheduled Completion: Initial three-month deadline achieved by early January.
• Furnishing Deadline: Ongoing, targeted for full functionality by January 15th.
• Time Management: Importance of allocating sufficient time to avoid delays.

Budgeting and Cost Overruns

Renee discusses her budgeting strategy and the factors that led to exceeding her initial renovation budget.

• Renee Hosman [07:07]:
  "My initial rehab budget was around $30,100, but we ended up spending about $36,000... unexpected work like rewiring the entire electrical system and emergency plumbing repairs caused us to go over budget by $6,000."

Key Points:

• Initial Budget: Approximately $30,100 with a 15% buffer.
• Final Expenditure: $36,000 due to unforeseen electrical and plumbing issues.
• Major Overages: Rewiring costs ($2,600) and emergency plumbing repairs ($4,000).

Unexpected Challenges: Electrical and Plumbing Issues

The episode delves into the specific unexpected challenges Renee faced during the renovation.

Electrical Issues:

• Renee Hosman [07:07]:
  "I had to rewire the entire electrical system, costing about $2,600... needed grounding and a 220V outlet for the oven."

Plumbing Emergencies:

• Renee Hosman [09:19]:
  "Two days before Christmas, we had a steam pipe burst causing a major leak... resulting in a flood in the master bedroom garage area."

Impact:

• Delays: Emergency plumbing repairs significantly disrupted the renovation schedule.
• Additional Costs: Emergency measures and renting dehumidification equipment added approximately $4,000.

Managing the Rehab Project

Renee shares her hands-on approach to managing the renovation, including procurement and coordination with contractors.

• Renee Hosman [24:01]:
  "I made a list, went to Home Depot with it, and kept track meticulously. Over the last three months, I only went to Home Depot 23 times."

Key Points:

• Hands-On Management: Balanced DIY tasks with contractor responsibilities.
• Material Procurement: Utilized task-based procurement and limited unnecessary trips to supply stores.
• Contractor Coordination: Effective communication with contractors to manage tasks and material needs.

Financing the Renovation

The discussion moves to the financial strategies Renee employed to fund her renovation.

• Renee Hosman [30:47]:
  "Everything has been out of pocket. I took out a HELOC as a buffer and used a zero-percent interest credit card for specific project expenses."

Key Points:

• Primary Funding: Personal funds supplemented by a HELOC (Home Equity Line of Credit).
• Credit Strategy: Utilized a credit card with zero percent interest to manage short-term expenses and earn an opening bonus.
• Financial Discipline: Maintained segregated accounts and specific credit cards for project-related expenses to streamline tracking.

Reflections and Lessons Learned

Renee reflects on her experiences, highlighting the balance between DIY efforts and professional assistance.

• Renee Hosman [03:51]:
  "I was my own worst enemy, doing too much DIY... in hindsight, hiring more professionals could have expedited the process despite higher upfront costs."

• Tony J. Robinson [15:09]:
  "There is no right or wrong answer... it's about aligning choices with your risk tolerance."

Key Points:

• Balancing Act: The trade-off between saving money through DIY and the potential for delays or errors.
• Learning Curve: Gained valuable insights into project management, budgeting, and the importance of contingency planning.
• Emotional Resilience: Managed stress and maintained composure despite unexpected setbacks.

Current Status and Next Steps

As the renovation concludes, Renee discusses the current status of the property and her plans moving forward.

• Renee Hosman [40:22]:
  "I’m in the process of refinancing due to a lower-than-expected appraisal... aiming to pull out enough to pay off the hard money lender while maintaining positive cash flow."

• Financial Outcomes:

  • Rental Income: Secured a lease for $2,050 per month.
  • Cash Flow: Approximately $150 monthly after debt service and HOA fees.
  • Refinancing Goals: Negotiating terms to allow for a low-cost refinance in the summer to capitalize on potential market improvements.

Key Points:

• Refinancing Efforts: Addressing appraisal discrepancies to secure favorable refinancing terms.
• Cash Flow Management: Ensuring rental income covers expenses and provides a modest profit.
• Future Planning: Strategizing for potential refinancing to optimize financial outcomes.

Conclusion

This episode of Real Estate Rookie offers an in-depth, real-time look into the complexities of managing a renovation project as a new investor. Renee Hosman's journey underscores the importance of budgeting, flexibility, and the willingness to learn from unexpected challenges. Her experience serves as a valuable roadmap for rookies aiming to navigate their first real estate investments with resilience and strategic foresight.

Final Thoughts:

• Budgeting with Buffers: Always allocate a contingency to handle unforeseen expenses.
• Project Management: Establish clear timelines and milestones to stay on track.
• Professional vs. DIY: Weigh the benefits of DIY against the efficiency of hiring professionals based on project scope and personal capacity.
• Financial Strategy: Diversify funding sources and maintain disciplined financial tracking for project expenses.

For more insights and updates on Renee’s real estate journey, listeners can connect with her on the BiggerPockets forums under the username Renee Hosman, visit her learning resource at biggerpockets.com/learningtodiy, or follow her on Instagram at @earningtodiy.