Small House, Big Undertaking, Bigger Lesson

Jacob, again. When I said I sold a ‘small book of insurance business’ when I was 23 to fund our first RE endeavor, I was serious. The book sold for about $8k with some small annual residual payments for 2 years. That doesn’t buy much real estate in case you’re wondering. It just so happened to be the perfect amount for our first project. After pairing this money with my life savings (like….$5k maybe) we were in business to start a small project on the west side of town.

I’ve always been motivated by failure or the threat of it. In a sense, our first failure led to an internal desire to improve. Our first project was the perfect amount of failure - just enough to motivate us and not too much to break us. The failure in this first project isn’t very visible. The house’s finishes turned out pretty nice (for a 23 year old amateur) and it has been fully functional for 10 years at this point.

Our 1 bed/1 bath, 540 sq ft house project was completely gutted when we began. Every aspect of the home was in grave disrepair and needed replaced. Every detail of the layout was backwards and needed reconfigured. Every big ticket item needed attention.

Necessity is the mother of invention. We didn't have the money to hire these jobs done so we had to learn everything ourselves. This house really required us to learn. As I sit and reminisce, I realize this first house required us to learn more than what the subsequent houses would have required us to learn had we started on them first. Felix Culpa. ‘If it's your job to eat a frog, it's best to do it first thing in the morning. And If it's your job to eat two frogs, it's best to eat the biggest one first.’ - Mark Twain.

We had to bust up portions of the concrete slab foundation to expose/remove/replace old plumbing in the kitchen and bathroom, run new waterlines, frame new walls/openings, re-side, re-roof with metal (not suggested for a first time DIY’er), framing soffit/fascia where there is no soffit fascia, vinyl overtop of block exterior foundation, carpet strips into 100 year old concrete (while not knowing about rotary hammers…), full house drywall install including the attic, full house electrical replacement - including box/new mast head/etc (with help of electrician family member), non-precharged mini splits, and much more.

This project is something that I would dread nowadays knowing the scope of work. At the time, my ignorance was leverage for required learning. When I sit and think on this project I smile when thinking of the work.

I don’t necessarily smile on the fiscal frustration that was experienced with the ARV. When I took on this project we had $20k into the purchase of the project, $15k cash (all we had) into the materials and two years of every day/every night labor. This means our total input was $35k.

I had just learned about equity. I didn’t know much about it but I thought for certain that we would have an amazing amount of it as we completed this project. This additional equity was going to be able to be rolled into the next property and continue this much needed work for mattoon (that we enjoyed!)

We had multiple appraisals. None of which had an appraised value higher than……(drumroll please)….$32k. We learned the hard way that there were no comparable properties in Mattoon for 1 bed 1 bath houses. This was a frustrating experience. It was also an example of foreshadowing. Instead of quitting, we studied why we lost on this appraisal, made lateral shifts in our prospecting, and moved down the road to our next project.