Holding a PhD on Applied Mathematics, being type A personality and a little OCD, I typically estimate things very accurately and thoroughly (sometimes too much!). Turns out that I messed up big this time.
I am very proud of RP#3 – it will generate a 50% Cash on Cash return and I will add 6 units to my portfolio. This would not be very surprising if we weren’t talking about a <50k property…
When I bought it, I knew right away that I would have to spend serious dollars towards renovating it. However, I did underestimate what I was going to spend…
The previous state of the units was definitely very poor. I knew that when I bought it, and I knew I was actually buying the land and 4 walls. What was inside had to be redone, for the most part.
I typically spend €35/square meter in terms of materials (tiles, ink, glue, etc). I made estimates having that figure in mind. So, overall, I expected to spend €6000 renovating 4 units, and put off the other 2 till the property generated enough cash flow to do so.
I was so very wrong… To renovate 2,5 units, I am already at €15.000+ and the bill grows by the day (the final bill with definitely be something around €25k). I did choose better tiles for one of the units, as I may keep it to myself, and go with higher quality materials here and there. However, what absolutely went wrong with my estimates was not the money I spent with materials, but human labour. This was a lesson that will ride along till the end of my career of Real Estate investor…
Having spent a total of €6500 renovating RP#1 (you can check out the properties), I figured that this amount with be enough to cover 4 units, as they are considerably smaller. However, what really raised the renovation costs was the age of the property. As I mentioned before, Real Estate in Portugal is made out of stone, bricks and concrete; nothing like in the US. Old Real Estate though, is made out of wood and stone. Imagine what is would be like to have a 100yo property made out of wood… Well, that is what I have! Every wall and room within the 2 units that I start renovating had to be re-done.
The renovation is going very well, fortunately. We had a few setbacks here and there, but nothing big. I will show you one of the 1-bedroom units, just so you know what we are talking about:
This is the kitchen of one of the 1-bedroom units. I like these tiles a lot and I think they go really well with the property (I definitely like classic / twenties style!), as it is 100yo. They are indeed more expensive than the tiles I typically use.
The practical consequences of underestimating these renovation costs are all about liquid cash. As you know, I planned on leaving my job for good by December 31st, but given that I need a lotta cash to renovate the property, I decided to stay till April 31st and take my so-desired 1-year off right after. In these extra four months, I will save around €6000, which I will exclusively spend on RP#3. Don’t expect my net worth to grow in this period!
With all this in mind, RP#3 better spit rents non-stop after April 2017, or I will go crazy… 🙂
I will send a complete report – including more pics – on the renovation of RP#3 soon, through the newsletter. So, if you haven’t subscribed my blog, please do so!
All the best for the new year folks!
Ben