Its been awhile since we’ve provided an update on our project in Allentown. That is basically because we’ve been very busy with the rehab!
Things are going well as we can finally see our vision come to life. The project gets more exciting as time goes on. This is mainly because you start doing more and more finish work as you near the end of the project life cycle. As opposed to working on the “rough structure” or “major systems” of the house, the finish work yields tangible results that you can see and touch. This finish work includes new hardwood floors, kitchen/bathroom tile, countertops, cabinets, fixtures, etc.
I’ll have plenty of pictures up in the coming days. However, before we get to that, I wanted to touch a bit on some things we’ve learned about managing a project budget.
As I’ve stated previously, there are three important factors to consider when managing a budget:
- Do your research and set a firm “Baseline”
- Track “Actuals” and resist the urge to adjust your Baseline budget
- Analyze the variance in your Baseline and use this information to make future budgets more accurate
We’ve learned a great deal about the various costs associated with a major residential rehab. One reason this was a great first project is that the rehab is extremely comprehensive. We have touched just about every aspect of a full rehab that you can imagine (with the exception of the new roof that came with the house!). This includes full exterior makeover, tearing out floors, destroying walls, adding rooms, changing the layout, re-routing plumbing and electric, new appliances, a brand new heating system, etc. The full range of improvements will serve as invaluable experience for future projects. It also allows us to gain insight into the various costs associated with major rehab activities.
With less than 2 weeks to go until the project is completely finished, we are within $200 of our baseline budget! On the surface, this may seem like a phenomenal feat for our first project; however, that would be extremely inaccurate. In realty, we’ve come under budget in several areas totaling a $3,980 surplus. We’ve also gone over budget in several areas totaling an overage of $4,127. This gives us a net variance of -$147. This means we severely under estimated in some areas…and severely over estimated in other areas. We were lucky that this all evened out quite nicely (we also have yet to touch our “Contingency Budget” of $1,700).
The bottom line is that we don’t really care how close we are on the budget. Of course we would like to limit expenses as much as possible. However, we understand that, more than anything else, this first rehab is a learning experience. The goal is to complete this end-to-end rehab, analyze our performance, and use what we’ve learned for future projects. The real work begins when start looking into the reasons why we went over/under budget. We then find ways of making our budget estimates more accurate. We are continuously working to decrease our degree of variance. This will allow us to take on more projects in the future because we will be more confident in our ability to accurately estimate improvement costs.
Below is a snapshot of our current project variance. Here are a few things to keep in mind:
- Total Surplus / Overage is the total of the “Actual” and the “Future”
- The future numbers are costs that haven’t hit our books yet, but we have a firm idea of how far over/under we will be
We’ll provide further updates as we finish up the project over the next couple of weeks. Thanks to everyone who has helped out. Please let us know if you want to come check out the property or if you know someone who might be interested in buying it!
In describing the kitchen, I mentioned that we were making renovations to “fit the character of the neighborhood”. Making renovations to “fit in with the neighborhood” is one of the most important aspects of a successful rehab; In the case of NY Home Solutions, it is the driving force behind any and all of our major rehab decisions. While this may seem like a rather obvious factor to consider, many real estate investors tend to ignore it and over or under rehab their properties.
Our eventual buyer will have several expectations about the home before they come for a walk through. Because the house is in Allentown, they will expect the home to have the same eclectic, quirky, and upscale feel of the rest of the neighborhood. That’s why it’s imperative that we make all renovations to keep the house in line with the neighborhood standard. Its very easy to get wrapped up in the renovations and go overboard.
One example of such a decision can be found in the existing 2nd floor bathroom. The house was left with this classic claw foot tub. It needs some patching here and there…but overall its in pretty good shape. Personally, I don’t like the look of this tub and I would never have it in my own home. However, this is the perfect example of an attribute that may fit perfectly into the Allentown neighborhood. What do you think? Should we refinish the tub and keep it in the new bathroom? Or should we make a full scale change and replace it all together?
I mentioned how we decided to tear down the small 30 inch wall between the dining room and the new kitchen. This will open the place up and make the house seem a lot bigger. Real Estate experts agree that kitchens and bathrooms are the two most important rooms that influence a home buyer’s decision. Therefore, we decided to spend a significant percentage of our overall construction budget on the new kitchen (23%). To fit the character of the neighborhood, we’re going all out with new maple cabinets, granite counter tops, stainless appliances, tile back splash, and tile floors. Our kitchen also features a 3 person peninsula / breakfast bar. The breakfast bar is located in the area opened up by the removal of the 30 inch wall. Finally, the Kitchen will open to the refinished back porch and oversize backyard (when compared to the neighborhood).
We’re confident in the kitchen’s ability to give this house the “Wow” factor that we’re looking for. But we’re also confident we didn’t overdo it. We got very competitive prices on our counter tops and cabinets…and we’ll look to do the same for the flooring and appliances.
As previously mentioned, NY Home Solutions recently acquired its first investment property. Located in Allentown, 78 Mariner brings an abundance of challenges and opportunities for our first full rehab. For starters, the property is located in the Allentown Historical District. That means that any major exterior work needs to get passed by the board before we can proceed. Luckily the exterior is in fairly decent shape. We should be able to get away with refinishing the existing siding and applying fresh paint. Another challenge comes from the fact that the 3rd “bedroom” is hardly 50 SqFt! The house has several minor quirks. However, it also has a great deal of potential (The brand new roof doesn’t hurt either!). We’re very confident that we will be able to fully rehab this home without cutting any corners whatsoever. In the end, we will have a marketable home that will help to increase home values in the neighborhood.
Adjusting the Layout
The house was purchased as a 3 Bedroom 1 Bath home listed at 1,200 SQFT. As I mentioned, this 3rd “bedroom” located on the 1st floor was way too small to be considered a bedroom. The rest of the 1st floor was made up of 3 large dining/living room type areas as well as a kitchen at the back of the house. Attached to the kitchen is a small utility room housing the hot water tank, boiler, and washer/dryer. Some good news came when we measured the layout and found that the square footage was more in the range of 1,600-1,700 SQFT. It should go without saying that the more square footage you have, the more the house will sell for. We still had to deal with the fact that as far as we were considered, we were sitting on a 2 bedroom, 1 bathroom house. In the real estate world, you always want to shoot for at least a 3/2 layout (3 Bedrooms, 2 Bathrooms). Anything less would take a very unique situation to sell quickly and at the desired price. We decided to address this issue right away. We decided to convert the current kitchen into a large back bedroom. We would utilze one of the other “general rooms” as the new kitchen. In addition, we would convert the current “3rd bedroom” into a 2nd full bathroom. We would then be left with a 3 Bedroom 2 Bathroom home with an ample amount of space in all rooms.
Below are some Additional Improvements Planned for the Property (We will go into more detail in later posts)
- Fully scrape/sand/re-paint the exterior (Different colors from the current)
- Powerwash and stain the back porch
- Clean backyard and minor landscaping work
- Update electrical service
- Re-route baseboard heating based on new layout
- Rough plumbing for kitchen and bathroom
- New solid hardwood floors throughout the dining room, living room, and upstairs hallway
- Remove 30 in. of wall separating dining room and kitchen
- New kitchen cabinets
- New granite countertops
- Stainless Appliances
- Tile Backsplash
- Tile the kitchen and both bathrooms
- New carpets in all bedrooms,
- Build in closets in 2nd and 3rd bedroom
- Completely new bathrooms (showers, toilets, vanities, fixtures, etc)
- Scrape and re-frame windows
- Patch drywall and paint all surfaces
We’ll post more details about the various improvements planned for the home. For now, we are busy scheduling contractors for the major work involving electric, plumbing, heating, etc. You can see all our pictures on Facebook or at our Picasa Web Album.For more information, check out our website: http://www.nyhsolutions.com/