Welcome back to our Property Walkthrough series! Chris recently joined me to tour the first rental property I purchased in Colorado Springs. I bought this house back in 2016, and a lot has changed both in the house and the surrounding area in the past few years. We looked at the renovations I’m working on and talked about what it’s like to hold onto a property for 5 years. Looking back at how I felt when I bought this home and seeing where it is now is an interesting journey.
- Watch the YouTube video (at the bottom.)
- Read the blog post. Note, the blog is an executive summary. Get the in-depth breakdown from the property walkthrough video.
Colorado Springs income property
The property is a 121-year-old 3 bedroom/1 bathroom single family home in the southern end of Colorado Springs. I bought it in 2016 for $128K which at the time gave me pause. As a first-time investor, seeing the price point and knowing I’d have to put more money into it to make it rentable made me nervous. My husband and I put about $10K into fixing up the house and did most of the work ourselves. We painted the walls and kitchen cabinets, installed new appliances, put in new flooring, and spruced up the bathroom.
When I first purchased the house, the area was quite different than it is now. The neighborhood was more a developing area, but I could see it was in the path of progress. I knew the city had a lot of development plans that were adjacent to this part of town, which made me more confident in my investment. Driving to this house today, you pass through downtown, the soccer stadium, and a lot of cool attractions. There are brand new homes being built nearby, and I expect that interest in this area will continue to grow.
Renovations for a Rental Bump
Now that I’m between tenants, I decided it’s time to do some more serious renovations to match the changing neighborhood and get a bump in rental income. My plan is to put about $20K into the house and hire out most of the work.
In the kitchen, my contractor is doing a great job putting up new cabinets and dealing with the issues of a 100+ year old house—we discovered that the old cabinets had no support and were hanging on by a prayer! She installed a dishwasher which is a bonus for tenants and should help me increase the price point. Installing the dishwasher involved moving around the rest of the appliances and rerouting the plumbing, but it will be worth it in the long run.
A backdoor in the kitchen leads to an outdoor area with pea gravel that tenants can use to dine outside, or they can opt to use the indoor eating area just off the kitchen. A lot of older homes don’t have designated dining areas, so this is a neat feature.
The bathroom is also being renovated to make it nicer and mitigate potential issues. Once the contractor removed the walls, we saw a lot of problems that needed to be dealt with which is typical in older homes. When I first fixed up the bathroom, I just put a glaze over the existing tile. Now, the bathroom is showing its age and it’s time to put in new tile to give it a more modern feel.
In addition to these major renovations, I’m also putting down hardscaping for the exterior. This will be less maintenance for the tenants to deal with, and it will make the home more attractive. I’m also doing some cosmetic fixes around the house, such as new vent covers and closet tracks in the bedrooms. All in all, I want this house to have more elegance to match the changes this location has undergone since I first bought this home.
How do the numbers look after 5 years of a holding the property?
I purchased the house for $128K, and after the first round of renovations and 5 years of appreciation, the value is about $290K. When this next round of renovations is complete, I think the value will be over $300K. I don’t expect that steep of an increase in the future, but I’m pleased with this progression.
My initial conservative budget put the rent at $1100, but I was able to rent it out at $1200 to a tenant who lived there for 4 years. Most recently, I rented it out for $1400 a month. This averages out to a 4% rent increase over 5 years, which is right in line with historical norms. With these renovations, I’m expecting to increase the rents $200-300 over that $1400 rate to $1600-1700 a month.
When I first bought the house, I did a BRRRR that enabled me to take the initial cash outlay back out. When the rates were dropping last summer, I did another cash out refinance and pulled out $45K. People reading this may think that with two refinances the house is over-leveraged. However, assuming a $300K home value, the loan to value is 60%, giving me 40% equity because my loan balance is currently $177K. I feel safe with this number, though I don’t intend on pulling more cash out of this home.
Over the 5 years I’ve held this property, it’s cashflowed a cumulative total of $22.5K. The depreciation on the home has also wiped out my taxable income, about $4.5K a year. This is one of the great benefits of real estate that people don’t often think about but makes a big difference.
My Advice to My Younger Self
If I could go back and tell my younger self what I know now after 5 years of investing, I would tell her not worry. Back then, I hesitated to put too much into the property, because I felt like we were maxed out and thought small fixes would do the trick instead.
When I bought my second property, I had to do major renovations to it out of necessity which taught me the value of durability. I learned that it’s better to invest in the bigger changes, like putting in new tile or cabinets instead of painting over them. I expect the renovations I’m doing now to last for the next 10-20 years, saving me time and money.
Connect with Us
To take a look at the renovations and see a virtual tour of the house, watch the Property Walkthrough video below. Make sure to like, subscribe, and leave a comment; we’re going to do more property walks and want your feedback.
For the next video, we’re going to go through all of the options holding onto this property has given me from a financial standpoint. The great thing about real estate is that if you’re patient, you have more options, so be sure to check it out. This second video will be released October 2nd.
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