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Progress thread: My first two deals and beyond

danoodle

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I put in 2 offers for houses that I plan on renting out and should hear back tomorrow. One will be a short sale that I am fairly certain they will accept. Here is a link to the estimates I figured.

The second is also a bank owned home but I'm not sure if they'll accept. We've gone back and forth a few times, I started at 22k, they countered at 25k, I said 22.5k, they said 24k, I said that's it. I'm thinking they might accept 23k, should I just give in and go with that price? Deal is probably worth it even if I pay that much and wouldn't want to miss out on a good one for a measly $500. Here are the estimates.

The bad thing is I was planning on just paying cash, then, if I needed to tap the houses for the equity, I could do so. May not be fastlane, but seems to be decent returns. Any opinions would be appreciated and I will update with what happens if people are interested!
 
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D.J.

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Great way to take your income into your own hands. Maybe not fast lane, but once repairs and things are finished and its all paid up it becomes passive income, plus the "extra" money is a great tool to help you in your fast lane. Sure you don't absolutely have to have money to make money. But it sure as hell wont hurt.

I think it's a step in the right direction. Now use these steps to step into a 700-Horsepower super car and get GOIN!
 

Rickson9

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If an investor pays 5x gross annual rental income or less they should be fine unless they really messed up on the location.

Best regards.
 

danoodle

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They accepted my offer on the second home for 21k plus closing costs! They must have been afraid of losing me because we actually went down from 22.5k without closing costs. lol Will find out about the other house on Monday, but hopefully it will go through! :D
 
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MonTexan

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First off, good job on looking in the "right" price range for your first couple deals. They look very similar to my first couple. Best to start with low priced properties that won't break you if things don't work out! A few observations:

Your insurance estimates look fairly low, at least compared to what I'm used to paying on similarly price homes. I'm on the Gulf Coast and am carrying for fire, wind, AND flood so that very well could be the difference. Just be sure you get actual quotes from an insurance agent and not ballpark figures from a guru's book.

For variable expenses, I would calculate off of "gross rent" rather than "net rent" so as to not underestimate them. A 10% maintenance reserve doesn't care if the house is occupied or not and would probably be even higher for a un-occupied house. Right now you're calculating 10% of net rent.

As long as you are ballparking your expenses, I'd suggest playing it safe all calling them 50% of gross rent. You're assuming around 30%, and I think that is optimistic. I would also increase your rehab estimate by 50% since these are your first deals. Especially since these are low-priced bank-owned properties. Just believe me on this one.

Even if your cash-on-cash ROI isn't great, these deals are probably still worth DOING. They'll get you in the game, most likely without breaking the bank, and you will learn a TON which you can apply to future deals. They get much easier after the first couple.

Best of luck!
 

MonTexan

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One other point on making offers that get accepted by banks:

-- All cash
-- $5,000 earnest money (yes, even on a $20k home)
-- No option period
-- Close in two weeks

This is the recipe I have used to buy several homes, some of which I was not necessarily the highest bidder on. Meet your inspector at the house before making your offer to confirm that you WILL buy the house if your offer is accepted and the rest falls into place.
 

danoodle

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Thanks for the great advice MonTexan! I am actually meeting with a banker tomorrow for lunch to pick his brain. He owns a lot of properties in the area and will be a great source of info for me, not to mention we have a pretty good relationship already so future financing will be easier!

I have a friend who has rehabed and flipped several houses and he will help me with a lot of the "dirty work" for a very good price. The estimated 5k for the roof we already are almost certain it won't cost more than 2.5-3k. This house is a strange bank-owned home in that it is in quite good condition, I could get renters in immediately with no work. I just wanted to make it a little nicer and possibly convert a basement room into another bedroom and add another bath, how nice or how much extra I do, I will ask my banker friend his opinion on the matter.
 
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phlgirl

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Congrats on your first deals! Montexan is dead on. Bump your estimates, just to be safe. Properties at that price point tend to have tenants who live a little bit harder. Set up a separate reserve account, specifically for the houses.

There is no better way to learn. Way to take advantage of the current economy! Making deals with banks presents enormous opportunity these days.

Best of luck!
 

danoodle

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I just closed on the second house a few hours ago! I ended up paying 21750 total with closing costs, so 250 less than I had planned. There is a tax rebate program in my county where improvements of at least $5000, you get to deduct what the increased insurance would be, since you increased the value of the house. The deductions go like 95%, 95%, 95%, 80%, 70% etc for 10 years. Thought that it was a nice unexpected bonus as well! The house is technically livable right now, I just want to make it as nice as possible (without going overboard) so I'm not a slumlord with crappy properties and crappier tenants. I am also considering adding an attached garage which I'm sure would increase its appeal. We start on the roof on Monday! Hope it goes well as I venture further down the rabbit hole...;)
 

danoodle

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I have no clue if that is a good deal or not Jeremiah. I would have to have more information on the specifics of the property like its condition, location, etc. And even then it would be my best guess since I'm new at this myself! ;)

The freaking roof has a layer of shakes with 3 layers of asphalt shingles on that! Every muscle in my body is sore after tearing them off yesterday for 9 hours. We still have another fourth of the roof to tear off too! :smxE: It's just me and a friend doing the whole roof!

Funny story, today my friend said we would need help with sheeting and wrapping since it is supposed to rain tonight. I hired two guys and apparently one was drunk! I didn't realize it and my friend is the one who told him to leave. He also broke the nail gun we were using (it's my other friend's!) so I had to rent one and buy a different set of nails. So lame. Such a waste of money. But, on a lighter note, while we were at the dump, we found some lumber that someone had thrown away and a couple vents I could use for the house. It's all probably around $300 in materials! So that ended up covering the crap that happened today and a little extra!

I have literally ZERO construction experience, so it has been a major adventure for me so far! Even backed up a trailer for the first time today. It is much harder than it looks! I also used a nail gun and stapler for the first time. We should have the house completely finished in a couple weeks or so and hopefully the other house will be ready to close by then. Still waiting to hear from the bank about doing the short sale. I am also looking at a two houses on friday that could be good deals as well. One is strictly word of mouth and not even listed anywhere! Shows the power of networking and knowing the right people. When I am finished with all this I plan on posting a spreadsheet with every single cost and will post how much rent I am able to pull from this house and the ROI I end up achieving. Hopefully it's quite positive...:smxB:

PS: I meant to say a rebate on the increased taxes in my last post, not insurance :smx4:
 

danoodle

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I picked up another deal potentially! The first house is no go, but this new house has a lot of potential! Here are the numbers for this house. It is 5 bed 2 bath and two blocks away from the local college. Should be in high demand although I can see it becoming a party house. I offered $28,500 and they accepted with an estimated 15k in renovations. Now just have to do the inspection and hope that everything is good to go! Hope I'm not getting in over my head....
 

hatterasguy

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Congrats on your first deals! They look pretty good, I know people who have made a fortune doing what your doing. Buy, fix, rent, refi, and continue.

Its not sexy but its a good way to build a solid income and seven figure net worth. Keep at it nice and steady and in 10-15 years you will be set for life.

My only word of caution to you, as someone who builds houses for a living insurance on contractors is CRITICAL. I cannot emphasis this enough, a drunk guy who was hired for cash, with no insurance, shooting his eye out with a nail gun is exactly how someone I know got sued for $200k, + $50k in medical expenses, +$90k to reinstate there insurance again, + attorney's fees of probably $50k.

Don't hire bums off the street its not cheaper!:eusa_naughty: I know its tempting and money is tight, but just don't do it. When I hire a new guy I tell them they have to have proof of insurance before they start, and I have sent guys off the job site who failed to produce it.
 

danoodle

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Thanks for the advice hatterasguy! I will definitely never do that again, we were just under pressure as it was supposed to rain that evening and had a completely open roof!

I closed on the college house a couple weeks ago and I have already had a lot of interest in it. I think I will be able to get my max asking of $1200 a month; will probably do an all inclusive deal with utilities/internet for $1700. This house looks like a real winner!

I have showed my first house a few times, but it seems like there isn't much interest. Maybe my price is too high? It actually is not quite finished with some minor cleaning to do still. Not sure if that's turning people off. Two of them said they don't like how there is no offstreet parking. I am considering putting in a covered car port or garage as I am about 5k under budget on that house so far. Also, I have joined the LPA and have been using their application form, but I am thinking it might be intimidating for some of these people. In my town, apparently most landlords don't do extensive screening, and one said he doesn't even have an application (does have a lease though)! I am learning so much everyday and trying to do the right thing without getting burned.

One more thing, I might be getting a house for free! It is in very bad shape (would literally almost be just a frame) but think it would be worth it. Who knows where this crazy adventure will lead next!? :p

I thought I'd add the updated numbers for the first house (be sure to check the tabs at the bottom). I have included every single expense incurred and the true tax/insurance numbers. Have a plumber coming tomorrow to blow air through the gas line and fix a leak. As you can see I am still way under budget, which is why I might add the garage/car port. If I can get it rented without, it may be an upgrade to get a good tenant to stay longer! ;)
 
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danoodle

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Just wanted to update this thread and the results I have experienced so far. You can find the final numbers on expenses on my first house, I call it the Kansas house here. I also have the numbers on rent collected so far on that house here. If you're too lazy to look at all the data, basically I put in a total of about $27,500. I am charging $550 per month in rent and have collected $2475 in rent so far. Had a couple "major" repairs right from the get go, but I attribute it to the fact that no one had lived there for awhile and I knew some things would go wrong right away that I wouldn't know of until someone moved in.

My second house is finished and the kids are in. I call it the college house and the final expenses/numbers can be found here. The numbers on rent collected so far can be found here. To summarize, I have just under $35,400 into this house. I managed to get the rent all up front for the year totaling $12,800 and gave them a slight discount. Was originally charging $1100 per month and ended up getting $2560 per person which gave them each an $80 discount. Figure it was worth it in order to get all the money now!

I am going to look at some more houses on Tuesday. They say you can't really make any money with SFHs, but I think my results so far are pretty good! Any comments/advice/criticism/praise is much appreciated! :)
 
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garyfritz

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Wow. Those deals are amazing. Around here a house that you can rent for $1100 will sell for $150k or more, not $35700. We have a 4-br rental that currently rents for $1250, could probably bump that a little, but the house is worth $220k or more. Even at current record-low rates, if you were to refi our house so you could buy another, the house would barely cashflow. Whereas if you refi'd your college house, your P&I on $35700 would be less than $200. You can probably refi, pull your cash out, and still cashflow $800/mo or more!!
 

PopEmersen

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I am currently looking into renting SFH myself. I just have to get my financing squared away. Im trying to slowly merge into the fast lane. Great Thread.
 
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Arturo-Jay

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Just wanted to update this thread and the results I have experienced so far. You can find the final numbers on expenses on my first house, I call it the Kansas house here. I also have the numbers on rent collected so far on that house here. If you're too lazy to look at all the data, basically I put in a total of about $27,500. I am charging $550 per month in rent and have collected $2475 in rent so far. Had a couple "major" repairs right from the get go, but I attribute it to the fact that no one had lived there for awhile and I knew some things would go wrong right away that I wouldn't know of until someone moved in.

My second house is finished and the kids are in. I call it the college house and the final expenses/numbers can be found here. The numbers on rent collected so far can be found here. To summarize, I have just under $35,400 into this house. I managed to get the rent all up front for the year totaling $12,800 and gave them a slight discount. Was originally charging $1100 per month and ended up getting $2560 per person which gave them each an $80 discount. Figure it was worth it in order to get all the money now!

I am going to look at some more houses on Tuesday. They say you can't really make any money with SFHs, but I think my results so far are pretty good! Any comments/advice/criticism/praise is much appreciated! :)


WOW, I think I could do the same thing? My area has the same good bargains in neighborhoods that are pretty decent.

When you say the "college kids"? are you referring to your own kids?? haha, Only asking because how hard is it to get a place rented out? I would only be afraid of it going vacant, but then again the PITI on a 22k house or whatever is pretty small risk to cover.
 

danoodle

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Definitely not my own kids! :p I am fortunate in that the house is 2 blocks from the local college, so I don't think I'll ever have an issue renting it out.
 

Arturo-Jay

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Definitely not my own kids! :p I am fortunate in that the house is 2 blocks from the local college, so I don't think I'll ever have an issue renting it out.

Nice dude!
Perfect location.

I've noticed that peers in my age group, the type in college (I never decided to finish lol) they have very little to NO negotiation skills. If you ask a certain price for rent, most would just cough it up, because it's either money from a loan they don't think about paying back quite yet or it's mommy and daddy's money (2 great sources of money).

I find out in about a week if I can buy yet.

So my question to you: Are you looking to buy a 3rd rental property? Or is that too risky or impossible to get a loan for? What's your next move, basically ?
 
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danoodle

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I am following the process of intentional iteration through real estate, as stated in MJ's book. I am currently in the process of getting my third house and have an offer written out, just waiting to hear back from the bank. If this one falls through I am ready to make an offer on a couple other houses as well.

My friend's friend is looking to sell his half duplex and was wondering if anyone had any experience with that? I could see all the negatives if you have a bad owner on the other half but was hoping to get some other thoughts on the issue. The price is right at 15k and it's a 1 bed 1 bath, guy says he gets $320 rent. I'm thinking I wouldn't want to deal with the potential issues unless I can get both sides though.

I'm very fortunate in that I'm good friends with my local banker. I can basically go in there anytime and shoot the breeze and I've practically got an open line of credit with him! Especially since he's seen my success with these first two houses, he knows I am relatively low-risk. Doesn't hurt that I have a pretty high credit score as well.

Every book I have read on real estate emphasizes the importance of a "team" you put together to make it all work. I never truly realized how important it is to be able to work with people you trust who are on your side, helping you in your journey to success. I highly recommend finding a banker and making him your best friend, as well as a good real estate agent. I wouldn't have found the amazing deal on the college house if my agent hadn't referred me to it. I also have a good friend who is a true "handyman" and I have worked alongside of him learning as we go. I highly recommend either knowing construction, or having someone you trust who can help you, when you're first starting off. :)
 

Arturo-Jay

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I am following the process of intentional iteration through real estate, as stated in MJ's book. I am currently in the process of getting my third house and have an offer written out, just waiting to hear back from the bank. If this one falls through I am ready to make an offer on a couple other houses as well.

My friend's friend is looking to sell his half duplex and was wondering if anyone had any experience with that? I could see all the negatives if you have a bad owner on the other half but was hoping to get some other thoughts on the issue. The price is right at 15k and it's a 1 bed 1 bath, guy says he gets $320 rent. I'm thinking I wouldn't want to deal with the potential issues unless I can get both sides though.

I'm very fortunate in that I'm good friends with my local banker. I can basically go in there anytime and shoot the breeze and I've practically got an open line of credit with him! Especially since he's seen my success with these first two houses, he knows I am relatively low-risk. Doesn't hurt that I have a pretty high credit score as well.

Every book I have read on real estate emphasizes the importance of a "team" you put together to make it all work. I never truly realized how important it is to be able to work with people you trust who are on your side, helping you in your journey to success. I highly recommend finding a banker and making him your best friend, as well as a good real estate agent. I wouldn't have found the amazing deal on the college house if my agent hadn't referred me to it. I also have a good friend who is a true "handyman" and I have worked alongside of him learning as we go. I highly recommend either knowing construction, or having someone you trust who can help you, when you're first starting off. :)


1. Construction: check, my uncle, my dad, and myself can do it all.
2. real estate agents: my uncle does it part time for past 10+ years...and i have another guy in my corner, 3 yrs into this market...kinda a novice but he knows the market somewhat
3. Banker ally: this I don't have. transunion score for me is 660, not too hot...
4. Never read MJ's book..should I? What's the price.

Congrats on a possible a rental unit on the way! 15k price for a whole dubplex, that's going to need repairs for sure! But what a steal. So long as it has good "bones"

Your pulling some really good numbers I know, so keep us posted. It gives us runts something to look forward to and realize it's all doable. :)

I might have a cosigner for my first property because apparently my employment history is a bit rocky. What I actually need is a legit business partner with the same goal as mine, and roughly the same income level or slightly higher who has the same drive.
 

wade1mil

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I picked up another deal potentially! The first house is no go, but this new house has a lot of potential! Here are the numbers for this house. It is 5 bed 2 bath and two blocks away from the local college. Should be in high demand although I can see it becoming a party house. I offered $28,500 and they accepted with an estimated 15k in renovations. Now just have to do the inspection and hope that everything is good to go! Hope I'm not getting in over my head....

This would cost $225k where I live. The cheapest house on the MLS here is $50k and it's a mobile home in the sticks! Congratulations on your deals! Don't you also take into account what the house is worth after repaired?
 
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danoodle

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This would cost $225k where I live. The cheapest house on the MLS here is $50k and it's a mobile home in the sticks! Congratulations on your deals! Don't you also take into account what the house is worth after repaired?

I personally only go off how much rent I can bring in and the grand total of how much it will cost me. I do not count on future price appreciation. If you look at my latest numbers, that is literally how I calculate my deals.

Maybe I'm being too conservative, but to me, any appreciation is just icing on the cake. I plan to hold these long term and figure they will at least keep up with the rate of inflation. Of course if there is another real estate bubble I would most likely take advantage of the market conditions at that time...;)
 

Arturo-Jay

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I personally only go off how much rent I can bring in and the grand total of how much it will cost me. I do not count on future price appreciation....


That's a good idea, less speculation the better.

I'm not trying to hijack here, but could the OP or someone with the experience explain a specific deal to me?

Buying a house in cash, then getting a loan against it for improvements, then refi it at the higher assessed value? And "cashout" at 80% of the new value? How does that work exactly? Is that for flipping only or can it be used with renting the property out too?
 

danoodle

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That's a good idea, less speculation the better.

I'm not trying to hijack here, but could the OP or someone with the experience explain a specific deal to me?

Buying a house in cash, then getting a loan against it for improvements, then refi it at the higher assessed value? And "cashout" at 80% of the new value? How does that work exactly? Is that for flipping only or can it be used with renting the property out too?

Hmmm, well I just got word from my realtor that the bank accepted my offer pending corporate approval. So it should be a yes. I can go through the steps of this deal if you'd like? My offer was $7256 plus $465 closing so will end up being $7721 total paid. I am estimating 10k in repairs but could go up to 15k even 20k if I really underestimated. The spreadsheets, like in my first two deals, essentially document all the expenses; you can even see what work we did on what day and the whole process of fixing a place up.

So far I have only fixed up houses to rent out. I know when flipping you need to have nicer fixtures and make it more appealing. With my rentals I go for the most economical yet durable/cost efficient items.

I am paying for the house in "cash". With the cost of rehab it could go many different ways. I can just pay out of pocket since it's not an exorbitant amount of money at 10k. My banker may be able to loan me some money, but 10k is a very, very small loan in their eyes. I could also use credit cards and try to pay them off as quickly as possible or even do a balance transfer type thing where there's no interest for a year, then try and pay off the balance before interest kicks in (this would be if I didn't have the cash). I suppose I could get a loan from family or a friend, or try to partner with someone if I was short on cash or financing. I'm sure there would be many creative ways to finance this deal. I will likely just end up paying with cash, but may get creative with a credit card balance transfer.

Let me know if this is something you'd like to follow and I will at least post the spreadsheet when I am finished. This house is supposedly haunted so I'm calling it the haunted house. Here is the initial spreadsheet, I hope this goes as well as my first two deals! ;)
 
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wade1mil

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I do not count on future price appreciation.

I agree with you 100%. Maybe I should have been more clear, but I was referring to the price of the home right now (and if needs repairs, after you make those repairs). The reason I am asking is because if the list price is $32k and you buy it for $26k, that's not a good deal if it's value is $26k. In real estate, you make your money when you buy. Are you not concerned paying retail?

Congrats on your new purchase BTW!
 

danoodle

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I agree with you 100%. Maybe I should have been more clear, but I was referring to the price of the home right now (and if needs repairs, after you make those repairs). The reason I am asking is because if the list price is $32k and you buy it for $26k, that's not a good deal if it's value is $26k. In real estate, you make your money when you buy. Are you not concerned paying retail?

Congrats on your new purchase BTW!

Not sure what you mean by "value". As of now, I don't really care what the value of the houses I buy are. I'm looking to hold these long-term. An appraiser could "value" them at 1000 bucks for all I care! That just means cheaper taxes/insurance for me! As long as the house is cashflowing and I paid the "right" price for it, I don't care what someone says the house is worth. I typically try to get at least 15% on my money, but when you use the bank's money, you can easily make more.

For example, on this latest house. I will pay $7721 for the house. Let's say repairs add up to a total cost of 20k. If I pay for the repairs out of pocket, I'd have 20k total invested. If I estimate getting $450 rent, minus taxes, insurance, repair, etc. I estimate a yearly net operating income at $3149. Divide $3149 by $20000 and my cash on cash return is just over 15%. All this is in the spreadsheet in the link I posted in my last post.

Now let's say I borrow the $12279 instead of paying cash. I get a 15 year mortgage at 6% which would equal monthly payments of $103.62. If I subtract the mortgage payment from my net operating income of $3149, I get $1905.56. Divide that by my initial cash invested of $7721 and my cash on cash return increases to nearly 25%. It would actually be a little bit higher than that because of the tax advantages you get from having the mortgage.

This is all hypothetical, but should be a reasonably close estimate of what my return on this deal is going to be. When all is said and done, I will refer back to these numbers to see how close my estimates actually are. The key is being as accurate as possible, or, in the case of my first 2 deals, I overestimated a little on repairs, and my return was a little higher than I expected. But as I said, what the house is "worth" according to an appraiser means nothing to me right now. Only when you're looking to sell or if you're flipping houses should you care about that. :)
 

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