My first investment: sweat equity

Like so many others, my goal for 2007 is to further extricate myself from debt and increase my net worth by $22,000. My plan? Use more of what I have, and use it better.

I started this financial blog after reading about Boston Gal's Open Wallet. Not only did she inspire me to start this blog, she inspired me to change the way I am investing in real estate.

Boston Gal is able to afford a home in expensive Boston because she rents out her basement. I planned to invest in real estate in 2006 and even went so far as to get the go-ahead from the bank to buy a small house to rent, but I was worried about the risk (and am now glad I didn't buy the house because the market later plunged). However, the house we now live in has a guesthouse. We bought this house five years ago before the housing bubble. It was right at the top of what we could afford and at the time I was a stay-at-home mom, so we talked about fixing up the little guesthouse in the back and renting it out for extra income. It never happened, and the guest house became a dumping ground for extra stuff. The main house is old and was rented out for over 10 years before we bought it, so the owner did minimum upkeep on it. The first two years were years of constant fixing, painting, shoring...you get the picture (we're still fighting a leaky roof and a termite infestation). We just kept fixing this and that and the little guesthouse fell into disrepair -- it doesn't even have electricity now. We upgraded to a new heating/ac system and the electrical box was too small, so we used the guest house breaker and still haven't gotten our electrical box upgraded. Consequently the little house has looked sadder and sadder. Today I decided I was ready to bring in the new year, and I officially began renovating it by walking outside with a hammer and a crowbar.

I asked my husband if the horrible, falling-apart pressboard siding would be a good place to start renovating and he replied, "As good as any." The little house is now a bit naked with its pressboard siding gone, but we can see some other problems that would have crept up on us now -- grass is growing in the walls! Whoever put on the siding didn't seal it, and we have to rip out the grass and in some instances the insulation. We will finish pulling off the siding and then put in a security door and new windows, along with fixing the grass issue and putting in a small kitchenette. Here is the budget for the guesthouse:

Replace electrical box on main house and restore electricity: $1200
New siding + paint: $500
2 new security doors: $300
Sheetrock: $200
Kitchen sink: $200
Stove: $250
Fridge: $250
Counter and cupboards: $400
Wood and plumbing supplies: $300
Insulation: $50
New swamp cooler: $350
______________
Total: $4000

We will try to pay for the cost of renovation outright and doing it ourselves should help with some of the cost. I have a potential renter for the summer, so we hope to get it done by then by doing the work on our weekends.

I probably won't get more than $350/month in rent -- after all, it's just a studio and doesn't even have parking -- but we are just over a mile from the university, so our location is in our favor. If we can rent for one year we will make back what we put into the guesthouse, not including the fact that fixing it will make our own property worth up to $15,000 more. Plus, a $4,000 investment is peanuts compared to buying another property -- we would have had to come up with twice that at least for a down payment on a small house. So, overall I am excited about our decision to invest in our own property and hopefully our potential renter comes through this summer, or we can find a suitable student to take her place.

This picture is of the guest house when we bought this property. We have since planted trees and grass has grown in all on its own, so it's slightly more scenic, but the guesthouse itself looks essentially the same. The only change is that the red door has totally disintegrated and is now just propped against the opening. I will keep posting pictures throughout the renovation and you can watch our progress -- and see if we can keep to our budget. Happy New Year!