My wife and I just put our earnest money down, and contracted on our first deal. It's a wholesale deal in our own neighborhood, and a hoarder house... it's on the outskirts of the neighborhood, but we're very excited about it! We are financing with hard money, so we'll be trying to get it flipped ASAP. It needs foundation, hvac, windows, floors and cosmetics (basically everything). We are going to do as much as we can ourselves to learn what things actually cost and to save as much as possible during the rehab.
Rehab Estimate: 46k
We close on 8/30. What should we do first? I think I should probably go ahead and change the locks, get a roll-off dumpster delivered, and get the foundation guy out there on 8/31 to get that finished asap. We will spend the weekend getting all the hoarder junk out, and getting rid of all the tile/flooring we're going to replace anyway. Does that sound reasonable?
What should we do next?
First of all congrats! First thing you want to do is order the dumpster to be delivered the day after closing, and change the locks as soon as you do close on the property. The day after you close get your demo crew out there to demo out the junk, old drywall, cabinets, windows, doors, and etc. After you get the interior of the property demo'd get your mechanical contractors(Electrician,HVAC,Plumber) out there so they can start work. It would also be a great idea to get your foundation guy out when the house is demo'd as well so he can start work. Once the mechanical and foundation guy finish, go ahead and get your drywall guy to drywall out the property. Once the property is drywalled, start installing windows, the kitchen, bathroom, flooring, paint and trim, and etc.
That's how I normally run my projects, and they always run smooth unless we run into a permit issue.
You're going to learn a lot....but I don't see much money left in the end, assuming your numbers are accurate.....at least $23k in interest and holding costs-insurance, property taxes, utilities....and 8-10% in selling costs to get full ARV.
It’s good to learn though.
Closing is supposed to be Thursday! I've got a roll-off dumpster arriving Friday to assist in cleaning things out. I think Monday the foundation guys are coming....
I'm nervous as hell... I'm sinking 40k of my own money in, not to mention the hard money :(
@Account Closed take what I am about to say as speaking from experience, but I would rather give you the worst case and hope for better, than give you a best case and watch you struggle.
Have you gotten real, solid rehab estimates? I only ask because some of these items can be big ticket stuff. HVAC, Windows, Foundation, Flooring... these are all $5-10,000 scopes, not a couple thousand (foundation I have only ever done once and it was $25,000 in work).
How many roll of dumpsters do you plan to order? In a house I got that had some items left, I sold a bunch, gave some away and still needed 2 30 yard Dumpsters and 1.5 weeks of my time to remove it. Demo company wanted $3500 to do it, and it was not a hoarder house. This could very well creep up on you if not anticipated.
As far as your order of events, I would first and foremost change locks, transfer all utilities into your name (that won't auto transfer with the sale), get a good solid insurance policy with Builders Risk and then get familiar with the process in your town regarding permit requirements. This is one of the very first calls I make. I determine my game plan and reach out to the inspectors to get an idea of what they want. What permits to pull, who can/has to pull them (licensed GC, myself, subcontractor, etc...) if there needs to be zoning involved etc. Getting a dumpster ASAP is good, unless it is just you doing demo. Personally if I don't have any demo help, I tend to do a good amount of it first, stacking the debris in the garage that way when the dumpster comes, it can be loaded for a quicker turn around. If you leave a dumpster too long, they tend to "gather" debris from others.
Hopefully you have a solid plan and things go quick and smooth!
That rehab seems really low...how'd you'd come up with the number ?
Originally posted by @Matt K. :
That rehab seems really low...how'd you'd come up with the number ?
I don't know the TX market, but I just completed a rehab. My final amount was $45,116.91, not including any holding costs, just straight labor and materials. This was a 1500 SF raised ranch where I painted the siding, replaced one large window, some misc exterior work (trim, and 14 SF of siding patch), Garage door replace, new WH, electrical to code for kitchen/living work, and added bed lights, refinished 900 SF hardwood, added 300 SF engineered, moved a half bath and made it a full bath, added a ductless mini split in the living room and then cosmetics. The roof, windows, siding, foundation, Furnace, main Bath, sheetrock etc was all in great shape. I would call mine an intermediate job. A bit more than cosmetic only, but not even close to a full on rehab. Using the OPs description, I would probably be in the $55-60k range for the rehab, possibly more.
@Brian Pulaski @Matt K. - TX market definitely less expensive than NY or CA, but I would agree with you @Brian Pulaski, your estimate from OPs description sounds in the ballpark of what to expect. I'm just finishing up one myself, only 1,100 SF with new everything and some foundation issues and I'm in the $70k range here in Chicago.
Also, congrats @Account Closed ! Best of luck to you!
I know the Cali market is high, but what's concerning is they are using this a learning exercise. Not that it's bad in theory but if you don't have the experience it's impossible to come up with an accurate estimate. It's also hard to know if contractors are being honest or fluffing the numbers etc...
If the rehab number came from a reliable source then it carries more weight, but if it's just a guess by a wholesaler or someone with no experience it's probably going to be too low.
Bad wholesalers are notorious for lowballing rehab numbers and over estimating ARV... Which can be a disaster if you're going all in on a deal.
The wholesalers estimated 35k for rehab, and a 250-275k ARV. I did what research I could ahead of time, and estimated 46k for rehab, and stayed conservative at 240k for ARV.
I think it's possible/likely that I under-estimated the rehab if I have contractors do it all, but I also know how to do pretty much everything I need to do myself (except foundation repair and HVAC). I did get estimates for foundation repair ($4500) and replacing the parts of the the HVAC that need it (about $6k).
I know my time is valuable, but until I know exactly what something should cost - I will do it myself. I'm using this first deal more as a learning experience than as a gold mine. I'd be thrilled to make $10k after all costs, and have had the experience of getting my first deal finished. This deal will simply educate me more for the next many deals. I know I won't make much on this deal, and I'm fine with that. I just want to get that train rolling down the track...
@Kyle Schlosser - Great advice, and I did that before I contracted. I can probably get close to break-even cash flow, but I'd have to keep most of my cash in the deal. It's definitely a worthwhile "exit" to rent it and see if Fort Worth continues appreciating...
Congrats on getting your first deal! There is no better way to learn than by doing - I've been in construction forever.... and I'm constantly amazed how much there is to learn on every project. keep in mind that while your labor is cheaper than hiring subs, the project will take much longer if you take too much on, and your holding costs will eat you alive. I'm in Grapevine, so feel free to contact me anytime if you're looking for advice or help.... or just want to exchange war stories. Good Luck!
@Account Closed First of all congrats on "doing something"!
I live in the SW side of FTW, I have 4 rentals and am looking to purchase another one on the steps next week if it all works out...
I would love to meet and see what you have to work with. I have only flipped one house and usually just buy and hold, but another set of eyes might not be a bad idea and I don't mind sharing what I have been through.
Send me a message if you would like to meet up somewhere.
SE Squared Properties, LLC