"What Happens 10 yrs from now is not your problem"

"What Happens 10 yrs from now is not your problem"

Kennesaw, GA · Member since 2019 · 7 posts · 10 votes

I was recently on a phone conversation with a fix and flip investor who was giving me advise on rehab costs. I explained that a particular house I was thinking of walking away from was not a good deal because it was too heavy on the rehab costs. As an example, I pointed to one of the expenses being the break-up and re-pouring of concrete for the driveway. --My GC is very thorough and knows that if the concrete is not removed, there could be issues down the road... --however, the investor advised to just pour over the bad driveway as a way to reduce costs. 

One thing the investor said stood out to me: "You're not living there, what happens 10 yrs from now is not your problem." 

This brought a lot questions up for me when it comes to being in business as a real estate investor. Having the business mindset of cutting costs is important, but where do you draw the line on cutting rehab costs? Especially when you are fully aware of the consequences that will fall on your future buyers when making the decision to short-cut costs. 

This hit an ethical cord that I did not agree with... is this the general mindset behind "successful" fix and flips? Are most flipped homes a pandora's box of house repairs just waiting to unravel?? 

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Investor · Tampa, FL · Member since 2011 · 2k+ posts · 3k+ votes
7y

To answer your question directly - There is no general mindset when it comes to fix and flips. Every fix and flipper has a different mindset, it depends on the person. Some are short sighted and cut corners, some have the long game in mind. I don't pretend to know the ratio of bad to good, but each person's opinion on this is going to vary depending on the limited flippers they've been in contact with. 

@Jim K. What degenerate circle of people have you been hanging around that gave you that warped perception of the American way of life? Sounds like you need to do business with different people, or turn the national news off. 

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  • Real Estate Broker · Bakersfield, CA · Member since 2018 · 269 posts · 597 votes
    7y

    I'm quite on board with the sentiment that what happens 10 years from now is not my problem. That said, we also don't cover up problems as they'd likely manifest themselves a lot sooner than 10 years from now. Exactly how bad is the current driveway? It would have to be pretty dang bad to not serve as something able to be driven on. I'm of a mind that it's better to leave something alone than to halfarse it. 

    It's easy to want to skewer flippers for not fixing everything to perfection. The funny thing about that is, while buyers like to demand perfection, they rarely want to pay for it. In the end you have to deliver what they're actually willing to pay for.

  • Investor · United States · Member since 2015 · 415 posts · 487 votes
    7y

    There's nothing wrong with skipping certain updates and repairs if you don't feel they will add much value, as long as you are transparent about their condition. I wouldn't ever replace a working 7-year-old water heater, or lightly used kitchen appliances, for example. On your flip you could hypothetically decide not to repair the driveway. The buyer can easily note the age of all those items and knows what they are getting. Nothing unethical about that. You don't need to fix and update every last thing on a house to make it a good value for the next owner.

    When it becomes unethical is if you are doing something incorrectly and covering it up.

  • Investor · Menifee, CA · Member since 2015 · 534 posts · 216 votes
    7y

    @Angela Vargas how we do this is we would have a check for a certain amount we agree upon for the buyer at close of escrow. So if your new driveway they would want cost 6K then we would negotiate whatever price, let’s say we pay half, and we send a 3K check to escrow for the buyer to get after close of escrow.  Buyers like this more cause they have cash in hand at close! They do t necessarily have to do the driveway and do whatever they want with the cash. BUT IT GETS THE DEAL DONE INSTEAD OF THE BUYER CANCELLING and you didn’t have to pay for the whole thing up front. Now certain things do increase the value for what you pay for it like new kitchen, flooring etc etc but some things wil not give you back as much as you spend on them so better to negotiate sometimes after you open escrow with buyer and homeinspection report comes back. 

  • Real Estate Agent · San Antonio, TX · Member since 2017 · 814 posts · 466 votes
    7y

    I'm not a fix and flip investor, but I'm a civil engineer.  Doing what it was suggested (not your problem after 10 years) is an ethical issue by just trying to convince the owner of some repairs that eventually will need more expenses/money towards the "temporary fix".  Was the mindset and agreement to fix the repairs to last 10 years?  If so, then I don't see anything wrong.    

    Regarding driveway repair from a technical standpoint:

    1. "Pour" over the existing driveway is not the best solution.  Most likely, within 1 year you will see cracks developing on the same previous locations, unless heavily reinforced concrete with a good 6" or so in thickness.  One issue will be the elevation of the driveway to make a smooth transition to whatever is attached. 

    2. If the slab is severely crack, the problem is under the concrete, such as aggregate base course or subgrade.  The "fix" should be removing the slab, remove or recompact the subbase, then place the concrete.  

    3. There is a possibility of rehab.  One option is to seal the concrete cracks properly, chip the concrete surface, drill anchors into existing concrete, add a reinforced wire mesh, spray or add a bonding agent, then place the concrete overlay (minimum 2 to 3").  

  • Greg H.Pro Member
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    Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes
    7y
    Originally posted by @Angela Vargas:

    @Lacey Anne Saggio  I couldn't agree more! The idea behind setting up realistic expectations like the example from the show you just gave, is awesome. This post sheds light on flip/rehab investors being transparent about the work they do, and not deliberately cutting corners to make a profit, knowing this will become the buyers problem in the future. @Greg H. However, if a problem is foreseeable ten years from now, and the investor is aware of it, it should be addressed somehow. 

    @Jeremy Benezra said it well, a buyer should expect only normal maintenance issues to pop up. That should be standard.

    @Kim Tucker thanks for your post. Again, i'm glad to see this perspective more than once, having a big picture mindset is so important. 

    Thanks for emphasizing the importance of a strong positive reputation in the field @Ned Carey! The positive feedback loop is very true. Again, a big picture mindset and treating others with the same integrity you would want to be treated with, excellent high value post.

     So if I know the hot water heater is 5 years old and the typical age  is 10 years in my area if not maintained properly I should address it ? How so ?

    If the roof is 12 years old and the average is 20 years, how should I address it ?

    Stove is 5 years old....How should I address a perfectly functioning stove ?

  • Rental Property Investor · Upstate, NY · Member since 2012 · 3k+ posts · 3k+ votes
    7y

    I guess it depends on who's watching & who you are when it comes to sleeping at night.

    We did a complete interior rehab of an old home last year that had every level of Bldg Inspector crawling over it. The Italian Elect. Insp., spent 2 hours showing my wife how to mud corners, the mean top dog inspector noticed we put up 2 12ft LVL beams when we only required one, but for the expense it was worth knowing the static load would hold '10 years from now'. My partner at the time bailed because we were NOT cutting corners & he found the work time consuming, expensive & too involved to comprehend. When it was finished & the various inspections were completed my wife went down to have them all signed off. The secretary told her that the mean dog inspector had told the staff that  they should all look at the home we did to see what should be done. He never admitted that to us.

    I've seen a lot of rehabs in various stages of completion that are going to be a nightmare for the new owners. 

  • Flipper/Rehabber · Chattanooga, TN · Member since 2019 · 3 posts · 6 votes
    7y

    @Greg H.

    On your examples I would say it all depends on the quality of the materials and their current condition as they sit.

    For the roof, what part of the country is the home in and how did it wear? Are they low-grade shingles or better quality architectural shingles? Is there visible damage or wear? Could it benefit from just being cleaned? Is the flashing rusted or bent? If the roof is in good condition, gutters have been cleaned and maintained and is 12 years old, I would do a thorough inspection by a reputable company address any issues and leave as is. Most shingles have a 30 year life as I understand it.

    5 year old water heater, I would ask the same questions about being maintained and where it’s located in the home, is there any visible damage or rust? Is it up to code as it is installed? A water heater is relatively inexpensive and easy to replace and is a feel-good item for buyers. I might lean toward replacing that one but it could go either way.

    5 year old stove- is it electric or gas? Is it old school elements that could be replaced? Or is it just dirty and could use a good cleaning? 5 years old would not need to be replaced if in good working condition.

    A big portion of these questions are influenced by your market and standards those buyers have come to expect. Kitchens are major in flips rights now imho, but to the op and her questions, really the roof would be the most applicable example of “kicking the can down the road” but even still isn’t an automatic full replace. Homeowners can expect to eventually replace a stove or a hot water heater, and the roof too, if they are buying for 20-30 years. I like the idea of asking, “how likely is it this will fail in 10 years?” I have to go back to Nathan Brooks concept of establishing a reputation for high quality flips as opposed to “lipstick on a pig” quick dumps. Home ownership still requires maintenance by the buyers though! So a reasonable amount of responsibility falls on us, but not all.

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