A lot of this may be obvious to some of the readers, but I’m going to mention it anyway.
I own other property in New York and Miami and incorrectly thought that this qualified me to do a flip. Initially, I had thought of buying the property, fixing it and renting it, but now that I have actually spent time and driven around Miami Gardens, I’ve changed strategy to just flip it. Lesson 1, decide in advance your plans for the property. Buy to hold for rents, or buy to flip.
My second and biggest mistake was buying the property without doing an inspection with a GC to understand what my expenses were going to be. In 2017, 3/2 single family homes in Miami Gardens that have been remodeled sell anywhere between 180K and 220K. (Source https://www.realtor.com/soldhomeprices/33054/beds-3)
The family who lived there for 30 years never spent a dollar maintaining or doing any upgrades. Basically, the home looks (inside and out) as it did in the 80s. It was originally built in 1950s and aside from the stove and refrigerator, the kitchen shows that it is from the 1950s.
I met with two contractors. The first one, highly recommended, was nice and professional, two guys, each of them showed up in a brand new – or last year’s -- Ford F150. I try my best NOT to judge people based on what they drive, but I’m human. These two fellows spent over two hours going over everything inside and out; deep conversations in which I actually learned many things. I said I was flying back home the day after and would like a proposal ASAP. The day after I was also meeting contractor #2. I wanted to have both proposals to make a decision, but the another lesson is that proposals come with questions and with assumptions and you should take your time (between 2 and 5 days) to have your questions answered and then make a final decision. I received the proposal and almost had a hard attack. I was expecting something in the 30s or 40s, but they came in at 95K. …. I was going to lose money on this. Doubleshit, what have a done??!! These guys were high end and looked like they hand pick the projects they did and always delivered. I want to do a decent job on this house, but one thing I learned is to build and spend according to what the area supports. Don’t build the Taj Mahal in Miami Gardens because you are not going to get Taj Mahal buyers or Taj Mahal money.
I was so broken by this expensive proposal that I decided I could tackle some of the fixes myself and just hire these guys or another GC, for the tasks that absolutely required a license. So I went to the Building Services division of the "City of Miami Gardens", a very nice building. They were extremely helpful, I sat down with the Spanish guy in the middle window and explained I had just bought a house and wanted to fix some things myself. Of the 10 things I wanted to do, 7 required permits. Of those 7, three (AC, full electrical wiring and plumbing for the bathrooms) required licensed contractors. I could live with that; I thought I could get 4 permits as an "owner builder" (their terminology) and hire out the other 3. Until a supervisor overheard us and asked if I owned the property as a person or under an LLC. I had bought it under an LLC. As an LLC, which she kept referring as an investment company, I was no longer considered for "owner builder" upgrades. I told her I was the sole owner and she said that under an LLC, only a General Contractor could work on the property. I was crushed. As I gathered my papers and got up from the chair, I asked if I could at least remove the old kitchen cabinets and she said "you can't touch anything!" There are so many lessons in that paragraph that my head is still spinning.
The next day I met with Contractor #2. This guy was more reasonable and told me which items to first tackle and what could be done later, once the house passed inspection. He took all the info and will provide a proposal I’m hoping will be around 35K based on the approx. he quoted for the bathrooms. That amount I could live with and many things I will fix myself with my family (garden, interior and exterior paint, cleanup, fence, etc)
In essence, I failed to do my homework prior to purchasing the house. I should have used that time to meet with contractors and to understand what needed to be done (in detail) and what couldn't be done without permits. By the way, I don't oppose the need for permits. I know they are a necessary quality control mechanism. But I just don't like that I can't work on the house because it is under an LLC, even though I am the single-owner of the damn LLC. Any liability protections may end up being negated by the extra expenses I will have. Insurance for the LLC may also be higher.
Yep, tough lesson. But just do you know, even if you buy in your personal name, “owner builder” permits are only allowed if you are an owner occupant (not a flip) and you sign affidavits to that effect.
How did this end up? We’re you ultimately successful? And would you do it again knowing what you know now?
I’m looking at a nearly identical situation in a near by neighborhood. The house is currently completely gutted after the last owner (my mother in law) hired someone to remediate a mold issue. Their contractor dissappeared on them after doing little more than the demo and now the owner is looking to sell it to me for a hot price. It appears to be a great opportunity if I can pull it off but I’m very nervous about the pitfalls.
Thanks for sharing your story. It's good to know that we should buy in our names instead of as an LLC in the beginning. Your post was a great help to us!
James, the project is still ongoing as we hit the Christmas recess and Miami (being a Latin American country) stops working altogether during that time. In all seriousness, even the City of Miami was closed for a while and that delayed the inspection of the electrical work. This has been an education for me because finding the right contractors takes time and work. As I said, I met with three sets of guys and ultimately, it was the combination of one of them + having a family member of mine present that has made the project move forward. Without my cousin onsite, the work would have taken 4 months instead of 2 months. Before starting any project, visualize it from beginning to end. Not only will you need contractors, but you'll also need a competent broker to market the property. Have your funding aligned and be ready and open to accept that many unknowns will pop up and you'll have to adapt, solve the problem and move on. Don't get stuck on arguing with the plumber that he quoted you 2K and now extra work is required because the old pipes were rotted and it's 3K.
Look at the comparable properties in the area and come up with a reasonable average. In other words, don't take the top priced property and say "mine will be as good as this so I'll use that number". Don't be arrogant, be realistic. Suppose it could sell for $300K and you need to invest $100K over X number of months. What should be a good price based on those numbers? The purchase price of the property can by itself define your deal as a good deal or a break-even or losing deal.
This thing is not for the faint of heart and at some moments you will think that you spend all your money and 6 months of effort to break even. But don't lose hope and work hard at it. Again, be realistic and don't fall in love with properties, God knows there's millions of them.
For those new to this, I'd also recommend reading at least one book on flipping. Please, do not be mislead by what you see on TV. There's a lot of editing on those shows and they are packed to tell a story in 20 minutes that took six months to happen (impossible). They leave a LOT of mistakes and lessons out because the lessons are long and difficult to explain and the frantic pace of TV doesn't allow for that. Be ready to learn all those lessons the hard way. But rest assured that if you put in the hard work and are realistic about your expectations, and do your homework about all points mentioned here, you will reduce the number of unpleasant surprises and end up with an asset that can produce money for you in the long run (rentals) or result in a nice bonus if you end up flipping it.
Thanks for sharing. Permits do protect homeowners present and future from unsafe conditions, but 7 permits, ouch. No wonder nothing was updated. Must have a strong GC lobby effort therabouts ;-)
Wayne, you are correct about the LLC. In the end, I ended up leaving my property in the name of my LLC, even though my lawyer offered to modify -- if I wanted -- using a quit claim deed.
The electrical work is the one that should always be hired out to a professional. I have done this and the corresponding permits were filed. What I have seen is that other properties in the area are being fixed little by little, quietly and without every permit the city calls for. There are risks in this and I'm not advocating that everyone does this. What I'm saying is that you should evaluate the work that needs to be done and see if you can tackle it yourself. If you are careful about it and the times that you do it, you can do MOST of it without ALL the permits the city asks for.
When I first bought the house, I went to the city with the list of things I needed and asked what did I need a permit for. Of the 9 things I wrote, the city person told me I needed for ALL of them. Here's the list:
Windows and Doors, Remodel Bathroom, Fix Perimeter Fence, rewire all Electrical, create a second bathroom in washer and dryer room, repair Driveway (pour concrete), Install Central Air, Install New Kitchen.
My cousin is an engineer and knows about code. In addition to also being an engineer, I own other properties and know the difference quality work and shoddy work. Even without knowledge of electrical work, I didn't even think about doing this work ourselves. The electrical had to be hired out and the proper permits needed to be in place. The rest of the work on that list we could handle or have people who could.
Marian, I also believe in permits but I know the difference between bureaucracy and contractors funding the political careers of many in exchange for xxxx or 10 people working in a city office that can run with 4 and those other salaries being funded by permits for everything. There's gotta be a balance.
To each his own. Different strokes for different folks....
@Bill B. Thanks for sharing this ...a very big learning curve for me since I live close to that area and have been analyzing some properties looking for my first deal in that vicinity. Can you recommend any of the contractors you used and send me their details if possible? Thanks!
@Bill B. Hello Bill. Sorry to hear you have had some issues. I believe some of the issues you had would have not necessarily needed a permit. Such as remodeling a bathroom, you can pull a permit for it but if your just doing a cosmetic remodel (tiling, new vanity, mirror, bathtub etc.) it would have likely not been an issue unless you are changing the layout and moving around plumbing etc.. Also the driveway pouring concrete you can pull a permit, but thats something that inspectors aren't looking for. Unless you have actual layout change, pulling permits for everything has got to cost a pretty penny. If it is a simple chainlink fence that needs some repair, or a regular wood fence that needs some boards replace it would be ill-advised to pull a permit for those. Of course for all the necessary areas like electrical, mechanical & plumbing it is a must. Last thing you want is the house catching on fire.
I have a property an in Miami Gardens as well. Your correct on not putting in higher-end finishes. The area needs only the basic finishes. Many properties are old in the area, so as long as the materials are new you should get your ARV price as long as you understand the comps. Comps for a 3/2 run as high as 280K, but usually run around $210-240K. Once your finished with the construction, I would be happy to help a fellow an investor sell the property for a discount rate. I work with a few investors and usually do a flat fee to help save you money.
@Bill B. Thanks for sharing, I guess you learned a lot on this one, no worries we all make mistakes, please feel free to reach me next time if you want an investor on the area to take a look on a property
But how would they know? Who is really watching? What if you were to do some easier things like the cabinets and flooring and have a GC do the rest? Is anyone really going to investigate this?
Working with contractors in South Fl can be challenging especially during the holidays. You need to screen your contractors properly and check the dbpr for any incidents. Also, Knowing what permits are needed prior to purchasing a home is crucial as well to better help you calculate construction cost. If you need any advice with your current project I am always available.
Seems to me like you over thought things and involved too many people in your business unnecessarily.
Wayne, do you always need a permit to do work on your own home? I see a lot of homes in Miami being sold cash due to violations. There’s a tendency to hack up the house and make little studios here.
I think doing a flip without permits is a MAJOR risk, not worth taking. If you cannot budget the construction with the proper permit and contractors, walk away.
I once heard that a flip was done without permits (electrical mostly), they sold a house, it caught on fire and someone died. Guess who went to jail...the flipper. This may not be a common occurrence however doing any work on flips (or any rentals imo) without permits is foolish...
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