Lessons in House Flipping in Tampa
So I thought I'd share a little post on some of the lessons I've learned in the last year and a half. During that time span I have been involved in 22 flips throughout Tampa Bay as an investor, a developer, and an agent. There have been some common pitfalls on the deals that didn't work out and some common features on the deals that did. Hopefully sharing this information can help some of you along on your journey. I'm going to try to keep as much of this specific to Tampa as possible.
Housing Types
A large portion of the housing in Tampa Bay that you'll find when searching for a flip was built either during the 1920s or the postwar period of 1945 to 1960. The 1920's homes tend to be wood frame bungalows that were built on crawlspaces and the postwar homes were these G.I. Huts built out of block on slab. There are some common pitfalls in each of these housing types to consider.
The 1920's style bungalows often have foundation issues. The pier & beam system will often lead to foundation slips. The soft florida soil and high water table leads to these slipping overtime. Fortunately, this is easier to repair than it sounds. Avoid just taking your G.C.'s bid when they try to hit you up for a change order on this kind of repair. Hire the engineer yourself to draw up the plan to repair, bring it to your contractor and get the bid. Don't be afraid to shop for your own sub here either.
Another issue I've seen with the 1920's style bungalows is that some municipalities (*cough* St. Pete *cough*) will go out of their way to get you to bring the house up to the current hurricane code. Do yourself a favor and save yourself a failed inspection, any walls that you've opened, tie down the framing with Simpson connectors. They're cheap, it's a quick job, will add to the structural integrity of the house in the future, and the inspectors will take it easier on you. Technically, if you're doing a level 2 alteration I don't think you NEED to do this, but it will save you some grief from the building department.
The post-war houses have their own issues. Foundation issues are easy to spot (Just look for step cracks rising up the exterior walls.) Many of these homes started as 1200 square foot huts that were expanded on over the years by adding extensions, enclosing garages, etc. This can lead to some strange features such as different floor levels, varying ceiling heights, and strange layout choices. Today, most of these houses range from somewhere between 1300 and 2000 square feet of heated space. Central air systems in these homes would have been added later on, so ductwork is often located in a very small attic crawl space. Pray that your ductwork is in good order because it's a pain to replace and very difficult to work in these spaces.
Plumbing
Many of the 1920's style homes built on crawl spaces will have already had at least some of their plumbing replaced. It's usually easy enough to access the plumbing in the crawl space, so if you don't see PVC under there I'd strongly recommend considering replacing what is there.
On the post-war houses, things get really bad. Most of these homes were built with galvenized steel plumbing. It's brittle, and it breaks. As soon as that plumbing breaks, you wind up get backups constantly. Even if you're flushing the toilets fine when inspecting the house, oftentimes the second a piece of toilet paper goes down that line, it hits the break and starts to clog up. Even constant clearing of the line doesn't hold up after a few days.
Check building department records for any home you purchase build between 1945 and 1965, if there has not been a permit filed to replace the plumbing, YOU MUST REPLACE THE PLUMBING. Buyers know about this problem, agents know about this problem. Don't try to get away without doing this.
I had a buyer with a horror story. We had a flip and the plumbing had been inspected by the GC and the plumber, we were told that it was fine. I had a buyer for the house and her inspector recommended an inspection of the pipes. They ran a camera down there and discovered scale deposits in the pipes. My seller paid to have the pipes de-scaled, and the buyer closed on the house. A few weeks later I ran into the buyer at a party, turned out we had a mutual friend. I found out that right after closing they found out there was a collapse in the pipes and had to re-pipe the entire house. They were getting very high quotes and I felt terrible that this had happened to them. I hooked them up with my plumber and got them a better deal on the job, but it would have been much easier had we just done the work when the floors were opened. Yes, it would have cost my developer money, but we also could have lost the deal had the problem with the plumbing been discovered prior to closing. Frankly, any house that I put my name on as an Agent or a Developer I want to be perfect so I can stand behind the sale.
Water supply lines should be looked at as well. You can sometimes end up with a bit of rust in the lines but usually this is cleared if they are run constantly. However, if you've already got everything else open, you might as well run new supply lines as well. CPVC for underground and through the walls /attic and PEX anywhere that requires a weird turn. You don't need to use PEX here in Florida like you would in the North because there's no worry about pipes bursting from freezing conditions.
Bottom line: Calculate the cost of new plumbing when doing your rehab estimate, you're going to need it. Also, shop around. If you see plumbing trucks on a job site, talk to those guys. Oftentimes the project foremen are able to book their own jobs at a reduced rate than calling the plumbing licensee directly. The licensee will still oversee these jobs but you won't be paying the full rate.
Electrical
You should probably budget a re-wire into any rehab budget you have as well. Typically, the 1920's style bungalows were built with old knob and tube style wiring (often this will have already been replaced, but the quality of the replacement work is questionable and sometimes features a lot of code violations.) The post-war houses usually have their original wiring which is aluminum wiring covered in cloth. This wiring is a fire hazard because of resistance issues and the point of contact.
Now, you'll hear some terms thrown around like "alumiconn remediation". What they'll do in these cases is use a lug to connect some copper wire onto the old aluminum wire before the point of contact. I'd say this is the bare minimum in what you should do during a flip to prevent fire hazards, but truly this really isn't enough. Oftentimes there's a lack of ground in these wire runs, no GFCI's in wet areas, combined with aging electrical panels.
The right way to do it, is to replace all the wiring in the house. Have your demo crew cut a chase along the walls leading to all outlets, open the ceilings where you need to, and get your electrician to rewire the entire home. Make this part of your plan, you'll be glad you did. I recommend adding modern features like USB outlets in the kitchen islands to add to the "new home" feel that's gonna get buyer to pay top dollar. You can upgrade the electrical service to make sure you have plenty of current for the entire house. Plus you can sleep easier not worrying about aluminum wiring in a house you worked on starting a fire.
Bottom line: Budget for a rewire
Air Conditioning
We all know how hot it gets in Florida, so central A/C is a must. Many of the units you'll find on your flips still use Freon, which is no longer being manufactured as of 2020. The prices on Freon are rising and will continue to rise in coming years as it's only available from existing stock and aftermarket sales of refrigerant recovered from decommissioned systems. Do your future buyers a favor, put in a new system with R-410a. The newer system will be MUCH cheaper to run from an energy efficiency standpoint. And any buyer looking at a flip-house will like knowing that everything is brand new, they don't have any big expenses coming down the road in the immediate future.
Roofing
There's plenty of info out there on roofing issues when flipping, so I just want to keep this Tampa specific: flat roofs. On many of the post-war houses, you'll find extensions that were built out of old exposed porches with flat roofs. Almost always, you're gonna find leaks here. These flat roofs don't last very long, and wear away in the Florida sun very easily. As someone who has learned this lesson multiple times, I promise you this: If you don't replace your flat roof, it will never leak . . . until just before you put the house on the market.
I think the best solution for these flat roofs is to get a TPO roof installed. They're inexpensive like a rubber roof, but the seams get welded so it's very durable like a PVC membrane. Make sure they run the seams up below the roofing tiles where the flat roof meets the pitch.
Location
One thing to say here: don't buy on a busy street. I don't care if it's the best house, in the best school district, with the best backyard, in the best neighborhood. If it's on a busy street, buyers will be scared away. I have a client that did a deal on a house on a quiet street but with a retail store across the street on the side of the house. This property is selling WELL below what the value would be a few doors down.
Tampa has some streets that although they aren't 4 lane thoroughfares, they're busier (especially many of the streets in South Tampa that run North/South and Euclid which runs East/West.) Homes on these busier blocks sell for significantly lower than those on their surrounding quieter streets. If you are going to do a deal on one of them, only comp them against other homes on the busier blocks.
Managing The Flip
For many of you from the area that are reading this, you'll be managing your own flip. For those of you who are from out of the area that are considering investing in Tampa, I can't stress enough how important it is to have "boots on the ground", ideally someone with a financial stake in seeing the project succeed.
I strongly recommend against simply turning over the project to a G.C. and hoping it all goes well. You'll be hit with a constant barrage of change orders, ridiculous mark ups, and work delays. I've seen too many GC's that roll money from one job into another, leading to work stoppages. They over-extend themselves too often, and try to make up for it any way they can.
Of the 22 houses I was involved in during the last year, I served as developer on 6 of them. The other 16 I was not involved in the development outside of providing some consultation when things went bad. Of the 6 I was the developer on, 5 turned a healthy profit. The final one was a small loss (roughly $5,000) however I wasn't brought into that project until after things had gone sideways.
Working with a developer will cause you to give up some of your equity in the house, leading to a lower profit. But if you've got someone driving the project on, with an incentive to keep costs down, it will be worth every penny.
Outlook
One last thing, I think the future coming out of Coronavirus is going to be very bright for Tampa. Most of our major development projects were too far along to be stopped (Waterstreet, Midtown, Marina Pointe, etc.) People are fleeing down here from the North East at a record rate. I'm amazed at some of the calls I've gotten since lockdown started.
As we start to emerge from this period of lockdowns and slowdowns, we're going to see what I predict to be a very brief period with alot of deals on the market. When eviction and foreclosure moratoriums end, you're going to see a period this summer where there's an opportunity to buy a bunch of houses below market value. With what I believe to be a long term outlook that is truly bright, Tampa is a great place to invest in in the near and long-term future.
I hope this helps some of you. Feel free to send me a colleague request if you have any questions or if there's anyway I can help you out.
Fantastic Stephen! I will be sharing with everyone I know!
What are your feelings about original or windows from the 80's. I often see flips where these are not replaced, and I see this as a red flag. Do you always budget for these?
Adam,
Glad you brought that up. I actually meant to include this in my original post but it was already getting kind of lengthy.
Firstly, if you have original (normally aluminum) windows, don't think twice, just replace them. You will never get top dollar for a home with those old windows.
Now, if the house has say updated vinyl windows from the 80s or 90s (non-impact) is where you wind up with a bit of a question. Single pane vinyl replacement windows you can *kind of* getaway with leaving in. You may want to consider installing storm shutters though (I know, they're ugly) or at least keep the possibility of installing them for your buyer on the table.
What I really prefer to do, is replace with impact glass. If you're putting new windows on the house, do not waste money on non-impact windows. The difference in price between impact and non-impact is actually not that great per window if you are buying standard sizes. My recommendation is American Craftsman. They're a vinyl impact window originally sold by Silverline that was bought out by Anderson and is sold by Home Depot. They're affordable, look great, and are impact rated. Don't waste money on custom windows. Either expand or enclose the openings to accommodate the standard sizes.
As a Realtor, the question of impact windows comes up on almost every showing. Do yourself a favor, spend a few extra bucks, and do it right. This is definitely an area that buyers see the value in.
Well said, I personally point out aluminum windows everytime! Personally, most of my clients (and definitely myself) would rather pay more money for a COMPLETELY updated home, not just minor cosmetic fixes.
Great article Stephen. Very helpful for someone like me that is into their first year as an investor.
Thank you for this highly informative post Stephen. I am getting started so I have been tracking many properties from afar during COVID... Your post is very timely as we start making offers.
@Stephen Dispensa how do you typically finance your flips?
Wow. That's one hell of a post Stephen! Thank you for that.
Originally posted by @Eddie Salem:@Stephen Dispensa how do you typically finance your flips?
Great question. There's a couple of different ways my deals are funded. Let me break down how I run a typical deal, and you'll see the funding steps in there:
I identify a deal. Could be an on-market deal that I get at a great price or has hidden value, could be a deal from a wholesaler, or could be a deal I found through networking, etc.
I tour the property and film video of it. Usually I'll talk about the work that needs to be done, ideas to open up walls, close in porches to extend square footage, etc.
I do a comp analysis of the property to get an idea of resale value. I keep these numbers VERY CONSERVATIVE. Market conditions can change rapidly.
I also do a rehab budget. My trades I have pretty set prices with and know what they'll cost based on the size of the house. My GC receives a flat fee to oversee the project but I no longer let GCs hire out labor or source materials. Too many bad experiences. Plus when there are setbacks with building department on a flip (and there always is) I've had GCs tuck tail and run or try to bang myself or other developers over the head with change orders. Materials I source myself. I have wholesale accounts for flooring and countertops so that saves a ton on those materials. General building supplies will come from Home Depot or Lowe's, and specialized lumber, etc. will come from some of the lumber yards. For tiles I've had the most luck with floor and decor. No real discounts there but prices are generally good and they have a great selection.
Once I have all this info: video tour, CMA, and rehab budget, if the numbers make sense I bring the deal to a network of investors. Some are from here on BP, others are investors I've met over the years through this business and others, and some come from the NVREA network (I got linked in with them through some other investors years ago and my name has traveled in that circle through satisfied investors.)
Now, once an investor has told me they're interested in the deal, the structure works like this: as a real estate agent, I keep any commission paid out by the seller on our purchase of the house. In the case of a wholesale deal or off-market deal, I build in a small fee just to use my real estate license for representation (around $1,000 because I have a minimum I have to pay my broker.) I also take a small equity stake in the house in exchange for the sweat equity of running the rehab. (Every deal is different but this amount is usually 15% on a deal that I don't have under contract. Sometimes, when I see a smoking hot deal I'll make the offer myself. When I bring this to an investor I usually ask for a bigger share of the pie, around 30%.)
Now my investor is usually responsible for funding the flip at this stage. We've done multiple things: hard money, HELOC's, private money loans, all cash, it varies a bit here. Some guys have set up self managed 401k's and IRA's to invest in real estate (there are some complications with those structures sometimes though so you need to be careful you know what you're doing. In particular lenders have a problem working with them).
From there, the deal closes. I usually make a small commission on the way into the deal. Then the rehab starts.
I manage the rehab, I consult with the GC, Architect, and Engineers to make sure everything is going properly. I also do all the expediting and interfacing work with the building department to make sure we pass inspections. Learning the inspection process is the single most important thing you can do to ensure your flips run smoothly. I also hire out all the trades, and make sure all the material orders are processed properly. Big items: cabinets, flooring, tiles, countertops, doors, windows, fixtures, appliances, etc. I make sure that I order all that myself. I also am an absolute fiend for finding deals. Every time there's a holiday weekend I'm making sure we stock up on appliances because of the deals that are offered. For the smaller items (building materials, etc. I usually let the head of my main labor crew working under the GC pick that stuff up in the morning before heading to the jobsite. We either do a phone payment from the company account setup to manage that property, or they put it on their credit card and I drop them a check later that day. It's just easier to let them do this because I don't want to have to run to Home Depot myself for every box of screws. I'll also say that I spent alot of time vetting these crews and I know that they're honest because believe me, I double check every receipt.
From there, we wrap up the rehab, I list the house as the listing agent, and hopefully we get an offer in line with our expectations. I charge full rate commissions for the listing as I do a full service listing (video tours, open houses, paid marketing, etc.) but in the event that the project runs over budget or is in trouble, I do cut this amount. I do not make money if the house loses.
But if everything goes right, the deal closes, I make a commission and a small share of the profits, my investor gets the lions share of the profits, and everyone is happy and ready to move onto the next deal. It doesn't always go this way, but even in the bad deals I've been able to limit the damage quite a bit just due to the experience I've built up.
@Stephen Dispensa Thanks for clarifying, it sounds like you have it down to a science after many successful deals. I am going to do some research on NVREA. Would love to connect next time I am in the Tampa area.
Good summary.
Well said!
Thanks for the details, very helpful! Do you have any experience rehabbing multi-families and anything to look out for?
hi @Stephen Dispensa! sorry to revive this old thread but i just came across your post and wanted to let you know how much i appreciate the specific and thorough overview and insights. i'm in boston, but my dad lives in new port richey. i've been looking for some type of small (2-4 unit) multifamily situation in the st. pete area. i'd like to use it to facilitate more frequent visits to hang out with him and escape from up here periodically while having at least one unit generating year-round rental income. i have no qualms about taking on fixer-uppers and i am in agreement with you about doing the work right the first time, even if that means spending a bit more money and/or time to do so. i recently stumbled across a few properties that seems intriguing, to say the least. was considering flying down to check them out but then i realized it's school vacation week so fares are triple what they are next week. i would love your perspective on them ; it's definitely a unique situation and while i do love a challenge it's difficult to assess exactly what kind of challenges to expect in this case. your post here was a very helpful little push towards the direction of starting to see this whole thing taking actual shape as an actionable plan, so whether i hear from you eventually or not i will remain appreciative forever :D thanks!! xo m
@Stephen Dispensa Thank you for this very thorough post extremely helpful. I am curious though. It sounds like you are doing basically all the heavy lifting, why don't you just finance the whole thing yourself? Seems unnecessary to give away most of the profit to an investor if all they're doing is the financing?
@Stephen
@Stephen Dispensa Thanks for sharing! This type of info is incredibly helpful in learning the market.
Quote from @Luka Jozic:
@Stephen Dispensa Thank you for this very thorough post extremely helpful. I am curious though. It sounds like you are doing basically all the heavy lifting, why don't you just finance the whole thing yourself? Seems unnecessary to give away most of the profit to an investor if all they're doing is the financing?
Luka,
Every deal is different, and I do put my own money into certain deals. I've also stepped back from House flipping since early 2020 as acquisition prices skyrocketed during the pandemic. However, the difference is that when JV'ing deals and project managing, I can have many flips going at once, without coming out of pocket, AND giving a great return to investors. Yes I'm doing the heavy lifting, but I am also earning: 1. a commission on the purchase (usually) 2. a commission on the sale (so long as returns are solid, if not I do cut my commission to ensure investors don't lose money) and 3. An equity stake in the property in return for managing the project. Simply flipping on my own would not offer nearly as many opportunities as partnering does.
Quote from @Rob Drum:
@Stephen
@Stephen Dispensa Thanks for sharing! This type of info is incredibly helpful in learning the market.
Happy to help Rob, feel free to DM me if you have any other questions about the market.