Second Story Addition Portland Oregon

9 Replies

Hi BP'ers -

We have been searching for some time for an opportunity to do our first flip here in Oregon.  Inventory seems to be tight and we have yet to find that great deal.   However, we came across a recent listing for a 1 story house, 1800 sq ft in a great neighborhood with predominately 3K+ sq foot houses.  

Per the city ordinances, we can add 1,200 sq feet through a second story addition.

When we do our spreadsheet for all of the estimated expenses - construction and carrying costs, etc., we are coming up with a cost of $250K.   Are we estimating high?   

Included in that cost is some remodeling of what will be the first story - new kitchen and updated bathrooms, flooring, etc.

We think we could get the property ideally for $375K and it would be worth anywhere from $650-$700 when done.   $650 would mean we are basically losing money/barely breaking even if our estimates our right.    

Any thoughts/ideas from folks who have done this?

Also, anyone got any good recommendations for reliable general contractors in this area?

Any help is greatly appreciated -- thanks in advance!

David

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The first thing I'd suggest is that you get a better handle on your ARV (aka selling price)

The 50k variance between 650 and 700 is much too broad particularly since it represents the difference between making a profit and taking a loss. Your real estate agent can help you get a more accurate number.

I'm actually in the process of adding a second story to a house in N. Portland right now. I'm by no means an expert but am happy to share knowledge. Feel free to PM me.

My concern would be how much time would this take from completing other deals. If this project would take you 3 or 4 months to net $25k = 650-(375+250) then it probably wouldn't be worth it. Especially if you could do 2 flips for 15-20k in less time with less risk. Just some things to keep in mind.

I'm far from an expert, but if you are in it for 625 and make 700 then you get 12% return but if you only get 650 then its not even 4%.

@Jessica S.

Jess said it best when she advised to get a better handle on your ARV. That $50k gap is a variance of over 8% return.

All the best,

Rod

Edit: I didn't consider financing/using OPM (other people's money) when calculating the return. If you financed with a loan and put little down, then the return on YOUR money would be much much higher obviously.

My limited experience with improving both raw land and any construction, is that it will take much longer than your worst case estimate, and cost much more, too.  I don't think you have enough wiggle room here.

And there will always be a market for a smaller, less-expensive home in the middle of a great neighborhood.  Sure you don't want to rent it?  Could be a great rental with long-term tenants who want to be in a great school district (assuming it's in a good school district, too).

Originally posted by @Jessica S. :

The first thing I'd suggest is that you get a better handle on your ARV (aka selling price)

The 50k variance between 650 and 700 is much too broad particularly since it represents the difference between making a profit and taking a loss. Your real estate agent can help you get a more accurate number.

I'm actually in the process of adding a second story to a house in N. Portland right now. I'm by no means an expert but am happy to share knowledge. Feel free to PM me.

Thanks Jessica! We think that ARV is realistically 675. We could potentially get up to 700 but it means we would probably have to let it sit longer. 650 is kind of our worst case scenario if for some reason interest rates go up or the market slows by the time we are able to complete the project. Thanks for being willing to help share knowledge - will PM you.

Originally posted by @Roger Smart :

My concern would be how much time would this take from completing other deals. If this project would take you 3 or 4 months to net $25k = 650-(375+250) then it probably wouldn't be worth it. Especially if you could do 2 flips for 15-20k in less time with less risk. Just some things to keep in mind.

I'm far from an expert, but if you are in it for 625 and make 700 then you get 12% return but if you only get 650 then its not even 4%.

@Jessica S.

Jess said it best when she advised to get a better handle on your ARV. That $50k gap is a variance of over 8% return.

All the best,

Rod

Edit: I didn't consider financing/using OPM (other people's money) when calculating the return. If you financed with a loan and put little down, then the return on YOUR money would be much much higher obviously.

Originally posted by @Roger Smart :

My concern would be how much time would this take from completing other deals. If this project would take you 3 or 4 months to net $25k = 650-(375+250) then it probably wouldn't be worth it. Especially if you could do 2 flips for 15-20k in less time with less risk. Just some things to keep in mind.

I'm far from an expert, but if you are in it for 625 and make 700 then you get 12% return but if you only get 650 then its not even 4%.

@Jessica S.

Jess said it best when she advised to get a better handle on your ARV. That $50k gap is a variance of over 8% return.

All the best,

Rod

Edit: I didn't consider financing/using OPM (other people's money) when calculating the return. If you financed with a loan and put little down, then the return on YOUR money would be much much higher obviously.

 Thanks Rod – totally agree. We've never done anything like this before so want to make sure the payoff is worth the risk. We were more excited before we started putting pen to paper in the budget and realized that we're getting up into the $250,000 range based on just our estimates.  But we weren't quite sure if that was just a function of our inexperience in a project this size or not. We have a lot of other remodel experience but nothing as major as putting on a second story. Unfortunately as a rental, the numbers don't work --we would be losing money every month at its current size.  Starting to feel like this might not be the right one… :(

Thanks again!

Originally posted by @Sue K. :

My limited experience with improving both raw land and any construction, is that it will take much longer than your worst case estimate, and cost much more, too.  I don't think you have enough wiggle room here.

And there will always be a market for a smaller, less-expensive home in the middle of a great neighborhood.  Sure you don't want to rent it?  Could be a great rental with long-term tenants who want to be in a great school district (assuming it's in a good school district, too).

 Thanks Sue! Totally agree....Time and cost of a way of sneaking up on you!  I think that's what we are most afraid of. Just a bummer because it feels like we keep trying to find the right home to begin our flipping adventures and we continue to strike out. The dream lives on though –our goal is to find something this year to do as a flip. The cash flow wouldn't work for us as a rental unfortunately.

Thanks again for the advice!  This place is so great to really get an unbiased gut check which we definitely need!

Thanks, 

David

If the house is listed, is it REO or is it going for retail? If retail, that's probably too much from the start, although I'n not familiar with your market. The construction costs don't seem too crazy to me for what you're trying to do, but it depends a lot on your labor market and could vary a lot with the extent of the remodeling. Part of your estimate also needs to include a contingency for unexpected discoveries that always happen in a remodeling. I would suggest 20% or more. This is your first deal - sounds like a lot going on!

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