Contractor · Olmsted Falls, OH · Member since 2012 · 24 posts · 7 votes
To all:
I recently finished a flip, after it was done I had a friend who saw what we did told her sister (who apparently is in the market for a new house this summer) and now the sister wants me to do the same for her. Basically a Cleveland version of HGTV's Fixer Upper. She wants me to find the house, purchase said house, rehab it (to their specific wants/needs), then sell it back to them at market value.
Now, bear with me as I have yet to sit down with these people and know next to nothing of their budget, area, etc....they just wanted to know if would be interested. I am here to find out if anyone on BP has done this type of work for a client, and if so, what are/were the guidelines you used in the deal. I am intrigued at the possibility of doing something like this but it also scares the hell out of me. My concern is we do all this work, the deal falls through for a myriad of reasons and I am stuck trying to sell "their house". So....again if anyone has any useful input as to even what kind of questions should be asked when we sit down I am all eyes. Thanks for your time.
Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
10y
Originally posted by :
It's just that I don't want to be a G.C. for their rehab project when I can just do my own and put more money in my pocket.
You have to choose between the above (putting more money in your pocket) and minimizing your risk -- you can't have it both ways. If they purchase the house and you renovate it, you're essentially playing the role of GC -- this reduces your risk and your payday. If you purchase the house and act as the "builder," you obviously take on more risk (if they back out, etc), but increase your margins.
If you haven't flipped a house before, I highly recommend not doing your first as a custom renovation. There are too many things that can go wrong, and even with a bunch of experience, it's highly likely that something WILL go wrong. Perhaps the buyers will change their minds, perhaps they won't feel you gave them exactly what they wanted, perhaps the market will drop, and if you've done renovations that aren't marketable to a wide segment of buyers, you may have to do a new renovation to resell.
If you do move forward as the "builder," I highly recommend you work with a knowledgeable attorney to get a rock-solid contract, get a big deposit, and make sure the numbers work in your favor at all points in the process.
I recently finished a flip, after it was done I had a friend who saw what we did told her sister (who apparently is in the market for a new house this summer) and now the sister wants me to do the same for her. Basically a Cleveland version of HGTV's Fixer Upper. She wants me to find the house, purchase said house, rehab it (to their specific wants/needs), then sell it back to them at market value.
Now, bear with me as I have yet to sit down with these people and know next to nothing of their budget, area, etc....they just wanted to know if would be interested. I am here to find out if anyone on BP has done this type of work for a client, and if so, what are/were the guidelines you used in the deal. I am intrigued at the possibility of doing something like this but it also scares the hell out of me. My concern is we do all this work, the deal falls through for a myriad of reasons and I am stuck trying to sell "their house". So....again if anyone has any useful input as to even what kind of questions should be asked when we sit down I am all eyes. Thanks for your time.
Charles-
Congrats, sounds like you had a great experience. Now, to the soul of your question, your risk and fear is real. You may get stuck trying to sell their house. They must secure the home and be the party responsible, not sure you want to take on that risk, with no safety net.
Contractor · Olmsted Falls, OH · Member since 2012 · 24 posts · 7 votes
10y
@Steven GesisThanks, and yes we did well on the flip! That's what I'm trying to build (my safety net) I also don't want to meet with them without any information. I came to the same conclusion as well about making them purchase the house with their own money. It's just that I don't want to be a G.C. for their rehab project when I can just do my own and put more money in my pocket. Either way I will sit down and hear them out, I guess considering there is a t.v. show about this stuff there must be a market for it......right?!?!
Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
10y
Originally posted by :
It's just that I don't want to be a G.C. for their rehab project when I can just do my own and put more money in my pocket.
You have to choose between the above (putting more money in your pocket) and minimizing your risk -- you can't have it both ways. If they purchase the house and you renovate it, you're essentially playing the role of GC -- this reduces your risk and your payday. If you purchase the house and act as the "builder," you obviously take on more risk (if they back out, etc), but increase your margins.
If you haven't flipped a house before, I highly recommend not doing your first as a custom renovation. There are too many things that can go wrong, and even with a bunch of experience, it's highly likely that something WILL go wrong. Perhaps the buyers will change their minds, perhaps they won't feel you gave them exactly what they wanted, perhaps the market will drop, and if you've done renovations that aren't marketable to a wide segment of buyers, you may have to do a new renovation to resell.
If you do move forward as the "builder," I highly recommend you work with a knowledgeable attorney to get a rock-solid contract, get a big deposit, and make sure the numbers work in your favor at all points in the process.
Property Manager · Brecksville, OH · Member since 2014 · 486 posts · 464 votes
10y
Charles... another approach is for you to buy the home, do the rehab,etc. Make sure that market value includes your acquisition cost, plus holding cost (taxes, insurance, etc), plus your rehab cost, and then about a 25% to 35% profit margin on your total investment. This is about what you would (or should) expect to make on your own flip.
You can structure the deal as an option to buy the house upon completion for a certain amount as calculated above. The cost of the option would be an amount to cover you if they back down (example: $10,000 or 10% of the expected final price). This way, if they back down for any reason, they loose the "option" amount, which will the allow you to sell their "custom" home to someone else and have less risk.
I am not an attorney, so make sure you get an attorney if you decide to go this route. I am sure one or more will comment on this idea for you.
Investor · Cincinnati, OH · Member since 2012 · 506 posts · 331 votes
10y
If I were acting as a rehabber in this case, I'd be very concerned about the ability achieve the Chip/Jo look at a price that would allow you to make a profit by selling at market value when finished. Chip/Jo take the 2nd approach - the homeowner buys the house and pays for the construction. Why do you think they buy so many $30k houses and put $200k into it!
I had 1 deal where a nearby renter wanted to enter into a purchase contract before I'd even closed on my purchase but she wanted to make a few "suggestions." Of course, her ideas were crazy and would've left me with much less profit (as just 1 example, she wanted me to rip out brand new granite kitchen counters because she didn't like granite). I wound up turning her down because I didn't want the hassle.
Rental Property Investor · Cleveland, OH · Member since 2015 · 1k+ posts · 880 votes
10y
I have done this before, but it is risky when the client wants weird stuff in their house that isn't "normal". You do run the risk of the deal falling through and then you're in the boat of having a house to sell that was designed and built out to someone else's spec's.
In my opinion, the way I handled it was I took the people around and found them a house that they "loved". More like Property Brothers. Then find a dump that you can turn into said house. You're basically flipping a home but you already have a buyer lined up. What I did was to get the house purchase moving on my end and get them under contract to buy the finished home on their end. The scope of work and finishes were explicitly detailed and signed off on by both parties. Their money went hard fast, and we had a 90 day close to give me time to rehab and them enough time to complete the loan and appraisal on the back end. The earnest money deposit was big, like 10-15% of the purchase price, and like I said, it went hard extremely quickly to avoid me having a house to sell at the end of the day.
If you'd like more details, feel free to message me. It was fun and I knew the people well enough that I didn't think the deal would go bad. At the end of the day, I sold them the home for about 10-12% under the market at the time. I made money and they got a "deal". Win-Win
Contractor · Olmsted Falls, OH · Member since 2012 · 24 posts · 7 votes
10y
First of all, thanks for all the responses and bear with me as I try to respond to it all.
@J Scott This would not be our first flip, and I agree I wouldn't recommend doing this for a first one either. I'm just putting out feelers as to some basic terms, down payments, etc. I have yet to even speak to these people. I've been talking with the client's sister (she is a friend of mine) who relayed to me that they wanted to do this after seeing our last flip.
@Bob Collett- I like what you laid out in your comments....I'm just wondering if this client even knows what market value means. Their market value and the actual market value I'm quite certain are not the same thing. I like the back-out clause (10% of the expected price, or something to that effect)
@Sean Cole- I thought the premise of that show was that Chip/Jo were basically a one stop shop for their clients, from purchase to sell and everything in between. This is what my clients want from me.
@Jeff B.- That is one of the things I am concerned about, as to what these people would want in their "dream home" and then it falls through and I have a "nightmare home" that I have to rehab AGAIN to put it on the market. From what my friend tells me, they are looking for a 4BD/2BA, Colonial with a 2CG in the Parma, Seven Hills area. They are currently living in Shaker and want to be back on the west side. I told her that that house would be hard to come by in that area at a reasonable price and/or would need to be priced significantly low to be worth rehabbing it.
I know I'm kind of shooting from the hip here not knowing budget, timeframe, their ability to actually buy, yada yada. I'm just not someone who likes to sit down to negotiate with no background knowledge of what it is we will be doing. Again, thank you for taking the time and responding and I will post the details one way or another as to how it goes.
Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
10y
If you're going to do this, first find the house. Then agree upon a base resale price to do a renovation to the specifications you would do if you were flipping the house. That should include your desired profit.
Then, you can provide them a builder spec sheet with alternate finish selections, including prices and allowances for each alternate. Allow them to choose their finish specification and have them pay for any alterations or upgrades based on the spec sheet and revised pricing from the spec sheet.
Collect a deposit upfront, along with the full price of any alternate finish selections.
Contractor · Olmsted Falls, OH · Member since 2012 · 24 posts · 7 votes
10y
I've been working on some mock deals and tweaking them to best and worse case scenarios. I guess my concern at this point is whether or not they plan on contributing financially at all until the rehab is complete and it is time to buy. From what my friend has said through conversations with her sister they want me to handle every aspect of this until it is time to buy. That being said, they would have purchased my last flip but it didn't suit their needs size wise, so I believe we have similar tastes from a design standpoint.
@J ScottI do like the idea of multiple finish selections with alternates and pricing for each finish. At the end of the day I think this could work when ALL the details have been agreed upon and signed for. Stay tuned!
Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
10y
I'd just stick to renovating houses and putting fixtures in that appeal to the masses. If someone wants a custom home they can simply hire you or someone else as a G.C.
@Steven GesisThanks, and yes we did well on the flip! That's what I'm trying to build (my safety net) I also don't want to meet with them without any information. I came to the same conclusion as well about making them purchase the house with their own money. It's just that I don't want to be a G.C. for their rehab project when I can just do my own and put more money in my pocket. Either way I will sit down and hear them out, I guess considering there is a t.v. show about this stuff there must be a market for it......right?!?!
Charles, way to go! You mentioned information, what specific items are you referencing?
Property Information?
Construction Expectation and Cost?
Possible Comparables?
Contract Structure?
If you are currently in a position that you feel you can do a quick fix and flip, reduce your communication barrier (client), enhance your speed and efficiency, you will have no burden of "mutual decision making," as you are very well aware, if you are the sole point of contact and decision maker, the project goes much quicker. From my experience clients are very rewarding experiences, as you get a chance to bring someone else's dreams come to life, personally I love to take them through the process of a full renovation, everything from rendering to build, however, if you are not built with the proper infrastructure it is incredibly time consuming and administratively intensive. If I have a chance to run a flip solo versus with a "hands-on" client, much easier and quicker, just think about the time value of money, many angles to consider and think through.
Contractor · Olmsted Falls, OH · Member since 2012 · 24 posts · 7 votes
9y
Hey Christopher! Sorry for the delay on the update. As it stands now, there is no deal currently in the works. The client had to walk away after they sat down and worked through their finances. They did tell me that if/when they are able to buy that they would like to have us do a project for them, so we'll see.
Flipper/Rehabber · Montgomery, NY · Member since 2016 · 2k+ posts · 1k+ votes
9y
I was hoping to see some positives here. I have a similar scenario of a person noting they want me to do their house. I've been told they would however sign a contract noting what the end result will be, however I am hesitant to move forward just yet.
Investor · Orlando, FL · Member since 2012 · 822 posts · 303 votes
9y
So many people ask us to do this for them and I am terrified to go down this road.....again.....because we did once before in 2012 and the deal went south and I was stuck with a house that had custom finishes for someone who had peculiar taste that did not appeal to the masses. I am weary of trying to custom renovate for someone again.