How BIG is to BIG for your 1st Rehab?

Rehabbing & House Flipping
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How BIG is to BIG for your 1st Rehab?

Tony WooldridgePro Member
Rental Property Investor · Walla Walla, WA · Member since 2016 · 480 posts · 346 votes

Hello once again BP Nation.  I find myself in a position once again to reach out to my MENTOR (BP nation) in the hopes of finding some clarity to guide me in the right direction.  I have been contacted by a motivated seller via my DMM campaign.  He is an out of state absentee owner that is renting out his property to one individual who is subleasing it to a whole a bunch of other people.  Needless to say, it is a bad tenant turned worse situation that has stimulated his motivation.  

About the house.  It is a two story 4/2, 2,124 sqft house.  It is in really really rough shape (it is a complete gut exterior/interior).  It is an older home (1915) which is not uncommon in my farming community neighborhoods.  He has owned it for about 13 years owes 14,000 on it is a little late in back taxes and says he wants $115,000 for the property.  Before physically looking at it I assumed his price was a little high but maybe it looked better on the inside than the out (boy was I wrong). Oh ya, I forgot to mention a RE agent had come to look at it prior to us showing up and confirmed in its current condition a bank will not fiance the property.

So here is the deal, this will be my first project if of course he accepts my offer. I plan on offering him $40,000 based off of the condition of the home and what it will take (my preliminary rehab projections $70,000ish) to bring it back to life. I project that the ARV is conservatively $175,000 tt is an extremely extensive rehab as I stated earlier I have to touch (demo) just about everything on and in the house. So the question is how big is to big for your first project? Would you tackle this kind of project on your first deal? Thanks ahead of time for the insight and as always BP nation I sincerely appreciate your help!

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Aaron McGinnis
Contractor · Atlanta, GA · Member since 2008 · 978 posts · 985 votes
9y

Go watch "The Money Pit" and then get back to us. Your estimate is probably off by 100% or more.

I would not encourage anyone to tackle a house that old on their first go-round. Try and find something newish (1980's or better) that just needs some cosmetics to get your feet wet.

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  • Aaron McGinnis
    Contractor · Atlanta, GA · Member since 2008 · 978 posts · 985 votes
    9y

    Go watch "The Money Pit" and then get back to us. Your estimate is probably off by 100% or more.

    I would not encourage anyone to tackle a house that old on their first go-round. Try and find something newish (1980's or better) that just needs some cosmetics to get your feet wet.

    5Reply
  • Tony WooldridgePro Member
    OP
    Rental Property Investor · Walla Walla, WA · Member since 2016 · 480 posts · 346 votes
    9y

    @Aaron McGinnis do appreciate your input. I guess I will have to go check out the recommended movie as I have not seen that one yet. I don't disagree with you that it would be much less of a headache to find newer homes, however, they seem to be are rare commodity within my ever hot market (am sure no different than everyone else's market right now). All of the newer MLS homes are either to new which you cannot add value to or way to over priced and no meat on the bone. I guess, I just have to be persistent and hope a better deal comes along with my DMM campaign as I am quite confident from looking for months on the MLS I won't find it there. Thanks for your insight I sincerely appreciate your input.

    0Reply
  • Andrew Johnson
    Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
    9y
    Tony Wooldridge Go watch The Deed: Chicago and see how first "down to the studs" renovations go! Just kidding, kind of. Never trust anything produced for TV but that's a different story. Did a licensed general contractor give you the rehab bid? Did he/she advise you on how much additional you should set aside for contingencies? Did they factor in lead-based paint abatement? Galvanized plumbing? You might have all of that covered and then some. What always surprises me (well, not anymore) is that when a seller is estimating rehab costs they have a nasty habit of leaving out labor costs. Looking at just the materials cost is where things can go really, really wrong. I don't know what a bid from a licensed GC costs where you are but it could be the best $500 you've ever spent.
    1Reply
  • Brian Garrett
    Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
    9y

    That sounds like too big of a rehab job for a first project, at least for me personally. I would suggest you find something that is less intensive to get your feet wet and go from there.

    1Reply
  • Ritch Bonisa
    Specialist · Indianapolis, IN · Member since 2016 · 841 posts · 480 votes
    9y

    I manage rehabs every day.  Make sure your scope and projected costs are accurate.  Get accurate costs - if you need wiggle room, find it in the purchase price, not the rehab costs. 

    2Reply
  • Account Closed
    Property Manager · Boston, MA · Member since 2014 · 194 posts · 73 votes
    9y

    if you have wiggle room for a pm hire one unless your a bulldog. If your not good luck your entering the mouth of the lion. 

     But cross your T's and dot your I's. I'm sure you'll do just fine. If you do decide, keep us posted. Will be fun. Good luck

    1Reply
  • Michael P.
    Real Estate Investor · Dallas, TX · Member since 2009 · 183 posts · 153 votes
    9y

    Do you have any construction experience?  Does your partner?

    I don't know if this is too big for you.  I tend to believe this is how you learn.  I mean sometimes I actually preferred taking the rehabs back to the studs over less intrusive rehabs. 

    Overall yes, you are probably better off getting started with a more basic rehab project.  You will definitely be in for an eye opening if you buy this property.  I don't know you, but there is a chance this project is so intense that it beats you down and spits you out.  You might give up as it keeps costing more and more $ and taking forever to complete.  

    My first rehab was pretty intense however I learned a ton.  Wouldn't change a thing if I had it to do over again.

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  • Tony WooldridgePro Member
    OP
    Rental Property Investor · Walla Walla, WA · Member since 2016 · 480 posts · 346 votes
    9y

    @Andrew Johnson, thanks for stopping by.  No the rehab bid was based off of what we thought needed to be done to the property after looking at it.  The home owner it appears (heavy on the it appears) did some work years ago to the property prior to renting it out.  So needless to say, the tenants have done a number on this house.  The home owner told us he took it down to the studs back in 2007 and did quite a bit of work to it back then.  After looking at it, it does appear that he did re-Sheetrock the entire house, however, apparently part of his sheet rocking is to not mud and tape the seams for that typical finished look.  It does look like he replaced most of the electric to romex, however he did say there is still some old knob and tube in the ceiling of the living room, the electrical box appears new!  I am bidding it for a complete plumb job as it looked like it had not been updated.  And yes, I do intend on getting a contractor out here to help with making sure my numbers won't hurt me.  Thanks for stopping by to share your thoughts.

    0Reply
  • Andrew Johnson
    Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
    9y

    @Tony Wooldridge I'm surprised that they left the knob and tube in the ceiling if he did all of that other stuff.  It's my understanding that those are a nightmare when it comes to finding an insurance company that will cover a property with knob and tube.  I do think my limited experience with an owner doing DIY updates is the same as yours.  Namely if you combine that with tenants that are rougher on the house than an owner-occupant you end up with challenges.  There are lots of little gaps here and there, tile work looks good in pictures but less so in person, etc.  Hopefully it was all done well, passed inspection from the city, etc. so that you (hopefully) won't unearth anything when you start to peel back the layers.

    1Reply
  • Tony WooldridgePro Member
    OP
    Rental Property Investor · Walla Walla, WA · Member since 2016 · 480 posts · 346 votes
    9y

    @Brian Garrett trust me when I say that I think it is an awfully big project for my first undertaking as well!  However, I feel pretty confident with my back ground in construction and the help/contractors I will call to assist we can tackle this.  I have been ACTIVELY looking for other smaller projects but they just have not bore their heads YET.  I am actually tending to lean toward @Michael P. thought process that this project would surely be quite the education.  I cannot remember which Podcast member said it but he said "Education is when you read the fine print, Experience is gained when you don't".  Don't get me wrong I don't intend to sink myself on my first project, quite the opposite, but I like to believe that I know when to call in help when I am over my head and have build in some funds to cover just that.  Thanks for stopping by Brian.  

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  • Tony WooldridgePro Member
    OP
    Rental Property Investor · Walla Walla, WA · Member since 2016 · 480 posts · 346 votes
    9y

    @Ritch Bonisa thanks Ritch I certainly intend on getting my SOW/schedule accurate.  Aside from the things I have read (in J Scott's books) do you have any recommendations as to how I can come up with SOW/schedule to make it streamline?  I certainly intend to make sure I buy it right so I have wiggle room.  Thanks for sharing Ritch do appreciate you stopping by!

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  • Tony WooldridgePro Member
    OP
    Rental Property Investor · Walla Walla, WA · Member since 2016 · 480 posts · 346 votes
    9y

    @Account Closed, LOL mouth of the lion (that sounds awfully scary!) luckily I have a large caliber for that type of hunt.  Being your first it sure seems like you are trying to do nothing but crossing your T's and dotting your I's but only one way to find out right?  I most certainly will keep everyone apprised of the situation.  Thanks for stopping by to share your thoughts! 

    0Reply
  • Brian Garrett
    Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
    9y
    Originally posted by @Tony Wooldridge:

    @Brian Garrett trust me when I say that I think it is an awfully big project for my first undertaking as well!  However, I feel pretty confident with my back ground in construction and the help/contractors I will call to assist we can tackle this.  I have been ACTIVELY looking for other smaller projects but they just have not bore their heads YET.  I am actually tending to lean toward @Michael P. thought process that this project would surely be quite the education.  I cannot remember which Podcast member said it but he said "Education is when you read the fine print, Experience is gained when you don't".  Don't get me wrong I don't intend to sink myself on my first project, quite the opposite, but I like to believe that I know when to call in help when I am over my head and have build in some funds to cover just that.  Thanks for stopping by Brian.  

     I wasn't aware of your background in construction. That changes things. Good luck!

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  • Tony WooldridgePro Member
    OP
    Rental Property Investor · Walla Walla, WA · Member since 2016 · 480 posts · 346 votes
    9y

    @Michael P. thanks for the words of encouragement.  Yes, I do have a background in construction and my partner is my wife, I guess you could call her the PM (she is the one that loves to tell me how to do everything! LOL)  While thinking about taking this rehab journey, I have put a GR8 deal of thought into committing myself to proof of concept where I would do a GR8 deal of the work myself at first to save some $ but mostly to educate myself in the totality of how a rehab works in ever facet.  I believe this to be a core belief of mine going into this so I have the knowledge and the know how of every aspect of what a rehab in-tells.  I do realize they are all different and you will ALWAYS run into something new but I think this will give me a GR8 perspective into the world of rehabbing and how it works.  I think about the costing to much $ and getting beat up but the one thing that never crosses my mind is quieting (I guess I am a pretty hard headed individual when it comes to that), I certainly love a challenge and this appears to be right up my alley.  Thanks again for stopping by and I sincerely appreciate your words of encouragement!

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  • Tony WooldridgePro Member
    OP
    Rental Property Investor · Walla Walla, WA · Member since 2016 · 480 posts · 346 votes
    9y

    @Andrew Johnson, "Hopefully it was all done well, passed inspection from the city, etc. so that you (hopefully) won't unearth anything when you start to peel back the layers." AMEN TO THAT BROTHER!  I guess we shall see!  Thanks again Andrew!

    0Reply
  • Tony WooldridgePro Member
    OP
    Rental Property Investor · Walla Walla, WA · Member since 2016 · 480 posts · 346 votes
    9y

    @Aaron McGinnis watched the movie on youtube, my gosh lets hope that doesn't happen! Thanks for the entertainment and thanks again for stopping by. Wonder if the director of that movie was a REI? Makes you wonder!

    0Reply
  • Ricky Butler
    Real Estate Investor · Montclair, NJ · Member since 2015 · 102 posts · 13 votes
    9y
    Tony Wooldridge , I wouldn't walk away from this deal but this project may be to extreme for a newbie. However, I recommend that you JV with a mentor or seasoned Investor on this project.
    1Reply
  • David Dachtera
    Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes
    9y

    @Tony Wooldridge,

    If you're expressing this much self-doubt, then I'd agree with those who say to take on an experienced JV partner. That will help ensure there's some "pie" left to share at the end rather than having little or nothing left after you've "learned by doing".

    1Reply
  • Tony WooldridgePro Member
    OP
    Rental Property Investor · Walla Walla, WA · Member since 2016 · 480 posts · 346 votes
    9y

    @Ricky Butler, thanks for stopping in Ricky. I have looked in my community for other investors, they do exist but most are not of the BP mindset of sharing with one another. We don't have a REIA/meet up here either so it makes it difficult (but not impossible) to network with other investors. I actually wrote a forum post on this very topic (cheap plug for my post which you can find here: https://www.biggerpockets.com/forums/67/topics/428726-bp-nation-i-need-your-help ).  But one of the things that I have determined to be very important to me is making sure that I can make this work on my own money and my own time well before I ever ask anyone else to invest theirs into it.  However, I most certainly agree with you about the value in JV's as it relates to a project such as this.  I will continue to actively look for others in my area to mentor with but until that time arrives I cannot wait as this train will continue to move as fear and inaction is the killer of every GR8 new business startup!  Thanks for your input Ricky do appreciate your insight!

    1Reply
  • Tony WooldridgePro Member
    OP
    Rental Property Investor · Walla Walla, WA · Member since 2016 · 480 posts · 346 votes
    9y

    @David Dachtera, I guess I must have misrepresented myself in my post. There is no self-doubt, just the fear of the unknown as it relates to tackling something new such as this. I have complete confidence in my abilities as well as myself. What I do lack however, is the knowledge and insight that investors that have been in or seen something similar to this before and if it worked out or not. That truly is the grand beauty of WHY each and everyone of us are on here (in my humble opinion) is to learn from others that have been there and done that. Please see my response to Mr. Butler's post as it relates to JV's. David thanks for sharing your thoughts and helping to educate not only me but hopefully others that are in a similar situation in the future.

    0Reply
  • Ricky Butler
    Real Estate Investor · Montclair, NJ · Member since 2015 · 102 posts · 13 votes
    9y

    @Tony Wooldridge, well said I appreciate your sincerity. Have you thought about starting a meet up in your market? There's strength in numbers but It only takes 2  to tango. Funny thing, in my market we have many options to meet up but I'm still thinking of starting another one for Montclair NJ investors and related professionals.

    1Reply
  • Tony WooldridgePro Member
    OP
    Rental Property Investor · Walla Walla, WA · Member since 2016 · 480 posts · 346 votes
    9y

    @Ricky Butler, Hence my cheap attempt at getting everyone to look at my other post, LOL. The link I provided in my previous post to you was all about starting up a REIA/Meet up in my area. BP Nation as they always do came through with GR8 insight and helpful information as it relates to the topic at hand. It is a pretty good forum discussion you should go check it out. Yeah, it seems like most folks in communities other than mine have plenty of options as it relates to REIA/meet-ups. Persistence is the Key to success I always like to say, maybe some time soon I can not only have my first deal but also start that needed Meet up in my area as well. Thanks again Ricky!

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  • Ritch Bonisa
    Specialist · Indianapolis, IN · Member since 2016 · 841 posts · 480 votes
    9y

    @Tony Wooldridge I don't know if you are planning on doing most of the work yourself or not. With a job that big and if you really want to learn the process of it - I would put on my project manager hat and get a good GC, then manage it from there. Sounds like you have a construction background, that can mean a lot of things to a lot of different people - NO OFFENSE. I'm saying a 70K rehab is alot to take on yourself. Just managing subs on that would be a lot. If this is your full time job, then that might be another story. Managing the process and the job and getting a GC that is willing to teach you about the process could be a great perspective. I also think you want contractor input on the scope, especially the first time. A realtor (don't know if you are or not), can give you an idea of what will make it sell (finishes & concept), and work up your scope with that in mind. I assume this is a flip. No matter what your estimated cost is - have 10-15% in reserve. I would also say, make sure you are funded well, because the longer the rehab drags out - the more expensive it gets and ROI goes right in the toilet. That type of rehab cost I would say you want to be shooting for a 60 day timeline. You don't want it going longer than 90. I would also say to keep looking at it as an investment, many times I see first time investors and they kind of get emotionally tied to a project. Perfection does not exist. This is a way to make money, turn profit. I've been reading this thread. Originally, I thought it might be too big, but it sounds like you are smart.

    Plan the project. Know 99% of your costs going in. Set a timeline that is realistic. Check all of this with your ROI model. Don't deviate from the plan. Keep it on budget and on time. The homework has to be done up front. Any contracts have to be detailed and adhered to. Gotta stick to the plan.

    Hope something in there can be of benefit to you.  Can't wait to hear what your approach is and how well it turns out!

    1Reply
  • Will BarnardPro Member
    Moderator
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    9y

    Typically, taking on a complete full gut rehab on a very, very old home is a bit to bite off for a newbie flipper. With a  construction background and the right team members, it can turn out ok.

    That said, if you have construction background, then I am concerned that you believe you can do a 2100 sq ft home this old on a $75k budget. For an experienced flipper with a full construction company, I would be hard pressed to do that on that budget. I believe you are looking at $100k minimum and based on a $175k exit, you don't have a large enough spread.

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    3Reply
  • Jarvis Smith
    Investor · Seattle, WA · Member since 2015 · 109 posts · 19 votes
    9y

    a full gut on a house that size will NOT be 70k I'm telling you the truth. I just did a full gut on a house half that size and it was around 70k actually came up a little more then 70 with no exterior paint or siding which would have added more. Find something a little easier for your first one but try and get it under contract and wholesale it to a little more experienced investor. Good luck

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