My first project - Rehabbing my aunt's dilapidated house

Rehabbing & House Flipping
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My first project - Rehabbing my aunt's dilapidated house

Dave ZarconePro Member
Rental Property Investor · Upland, CA · Member since 2017 · 17 posts · 9 votes

Hello all,

I'm new to the BiggerPockets forum but I figured there's no harm in sharing my experiences as a novice in case others have advice. I am currently in a house rehabbing and flipping situation not by choice, but by necessity and it has proven to be a very valuable experience. To put it simply, and without sharing too many family details, I am helping my aunt, who is a victim of senior abuse by her kids, fix and flip her home after it was cosmetically destroyed and left vacant for many months. The house was destroyed. It looked like the people who lived there before actively tried to destroy it before they left. This left us with a lot of work to do if we wanted to fix it up and sell it. 

My aunt purchased the home in 2012 for $225k and comparable homes are selling in the neighborhood for $390-420k. Unfortunately, the home was a complete disaster. It was an investors dream before I got involved. In fact, my aunt was considering dumping the house for a loss before I got involved.  I ran through the house with an inspector and a contractor to get an idea what we were in for and figured overall we needed to put about $50k into a rehab (this includes contingency $ just in case). We're talking about tearing up all the pee-soaked carpet (dogs..) and bleaching/disinfecting the concrete foundation underneath, replacing a majority of the second floor sub-floor, fixing the roof, fixing the HVAC, repairing the garage (door hanging on by a thread), scrubbing and disinfecting all the cabinets (roach feces everywhere), tearing up and replacing the landscaping, fixing the roof, inspecting and repairing any water damage... the list goes on and on. Let's just say that this was not a 'clean' job. Once all the dirty work had been done and fresh paint put on the cabinets and walls it looks like a brand new place. Beautiful. 

This was my first reno so I only had one contractor run through the house, in the future I will meet with 3 minimum, but I am lucky that the company we chose has been fair and effective. This could be a good partner for future projects. We are nearing completion and I'm happy to say that we have some money left in the budget. We are eager to get the place on the market and hopefully find some excited buyers. 

Anyway, I'm interested in hearing anyone's thoughts. Hopefully someone reads this... :)

Dave

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

Definitely hang on to that contractor.  3 bids is great, but don't get caught in the trap of going for the lowest bidder.  The reality is - contractors will often bid low - to get the job.  Then, they start to make changes and add things that weren't in the estimate.  Be very careful of this.  The other factor is this  - If a contractor bids too low, then realizes in the middle of the project that he won't make any money, then you are working with a contractor that either is not a happy contractor, or they have to do other jobs to make ends meet on yours, maybe they even misappropriate funds.  Just going with the lowest bid can cause you a lot of problems. When you do your next one, the trick is to make sure you can evaluate the costs BEFORE you ever buy it.  This allows you to evaluate and add contingency costs so you have room for anything that may happen like added costs, length of costs (holding costs).  What you don't want to do is run such tight margins that your only hope for reasonable profit it to squeeze it out of the contractor.  You squeeze too hard and it can cause alot of problems there as well. 

Be careful too on your planning.  Have a plan in place before you ever start.  In my experience, sometimes you get an exit realtor involved and they start adding things that aren't in the budget.  This drives up costs and sometimes it doesn't drive up profit. 

Looks  like you have found a great first deal and a great situation.  Get this rehab completed quickly and don't let it drag.  Don't get too emotional with it.  Regardless of who owns the home it is still a tool to make money, not something to be loved and cherished.  Of course, I'm assuming your Aunt is not going to live in the home anymore and it will be sold, looking for profit. 

Best of luck!

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  • Antoine Martel
    Rental Property Investor · Miami, FL · Member since 2017 · 2k+ posts · 911 votes
    9y

    Great story and I'm glad that you have realized that your best bet is to get 3 contractors to walk through your property. This will help you get the best bid and to find the right contractor for your job!

    0Reply
  • Doug Woodville
    El Cerrito, CA · Member since 2015 · 257 posts · 129 votes
    9y

    Sounds like you got lucky with a good contractor on the first go around. Hang onto that contact for the future! Any before/after pics?

    0Reply
  • Ritch Bonisa
    Specialist · Indianapolis, IN · Member since 2016 · 841 posts · 480 votes
    9y

    Definitely hang on to that contractor.  3 bids is great, but don't get caught in the trap of going for the lowest bidder.  The reality is - contractors will often bid low - to get the job.  Then, they start to make changes and add things that weren't in the estimate.  Be very careful of this.  The other factor is this  - If a contractor bids too low, then realizes in the middle of the project that he won't make any money, then you are working with a contractor that either is not a happy contractor, or they have to do other jobs to make ends meet on yours, maybe they even misappropriate funds.  Just going with the lowest bid can cause you a lot of problems. When you do your next one, the trick is to make sure you can evaluate the costs BEFORE you ever buy it.  This allows you to evaluate and add contingency costs so you have room for anything that may happen like added costs, length of costs (holding costs).  What you don't want to do is run such tight margins that your only hope for reasonable profit it to squeeze it out of the contractor.  You squeeze too hard and it can cause alot of problems there as well. 

    Be careful too on your planning.  Have a plan in place before you ever start.  In my experience, sometimes you get an exit realtor involved and they start adding things that aren't in the budget.  This drives up costs and sometimes it doesn't drive up profit. 

    Looks  like you have found a great first deal and a great situation.  Get this rehab completed quickly and don't let it drag.  Don't get too emotional with it.  Regardless of who owns the home it is still a tool to make money, not something to be loved and cherished.  Of course, I'm assuming your Aunt is not going to live in the home anymore and it will be sold, looking for profit. 

    Best of luck!

    1Reply
  • Victor S.
    WorldWide · Member since 2016 · 1k+ posts · 1k+ votes
    9y

    Pics or it didn't happen :)

    0Reply
  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    9y

    Yours is a common scenario for many, question is what are the numbers. It appears as though it may be a break even situation.

    0Reply
  • Moshe Aharoni
    West Long Branch, NJ · Member since 2016 · 21 posts · 5 votes
    9y

    would love to see before and after pictures. if i may ask how did you find the contractor?

    0Reply
  • Donna Maynes
    Investor · Las Vegas, NV · Member since 2017 · 13 posts · 1 vote
    9y

    Good for you!  Good luck - I would LOVE to see pics!

    0Reply
  • Brian Pulaski
    Flipper/Rehabber · Montgomery, NY · Member since 2016 · 2k+ posts · 1k+ votes
    9y
    Originally posted by @Thomas S.:

    Yours is a common scenario for many, question is what are the numbers. It appears as though it may be a break even situation.

    Maybe I misread, sounds like she bought for $225,000 years ago, and they budgeted $50,000 to renovate. He stated he was under budget. $275,000 with an end sale of $390-420,000 doesn't sound like a break even to me. Then again it is possible I missed some numbers somewhere.

    1Reply
  • Dave ZarconePro Member
    OP
    Rental Property Investor · Upland, CA · Member since 2017 · 17 posts · 9 votes
    9y

    Hey all,

    Thank you so much for the reply. I love Bigger Pockets! This is just a fantastic place to discuss these kinds of situations and get real interest and quality information/advice. Thank you for the advice on contractors, Ritch! My aunt will not be returning to the house as it brings far too much emotion. This is another reason I am running the project since it is purely a rehab and flip project to me. I'm approaching it like an investor instead of a family member. Next time I run a rehab project I will apply your advice on contractors, planning, and contingency costs.

    My aunt did buy the house for $225k cash. We will put in roughly $50k when all is said and done and hope to sell for roughly $400k. The rehab was funded by my dad, and he has also paid off unpaid property taxes, a pending lawsuit (lis pendens) and is paying the holding costs. The plan is to sell the house, pay back all my dad's financial input, and then my aunt and I will split the remainder 90/10.

    Here is a quick breakdown of the financials. Please let me know if you see anything I have overlooked.

    Sale Price: $400k

    Deduct closing costs and Agent fees: $35k

    Deduct Rehab Costs: $50k

    Deduct Debts (property taxes, lis pendens...): $30k

    Deduct Holding costs (cost to keep the home until it is sold which includes utilities, property taxes, insurance etc): $2,250

    = Revenue after all debt paid : $282,750

    So my dad will get all his money back, my aunt will get roughly $250k and I will get $28k. My aunt was desperate and ready to sell the house, and probably would have taken $150 for the home. So I consider this a huge success in comparison to the alternative. Obviously this isn't the typical scenario for an investors first project. This is much easier on me since I have no money invested and my family already owns the house, but this is a great learning experience for financial planning, and working with contractors and realtors. 

    I don't have a whole lot of after pics yet, waiting for the reno to finish and then I will post more. 

    FRONT OF HOUSE

    ORIGINAL KITCHEN - Believe me, this kitchen was disgusting. Roach feces everywhere!...

    NEW KITCHEN - I will upload more later showing the finished kitchen

    ORIGINAL MASTER BATH 

    MASTER BATH IN PROGRESS

    ORIGINAL VIEW FROM STAIRCASE

    NEW STAIRCASE

    YARDWORK - That is my wife, Sarah! Such a hard worker!

    1Reply
  • Dave ZarconePro Member
    OP
    Rental Property Investor · Upland, CA · Member since 2017 · 17 posts · 9 votes
    8y

    In case anyone is still interested... below is the link to the property. It turned out to be quite the success. We stayed on budget and all parties received a decent return. My wife and I staged the property ourselves and saved a few thousand by doing so. We are so happy to have been able to help my aunt get through this difficult time and can't wait for her to start fresh with a new home! 

    On to the next property!

    https://www.redfin.com/CA/Lake-Elsinore/31533-Cany...

    1Reply
  • Manolo D.
    Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes
    8y
    Dave Zarcone So I have a question, you had a great experience with a contractor who was under budget, did a good/great job, and was on time in delivering. So what will make, in your opinion decide to switch contractors, if this contractor is accurate on his data and delivers everything as expected. I mean why would you risk to venture to the unknown. Personally, I’ll put my best retail price on a first contract simply because I do not know how demanding this client will be, then on second contract I adjust my price to his needs and quality. Great outcome btw.
    0Reply
  • Dave ZarconePro Member
    OP
    Rental Property Investor · Upland, CA · Member since 2017 · 17 posts · 9 votes
    8y
    @Manolo D. we were definitely happy with the overall outcome. the GC we used did a great job. we plan on using his crew again on our next property if possible. however, I'm guessing you're referring to my other discussion about rehab costs from my contractor. we were happy with the outcome of this project but I don't have anything to compare this to. the fact of the matter is we don't know if his prices were fair for the market. we were in very unique circumstances on the last project where we had flexibility with our budget, so even if he charged more than the competition we still came out on top. moving forward we need to know more details. we are currently making offers on properties in need of rehab and we're using this GC's quote to help us budget for our max offer. if we can use him and still make a competitive offer then we will but we are getting beat by other offers. we just need to analyze all factors to see what we can change in order to compete. the two main concerns are that we are up against other investors making cash offers so they have no loan contingency and no mortgage payments inflating their holding costs, plus they probably have cheaper labor and material costs. so, we're just trying to analyze everything. our GC did a great job, only went slightly over budget compared to his original estimate, but we did plan for contingency and I ended up doing a lot of the work, so we were overall under budget, and he offered the quality of work we were happy with.
    0Reply
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