Green light our first flip!

Rehabbing & House Flipping
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Green light our first flip!

Glenn Espinosa
Rehabber · Alexandria, VA · Member since 2011 · 446 posts · 171 votes

My girlfriend and I are about to jump in on our first flip and was hoping to get the green light from people here.

We've been searching for rental properties mainly but happened upon a foreclosure that came up for sale just 2 days ago.

It's a 1100 square foot 4/1.5 situated in a mediocre-good neighborhood. The street it is on is good with a lot of renovated and new construction homes.

While looking at it late last night our realtor found out from the listing agent that there is another offer that came in that day, the listing agent hadn't ran it buy the bank yet, however and will be doing so this afternoon. Ideally we want our offer to come in at the same time...

The house is listed at $29,900, appraised at 108k.
We would come in with 17k cash and take out a 15k personal loan or line of credit (we want to offer $31,500 considering there is another offer?)

The house is really not in bad shape from our first look. Thinking about new drywall, new floors, kitchen remodel and other cosmetic work. We'd do some of the labor (demo, we can lay down flooring) and contract the rest. Rough estimate looks at 15-18k renovation tops.

We'd hope to list the house for 100k. Comps in the area:
6/28/10: 128k for a 3/1 903 sq ft renovated home 1 block down

5/27/10: 81k for a 2/1 672 sq ft renovated home 1 block down

7/23/10: 94.8k for a 2/1.5 700 sq ft total renovation 2 blocks down

10/04/10: 96k for a 4/2 1400 sq ft not renovated .2 miles down

7/2/10: 121k for a 3/1 1100 sq ft .1 miles down

Thoughts?

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Aaron McGinnis
Contractor · Atlanta, GA · Member since 2008 · 978 posts · 985 votes
15y

With apologies - maybe you thought all this through already and I'm preaching to the choir. Maybe not and I'll give you a few thinking points!

For doing a large amount of sheetrock (Over, say, 50 boards), I'd expect to pay $13/board hung and finished... plus the cost of the board and mud and tape, so about $20/board by the time all is said and done.

For a job the size you're talking, you need to find a crew that has the tools to do it right... by that I mean a bazooka, drum sanders, stilts, etc. DO NOT hire a chump with a set of knives and a bucket of mud. You will be disappointed.

HOWEVER... Before you jump into replacing all the sheetrock, you need to take a step back and consider that it won't just be sheetrock you're dealing with.

You'll need to pull off ALL the trim... possibly replacing a lot of it when it inevitably breaks in the process. Then you'll have to pay someone to repair it, nail it back into place... caulk and paint.

Also, if the wall board is a different thickness than sheetrock you may run into an issue with the window and door casings needing to be adjusted for the difference in thickness.

Not to mention the time and money spent tearing out all the sheetrock and surgically removing the trim, labeling it, storing it, etc.

Also, a painter is going to charge extra to paint virgin rock. He'll need to prime, then coat twice to make it right. He won't be able to go through the house with a single coat of good paint and let it go at that like he could with already-painted rock.

The sheetrock guy will need to come back after the primer coat and do touchup work...

All of this means that your paint and sheetrock will take 2-3 times longer than it would if you just painted the wall board.

In other words, replacing all the sheetrock in a house is a gift that can keep right on giving... think long, long and hard before you go tearing it out!

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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    15y

    What do you mean "appraised at $108K"? Do you mean the tax assessment? Ignore that.

    Your comps are all over the place and are too old. You need a real valuations for this place, and that means recent, similar properties. Without a sales price, its impossible to say if this is a deal or not.

    Your repair budget seems optimistic, especially if you're trying to move the value from $30K to $100K.

    1Reply
  • Account Closed
    Full-Time Investor · Charlotte, NC · Member since 2009 · 2k+ posts · 1k+ votes
    15y

    initial thoughts are :

    1. comps have a large range..are they in different neighborhoods??

    2. comps are too old...any recent sales??

    3. a 3 bed house can get a way with 1 bath....a 4 bed house is for a family, and you need a 2nd full bath most likely...

    4. i save money by having my contractors do the work actually, bc the crew will knock it out faster and better

    EDIT: looks like jon beat me by a hair!

    1Reply
  • PK Patel
    Real Estate Coach · Arlington Heights, IL · Member since 2011 · 7 posts · 0 votes
    15y

    I agree with Jon and Bryan on this one. The comps have to be recent and you may have a hard time re-selling a 4 bedroom unless you have at least 2 full baths.

    0Reply
  • Glenn Espinosa
    OP
    Rehabber · Alexandria, VA · Member since 2011 · 446 posts · 171 votes
    15y

    Ok I got a better comp breakdown from my realtor and as far as houses sold recently we came up with this...

    4/01/11 - 105k for a 3/2 1220 sq ft 115 DOM

    considering this I think my initial 100k sale price might be ambitious, probably more 92k range for a quicker sale.

    Bryan:
    1. These comps are in the same neighborhood.

    3. I have thought about the 4/1.5 bath issue. The house has 2 nice sized rooms and 2 that really should be offices. I'd have to weigh the cost of adding a bathroom with it's selling value.

    4. This is another thing that we'd have to consider as my girlfriend and I actually enjoy doing this type of work. We rehabbed a personal home while we were in college together and rent that one out currently.

    Also, we're not totally adverse to renting this property out later, it would go for 800-850 in this neighborhood. Maybe a cash out loan to get our money back and invest some more while renting this out? I haven't worked those numbers..

    0Reply
  • Glenn Espinosa
    OP
    Rehabber · Alexandria, VA · Member since 2011 · 446 posts · 171 votes
    15y

    Just wanted to update everyone.

    We have the house on contract and will close June 6 or 7th! Final price - $31,500

    I have better estimates of rehab - $17,000

    I've ran the comps again and we will list the house starting at 85k but expect to sell around 79k. We really want to undercut the competition, get the money out and flip 2 or 3 more by the end of the year.

    Expected profit after quiet costs is 15k

    I will let you know of updates, more contractors are coming out this weekend for bids.

    p.s. Anyone have a rough estimate on drywalling an entire 1100sqft house, not including ceilings? Haven't talked to a drywall person just yet.

    Also, does anyone market a house on their own say 2-3 weeks prior to finishing rehab in hopes of finding a quick buyer without having to hire a realtor? The house is located in a a big Navy town (biggest in the world actually) and I'd like to market to young Navy families to see if I get any bites prior to hiring my realtor.

    0Reply
  • Jim M.
    Real Estate Investor · Charlotte, NC · Member since 2011 · 252 posts · 56 votes
    15y

    you say that you have two large bedrooms and two that should be offices...any chance to combine the two and make it 3 br house? what about making the 1/2 bath a full bath? even just a standup shower would make it sell a bit easier. i feel like trying to sell for 80k is really cutting your profit margin. you have to account for about 10k in holding costs and then add in your rehab costs.

    0Reply
  • Chris Calabrese
    Residential Real Estate Agent · Mt. Pleasant, SC · Member since 2010 · 257 posts · 130 votes
    15y
    Originally posted by Glenn Espinosa:
    p.s. Anyone have a rough estimate on drywalling an entire 1100sqft house, not including ceilings? Haven't talked to a drywall person just yet.

    Also, does anyone market a house on their own say 2-3 weeks prior to finishing rehab in hopes of finding a quick buyer without having to hire a realtor? The house is located in a a big Navy town (biggest in the world actually) and I'd like to market to young Navy families to see if I get any bites prior to hiring my realtor.

    You should be able to get drywall hung and finished for around $30/sheet or $1/SF. Are you sure you have to drywall the entire house? A house in that condition probably requires more than 17k rehab to put in marketable condition.

    I would be careful showing the house before its finished. I'll do it if necessary, but try to avoid it, as most buyers don't have the vision to picture the final product. We like to show buyers one of our other houses so they can see the quality of our work. Of course, if this is your first one that won't be possible.

    Good luck with the flip!

    1Reply
  • Glenn Espinosa
    OP
    Rehabber · Alexandria, VA · Member since 2011 · 446 posts · 171 votes
    15y

    I'll will get estimates for making the 1/2 bath into a full. I did talk that over with my realtor and it was an option from the start...

    As for the drywall, the house is in pretty good shape, don't get me wrong. It's just that the walls are all wood paneling and I'd really like to get rid of them if possible... Thoughts? Also, if the $1/SF is correct then that'd be way below my estimates!

    0Reply
  • Chris Calabrese
    Residential Real Estate Agent · Mt. Pleasant, SC · Member since 2010 · 257 posts · 130 votes
    15y
    Originally posted by Glenn Espinosa:
    Also, if the $1/SF is correct then that'd be way below my estimates!

    That is per SF of drywall, not the house. So a 10x10 bedroom with 8 foot ceilings would be approx. 320 SF of drywall.

    0Reply
  • Aaron McGinnis
    Contractor · Atlanta, GA · Member since 2008 · 978 posts · 985 votes
    15y

    With apologies - maybe you thought all this through already and I'm preaching to the choir. Maybe not and I'll give you a few thinking points!

    For doing a large amount of sheetrock (Over, say, 50 boards), I'd expect to pay $13/board hung and finished... plus the cost of the board and mud and tape, so about $20/board by the time all is said and done.

    For a job the size you're talking, you need to find a crew that has the tools to do it right... by that I mean a bazooka, drum sanders, stilts, etc. DO NOT hire a chump with a set of knives and a bucket of mud. You will be disappointed.

    HOWEVER... Before you jump into replacing all the sheetrock, you need to take a step back and consider that it won't just be sheetrock you're dealing with.

    You'll need to pull off ALL the trim... possibly replacing a lot of it when it inevitably breaks in the process. Then you'll have to pay someone to repair it, nail it back into place... caulk and paint.

    Also, if the wall board is a different thickness than sheetrock you may run into an issue with the window and door casings needing to be adjusted for the difference in thickness.

    Not to mention the time and money spent tearing out all the sheetrock and surgically removing the trim, labeling it, storing it, etc.

    Also, a painter is going to charge extra to paint virgin rock. He'll need to prime, then coat twice to make it right. He won't be able to go through the house with a single coat of good paint and let it go at that like he could with already-painted rock.

    The sheetrock guy will need to come back after the primer coat and do touchup work...

    All of this means that your paint and sheetrock will take 2-3 times longer than it would if you just painted the wall board.

    In other words, replacing all the sheetrock in a house is a gift that can keep right on giving... think long, long and hard before you go tearing it out!

    6Reply
  • Mike V.
    Rental Property Investor · St. Louis, MO · Member since 2008 · 189 posts · 75 votes
    15y

    Great info Aaron, I just want to add one other issue that I face in my municipality. If I open up a wall then I am responsible for bringing all framing/electrical/plumbing up to current code before hanging the new drywall. If you do put drywall up I would leave the panelling in place.

    4Reply
  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    15y

    Where I am, drywalling requires its own "screw inspection". And, yes, you pull down all the walls and you're going to find all sorts of surprises and they're going to be your problem to fix.

    With anything you do for a fix and flip, you MUST ask yourself - if I spend $X to do this work (considering all the costs mentioned above), then will I get $X+Y more for the house when I sell? If the answer is no, don't do it.

    Also, I hope you and your realtor have gone and looked at all the listings in the area. They're you're competition. You just have to beat them.

    1Reply
  • Aaron McGinnis
    Contractor · Atlanta, GA · Member since 2008 · 978 posts · 985 votes
    15y

    Mike - that's an excellent point.

    Another one to consider in addition to the mechanicals is the insulation... 'round these parts, if we open a wall up, we have to insulate it to modern code.

    I just insulated a 2300sqft new construction house, total cost was about $1500. Retrofit would cost more...

    2Reply
  • Glenn Espinosa
    OP
    Rehabber · Alexandria, VA · Member since 2011 · 446 posts · 171 votes
    15y

    Thanks for all the insight guys! I will have to rethink my gameplan on this house regarding the drywall and rehab.

    I still think I'll be way in the green zone once this is done as I've left myself wide margins for profit for fear of flopping on my first flip. I've overestimated the rehab by 30% thus far as well as underestimated the ARV by 15%... A fixer upper 3 houses down sold in April for 105k 3/2 1220 sq ft...

    I will keep you all updated after I get more contractor bids.

    0Reply
  • Jim M.
    Real Estate Investor · Charlotte, NC · Member since 2011 · 252 posts · 56 votes
    15y

    ^ then forget about that 79k number you posted earlier in the thread. with the amount of work you are going to do i would say you will be about 70k or more into the house when your final numbers come in.

    0Reply
  • Don Hines
    Investor · Little Rock, AR · Member since 2010 · 628 posts · 251 votes
    15y

    Glen
    Look at your competition by asking for a veiwing with a realtor. You might be surprised to see painted paneling in this price range. Mike, Arron, and Jon have given you some golden advise. I can only add that you can cover the paneling with 1/4 " sheetrock and not have many issues with the electrical boxes and maybe the trim. I have just completed a project like this.Try to avoid opening up those walls any way you can.
    keep us posted.
    Don

    2Reply
  • Aaron McGinnis
    Contractor · Atlanta, GA · Member since 2008 · 978 posts · 985 votes
    15y

    Facing over with 1/4" rock is a good idea, but I'd still want to pull the trim off to make sure that it looks right when you're done. Of course, you're still going to deal with the added time and labor and material expense of new rock.

    1Reply
  • Glenn Espinosa
    OP
    Rehabber · Alexandria, VA · Member since 2011 · 446 posts · 171 votes
    15y

    Thanks for all the advice guys! I will keep you all updated as I move along with this flip. I will seriously consider the drywall as well as revisit some comps in the area.

    Also, out of curiosity I went ahead and posted the house on craigslist offering it to other investors at 58k (I totally made this number up). A guy calls me up talking about lease options and he wants to take a look at the place this weekend. I've read up on LO's a little since the phone call and it seems like it could be a big headache while at the same time could be a good opportunity for cash flow... Granted I didn't ask him what terms he was willing to accept, Is this something worth pursuing at all? I take it an LO is like renting it out, would I have to rehab first?

    0Reply
  • Glenn Espinosa
    OP
    Rehabber · Alexandria, VA · Member since 2011 · 446 posts · 171 votes
    15y

    Quick update:

    Closed on the house yesterday!

    Tore off 1 sheet of paneling out of curiosity... framing was good, walls were insulated. House has copper wiring throughout which is a plus.

    I've budgeted for converting the half bath to a full bath.

    The drywall contractor that I am 99% sure that I am going with has quoted me $2660 to tear down the paneling and to install drywall. $2140 to install thinner drywall over the panels. I haven't haggled with him yet but he said there was room for negotiation built in.

    Kitchen will be gutted and builder grade cabinets and laminate will be installed (inspired by J Scott's kitchen rehabs) - $3475
    +1100 for uba tuba granite which I am still debating. None of the 4 comps I've seen have granite, only 1 had a new kitchen. I am considering it as the lone "sizzle" factor in the house.

    Removing a 10ft section of wall between the living room and kitchen to really open up the house - $awaiting quotes

    Laminate hardwood, carpet, and ceramic quotes came in at $4100 for the entire house
    from the "higher end" subcontractor. I think its high and am waiting on quotes from 3 other contractors. Kitchen and living room will be hardwood laminate, in the estimate it was 455sq/ft of builder grade shaw laminate for $2483 including the removal and disposal of carpet in the living room and a layer of vinyl and luan in the kitchen.

    Also, an electrician that I was rather impressed with (manners, presented his insurance and license from the start) came up with this quote which threw me back at first:

    6 recess cans in living room
    4 recess cans in kitchen
    Install (3) 110volt smoke detectors
    replace/extend switches and receptacles after drywall
    GFCI protect kitchen sink
    Demo wires in wall to be removed (wall removed by other)

    Total $1795.00

    Personally, I don't think I need 3 smoke detectors in a single story 1100sq ft home and that I could get away with 4 recess lights in the living room and 2 in the kitchen (keeping a chandelier for the dining area). If this is the going price for this type of work (I have 2 other electrician quotes coming this weekend) then so be it...

    Everything is lining up. I will be renting out a dumpster this Friday and demo will start!

    As far as scheduling subs this is what I have:

    Demo
    Carpentry/Framing
    Electrical/Plumbing/Hvac
    Drywall
    Electrical finishing
    Kitchen/Bathroom
    Paint
    Finishing
    Flooring
    Exterior

    Thanks for the thoughts in advance guys.

    Oh and if anyone wants to check out the property and let me know what they think it's

    1005 Meads Rd Norfolk, VA 23505

    Glenn

    0Reply
  • Ryan O.
    Wholesaler · Lincoln, NE · Member since 2011 · 17 posts · 2 votes
    15y

    Glenn,

    In my city you must have a smoke detector in each bedroom plus one on each floor, etc. This may well be a code thing for your area as well. I would ask the electrician more questions so that way you will also know for future projects. With your subs just remember time is money so you will want to stay on top of things to keep things flowing and to keep on schedule. One sub that flakes will affect the others coming in after them.

    Sounds like you are off to a great start with this being your first flip. Best of luck and keep us posted on how things go!

    1Reply
  • Steve Babiak
    Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    15y

    I agree with Ryan O - smoke detectors in every bedroom, plus there will be other places. Get in contact with the code enforcement officer / building inspector to find out specifically what they will be requiring.

    There are places near me that require all bedrooms to get arc-fault interrupters installed. And some even require carbon monoxide detectors. And some areas require that the detectors (smoke and CO) be hard-wired (to AC power) AND have battery back-up (which all AC powered units I've seen already have).

    Become familiar with your local building codes and inspectors.

    0Reply
  • Savana Rose
    Real Estate Investor · Ashland, OR · Member since 2011 · 8 posts · 3 votes
    15y

    One quick thing to take into account. If you only put in the cheapest finishes, like those oak builders grade kitchen cabinets, it will look cheap and not improve your sales price. You dont have to do custom cabinets, but please think style, not just cheap. Kitchens and bathrooms sell houses. Use better more stylish finishes, subtle but attractive paints, attractive laminate floors (I've see some really ugly ones and they RUIN the look of a house). If you don't have taste, find someone who does....your girlfriend perhaps? Spending any extra couple thousand on better fixtures, cabinets, floors, lighting will mean top dollar on your sale. You've got potentially $70K of wiggle room, dont be cheap. Good luck!!

    2Reply
  • Glenn Espinosa
    OP
    Rehabber · Alexandria, VA · Member since 2011 · 446 posts · 171 votes
    15y

    @Savana: Believe me Savana, my girlfriend and I are familiar with cheap vs style and are actually finding ourselves holding back in terms of too much style and expenses. We have taste, my girlfriend especially, and she is the one with the responsibility of picking out colors, finishes and what not.

    @Steve and Ryan: I will double check on the smoke detectors, if anything I will buy some and install them myself rather than the $55/unit install fee and mark up from the electrician

    Any thoughts on the scheduling that I've planned for?

    0Reply
  • Ryan O.
    Wholesaler · Lincoln, NE · Member since 2011 · 17 posts · 2 votes
    15y

    Glenn, I am probably not the best to be giving you suggestions hopefully a more experienced rehabber will chime in. ( I haven't rehabbed a house in about three years and I was a slow poke without a plan or system back then.)

    About your schedule, it looks like everything is in the right order. The only suggestion I have is depending on what you are doing on the exterior get that going while some of the interior is being finished so you can reduce your holding time and to get in on the market faster.

    1Reply
  • Ryan O.
    Wholesaler · Lincoln, NE · Member since 2011 · 17 posts · 2 votes
    15y

    Sorry thought of one more thing. Some cities require licensed contractors like plumbers, electricians, HVAC folks to install new fixtures, run new wiring, replace faucets or water heaters, etc. Make sure you find out what you can do and find out if you need a permit. You do not want an inspector holding up your project because you didn't get a permit when one was required.

    0Reply
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