Follow my first flip! Crash and Burn or Flying High? Who Knows!?

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Hey Everyone, 

So I found this property on the MLS, literally on Zillow, and contacted the listing agent. Let me just reiterate now --- as the title states "my first flip"... so if you're also new, please take heed to my limited experience. I have done way to much research, but hands-on experience starts now. Anyways, I found this property on the MLS, contacted the listing agent and set up a viewing. It had been listed for some time and had multiple reductions. This area of the town was actually desirable and the home was 2160 sq ft, 4 bed, 3 bath, colonial, had a large deck and inground pool. It also came with a new Buderus, 4 zone heating system and central air. LETS GO!

So, of course, it was dated, the home was built in 1986, and had clearly not been updated at all since. The linoleum floors were wearing through to the subfloor in the kitchen, everything was definitely old and would need to be updated. The kitchen needs all new appliances, counters, and paint oh and the pool hadn't been opened in three years. Exciting stuff! This was an estate sale, and the selling party just wanted to get rid of it without having to do any work. 

By this point, I had done a thorough analysis of roughly ten properties and put in three other offers. I think it's very important to note here, that you absolutely need to be ok with hearing no. Your offer should be based on your analysis. Learn what an appraiser does to find relevant comparables, that process is vital to establishing real estimates. All of your other math is based off a relevant comparable. One thing I like to do is decipher my true ARV, run my analysis, then change my ARV to a 'depressed' selling price, if I still manage a profit I feel much more comfortable making an offer. Also, run a 'breaking the budget' scenario, I do this AFTER accounting for contingency, so if I do break the budget this bad then stuff has really hit the fan. But still profitable. I may be over-analyzing, but because what I lack right now are SYSTEMS I want to be sure I go as far as possible on what I do understand, the numbers.

ARV - buying costs - holding costs - selling costs - repair costs - contingency - necessary profit = maximum purchase price

When you go above your MPP the main thing you are affecting is profit. Don't fool yourself into believing you will save on any of those other expenses. 

These are the conservative measures I am taking on all of my analysis and hope that it gives me a decent cushion to be able to withstand any unknowns that occur. 

Moving on though, the numbers for this house in particular -----

Purchase Price: 195,000

ARV: My estimate - 309,000 / Appraised estimate from HML appraiser - 310,000

Rehab Estimate: 53,000 (including 10% contractor OH / 5% contingency / 1% permits)

Fixed Costs: 39,000 (buying costs/holding & financing costs based on 6 month turnaround/selling costs)

To be frank this leaves me with a little less profit in the % column then truly desired, however, the actual number was sufficient enough for me to feel I could move forward. To be completely transparent, this was one of those.... well you gotta do something at some point type of moves for me... This house, upon inspection, seems to be one that would have a low level of surprises. That has a certain amount of appeal for me. Worst case is I have to fill in the pool because it's beyond repair, but other than that, the heating and cooling systems are fantastic, the roof is good, the windows only need panes repaired. The siding on the outside is vinyl in good condition. It needs a lot of curb appeal, paint, and floors. I will update the bathrooms and the kitchen, and refinish the deck. 

So first things first you have to get the money! I used a hard money lender for this project - it was 10.5% interest paid monthly with 2 points. Initially we were aiming for 90% (think 10% down payment) but it ended up being 85% as this was my first flip ----- I do have some experience holding rentals, but since this was the first flip, yea... ------ so 85% of purchase price meaning 15% down payment for me, I will also be paying 10.5 interest only each month that I hold the loan. This is on top of the fact that I paid 2 points (or 2%) at closing, kind of like a loan origination fee. I also purchased a home inspection that was educational only, because better safe than sorry, and I had to pay for an appraisal that captured as-is and ARV prices.

SIDE NOTE: I initially put this offer in as a cash offer, but had to create an addendum to the contract - which sucked for everyone - to make it a traditional loan because of something with the preferred title company. I have spoken with other HML since who have said this is not needed and is a preference of the title company. I wish the hard money lender had said this upfront to save the time and hassle but frankly, I don't think they knew. The closing attorney also took FIVE HOURS. They didn't tell me or the closing attorney that this was being set up as a commercial line of credit, they didn't fill in the required paperwork, I was actually charged more by the closing attorney for the work they had to do filling in the paperwork and the extra time it took because it was a commercial line of credit. None of these things were discussed beforehand, and I guess sometimes you don't know what you don't know, well now you know! Ask questions.

Now on to my current point:

I am currently soliciting the final bid of the project, I hope to have it today. To all the vets out there... yes you are right, this should already have been done and I should have been ready to start on day one. As I closed on 8/23... yikes. But it is what it is, this is what I was talking about when I said I lacked systems. I have emailed about 15 contractors, I was strung along by since day 1 of requesting quotes - I did start the process 3 weeks before close... he continued to talk to me and it seemed like he was in the lead... the day I closed he told me the scope was too big and he couldn't do it. Like I said though I emailed 15 or so, about six got back to me. I spoke back and forth with a large national contractor company who said they would give me a quote and just... never did...? One told me he was not licensed in CT as I am actually in MA but this home is in CT and thats fine I appreciated him at least getting back. One was upfront and honest and told me he was currently too busy, again I respect that, I told him I would let him know next time I had a project. Then the actual quotes I received -

Company 1: This is a company I had been talking to for a while as well, initially I was little off-put because it took me multiple reminders to get them to analyze my SOW and get a response... but we scheduled a walkthrough, he seemed knowledgeable and personable, though he didn't pay much attention to my SOW and bypassed somethings I specifically put in the scope and went his own way. I am somewhat ok with this, as I need to learn a bit, but I realize this doesn't speak well to how interactions or my directions will be followed. That may be fine though, his estimate came in about 8% under budget but did not include a decent portion of materials as I stated I would get them. All in all, I think the estimate is right around what I budgeted. 

Company 2: Again I waited a while to hear back from them and it required multiple reminders... they did not schedule a walkthrough though I offered to set one up, finally I was told 'i quickly looked over your scope and I think a ballpark is 82000' ---- I laughed questioned what the true meaning of existence is and moved on.

Company 3: This was a last-minute add on because so few of these contractors actually got back to me. However, he was referred by another flipper in the area and did respond quickly, I am hoping they come back with a reasonable estimate. 

I will continue to update this thread as we move forward!!! Let me know what you guys think so far.


Updated over 2 years ago

Ok so I was hoping to have a quote yesterday 9/3 and emailed the GC looking for it. He said he wasn’t able to do it in that short of time (understandable) and said he wouldn’t be able to quote if I couldn’t adjust. I offered to walk through the house with him next day and asked what a reasonable amount of time was. He said he could walk through tomorrow (today 9/4) and have a quote by Friday 9/6. I agreed and we walked through today. This was by the far the best contractor I had walked through with and I hope his quote comes back reasonable and in range. Until then!

@Travis Phillips - wow, this is already "building up" (pun intended?) to be one heck of a story.  Your experience thus far is providing good information to other newbies who are also looking to or in the process of their very first flip. Very interested in reading the next phase of your rehab project.  Keep it coming!