I purchased a 3 bed/2 bath bungalow one year ago for $20K with the intent to flip. The home is located in a part of SC that's hard to find available contractors or help. After a month of searching, I found a unlicensed person to add a 1/2 bath, gut and renovate the entire house. He does great work but he works by himself or sometime with his nephew. The house is 90% complete and I've ran out of money. The supplies are there but the house still need things such as kitchen cabinets, floor tiles, and door knobs throughout as well as re-bricking around the bottom of house. The comps are $135K - $155K. To date, I've spent approx. $85K, including purchase. Now I'm broke! Should I sell the house as is or should I try to secure more funds to complete the project? Thanks for any advise. I'm feeling overwhelmed.
What was your original renovation budget and if you have one, supply a line item budget with it? You are now into it for $105k plus misc holding costs. If you can get $145k for it, then you can still turn this into a small win for yourself and a bigger win via the experience you gained.
At $145k resale value, you should expect about $10k in resale costs (agent fees, closing costs). So if you need to put in another $15k or so, then you still come out positive depending on your holding costs (do you have debt service?).
You will likely be ill advised to sell as is as opposed to finishing it and getting full retail value so if I were in your shoes, I would get the rest of the money needed and finish it, this advice does come without the benefit of all the details so keep that in mind as well.
I would sell it rent to own or owner financing to a handy guy who can’t get traditional bank funding . Get 10 grand up front and a nice monthly amount to cover your obligations plus some cash flow . 60-70% of folks can’t get a bank loan . This can be powerful if you do it right
We have a similar situation, our friends need a complete rehab done. The quotes they got were around $24k & I assume it's all labor as there was nothing detailed, (no SOW), nor anything resembling a materials list ??? So we had them over to our Lakehouse & we ran my SOW spreadsheet/materials list & the bottom line was $46k +15% contingencies. BUT that did not include flooring, kitchen cabinets nor the granite counter tops they wanted. Furthermore, they are reluctant to go with a complete new electrical service & panel so I did not quote it. If you're naive about the costs it can break you.
@Pat L. I had an Architect/ Contractor just ask me Friday how he can easily make sure everyone bids items so that they are not left out of the Bid, I told him he needs to create a Bid SOW ( scope of work, for those that may be wondering) and to spell out everything you need them to bid on and have them sign it and agree that it becomes part of their proposal and that no proposal should be accepted without it.
Delicia, I think that @Dennis M. has given you a good option,unless you need that money back right away, this way you do not get further in dept and you will collect principal and interest on the loan for the next 10, 20 years. If you need the money soon then I would agree with @Will Barnard , find a way to raise the rest of the funds needed and finish it, this way you can get full value for it.
IMO never sell when it isn't completed, the premium you pay for the work that isn't done yet is very high. You'd be lucky to break even at this point but with a small amount of money left you can finish and still turn a small profit.
I agree that if at all possible shouldn't sell an unfinished product. If you try to sell something that is unfinished, someone's going to come in and try to beat you up on price. How much more is needed to finish off the space with finishes in line with similar properties in the area? What does your financial position look like? Have you approached the contractor about a payment plan? They might be able to carry the additional costs until you can scrounge up the additional funding.
@Pat L. Is this your own list from experience?Is there a good app or software you use? I do drawings for contractors but they practically ignore them.seems better to make an SOL for them.
Have you bought all the cabinets and flooring and just need money to install them? How much do you need to complete the work? If it is just the labour that you don't have the money for, why not ask the contractor if they are willing to wait to be paid and given a bonus/interest when you sell it? If the amount for labour is a few thousand dollars, how long would it take for your to save that or can you borrow it from a friend/family member-with the promise to pay it back with a good amount of interest?
It will also take much longer to sell unfinished. Could you find a friend to “invest” with you and agree upon a % of profit? This is of course if you would rather not ask for a personal loan.
@Will Barnard , this was definitely a learning experience. I made many mistakes along the way. Thanks for your advice, I will complete renovations and sell it at a profit so I can re-invest based on lessons learned.
@Dennis M. I never considered about owner finance. I was so stuck on offsetting this project. I like the idea. Thanks for the advice.
@Pat L. Thanks for your response. I purchased all the materials. Now, I need to cover additional labor costs. I will stick in there and finish the project. So far, I still have a chance for a net profit.
@Bryan Devitt based the responses I have received this far, I agree. I will finish this project. Thank you.
@David Barnett , I have all the materials needed to complete the project. I just need to cover labor costs. I will secure the funds to keep it going. Thanks for the advice.
@Thalia G. One of the lessons I learned was the need for a SOW. I will complete one for next project. Thanks for the advise.
Remember that there are never failures, just a series of learning experiences that make you better each time you learn a new one. I am glad you're moving forward with the project, good luck with it.
@Theresa Harris , yes I have all the materials. I just need to cover labor. It’ll take me 3-4 weeks to save up enough to cover the rest of his labor. I'm going to call the contractor today. Thanks for the advice.
@Melanie Yamasaki I think I found a way to secure additional funding to cover labor for the next few weeks. Thanks for your advice.
@Delicia M. Why not see if the contractor would be willing to carry his labor into the sale of the home? Maybe you both have built trust that a simple contract could be written up. And this could be the start of a partnership moving forward. The contractor helps you on this house, and you help the contractor in the next house. Always be on the look out for winning scenarios!
@Delicia M. Delicia, honestly, these are stories we don't see too often on the forums because most people just lick their wounds and take the hit, in private.
I'm glad you came out seeking for help and that is commendable.
Listen, this is clearly a money pit and the first rule of rehabbing, in my honest opinion, is that projects COULD take longer and MAY COST more than anticipated. Consequently, many people who don't factor this in their analyses can run into some pretty significant issues.
The best thing you can do is just sell the property and you will have to be pretty creative as a Seller to make that happen. For instance, you can hold paper for the next flipper who the capital to take the project to 100% and sell it retail and you can your initial capital out and the flipper gets all the rest (whatever the flipper is able to get for it).
To conclude, I can empathize with you and understand that you are overwhelmed but remember REI, or any entrepreneurial venture, isn't supposed to be an easy path. Adversity is just a precursor to success if you reflect and learn from your experiences.
Good luck and I'm sure things will work out for your good.
@Ben Skaggs , I spoke to the contractor. He wasn't willing to carry is labor. He'd rather wait for me to secure additional funding for the four weeks left on the project. Thanks for the advice.
@Ola Dantis , you're right I didn't factor in contingencies and a lengthy reno (another lesson learned). Since the property is pad for and the only carrying cost I have right now is ins and tax, I'm going to secure more funds to finish the project which should take another three weeks, but I'm planning for four weeks just in case. Thanks for your advice.
Originally posted by @Delicia M. :
@Ola Dantis, you're right I didn't factor in contingencies and a lengthy reno (another lesson learned). Since the property is pad for and the only carrying cost I have right now is ins and tax, I'm going to secure more funds to finish the project which should take another three weeks, but I'm planning for four weeks just in case. Thanks for your advice.
This time you could place a chargeback on your contractor that if he doesn't finish within the timeline, you are going to start charging him. You are most likely going to get his attention and he may fasten the process.
Hope things work out for you this time. Keep us updated!
@Ola Dantis I like this idea! I will speak with him again tomorrow. Thanks again.