Flipping Newbie

15 Replies

Hello all,

I have been doing real estate for the last 10 months and have two rental properties.

I am about to close on my first foreclosure and plan on rehabbing and flipping.

Are there any basics that I should know about flipping as well as basic first-timer mistakes that I can avoid? I can give information upon request so you can understand my request better if necessary.

I am working with a contractor I have already used on previous jobs and trust. He is getting his pay as 15% of the profit on sale so he gets paid when we do, so he's motivated to do the job well and on-time and within budget. The larger the margin the larger his profit.

Thanks so much in advance!

Avi, there is a lot to know about when it comes to rehabbing but I will cover a few of the most basic mistakes new rehabbers make, although it sounds like you have some real estate investing experience so hopefully you can avoid these:

1) Overestimating ARV (after repair value): it is human nature to be optimistic and look at the best case scenario, but you have to be realistic when analyzing the end sale price of a property. You need to know how to identify proper comparable properties and make the correct adjustments. Failing to estimate propertly can kill your profits, for example: if you estimate a house will sell for $120K and you plan on making $20K, you will be left with zero profit if the house is actually worth $100K.

2) Underestimating rehab costs: this is the one I see over and over again. The fact of the matter is it is very difficult for new rehabbers to understand how much money is going to be required to complete the rehabs. This is generally due to not knowing the true costs of materials, not accounting for all the work to be done, and surprise problems that were not expected. Make sure you understand all the costs associated and include a contingency in your estimates.

3) Underestimating time of rehab: again, inexpierence causes people to miss the mark when they estimate rehab costs. A one month estiated renovation turns into a 4 month renovation and the holding costs start adding up.

4) Not understanding holding costs: this is the part that some people totally forget. Holding a property is not free... you have to pay insurance, taxes, debt servicing (if financed), utilities, etc. These expenses add up very quickly and can eat into your margin very quickly.

Hopefully that is helpful, and good luck. Let us know how it turns out!

I am buying the house for 36K, my contractor gave me an estimate of 25-30, probably closer to 30 and houses in the area have sold in the last six months for between 90 and 110. They are all pretty uniform and our house has an additional bedroom.

Another question, is there added value in a finished basement that would make finishing the basement worthwhile?

ROI on a basement usually doesn't work out and in most times your lucky to get your money back

Whether or not the finished basement would be worth doing would really depend on the comps in the area. Do the comps you used to come up with the 90-110K range include finished basements? If not, what do similar houses in the area with finished basements sell for? Basically, you need to find out how much more a finished basement would add to the ARV and how much it would cost to finish.

UPDATE: We closed on the house last week. Electric and Gas are on and we are starting with the installation of the Furnace and A/C unit as well as applicable ductwork that needs repair.

Question: Does anyone have a General Contractor Agreement that I could use as a template for my contractor? We've started work but I think an agreement in place would serve me well.

As well, are there any suggestions as to what points would be crucial to include in the agreement?


My 2 cents on basements is, all the banks we have been doing BPO's for have specific instructions that our value is to be based on GLA above grade ONLY.

Yeah, after the inspection reports came in from the house inspection as well as the municipal inspection we decided to put all our efforts on the main concerns. We also felt that making the basement "ready" to be finished might add to the appeal upon sale but not actually finishing it as that would cut into the budget. We'll see how it turns out.

Originally posted by Avi Cohen:

Question: Does anyone have a General Contractor Agreement that I could use as a template for my contractor? We've started work but I think an agreement in place would serve me well.

Here is a link to an independent contractors agreement...you can probably modify it to cover the scope of work for your GC. Make sure you get it reviewed to ensure it's legal in your state.


Thanks J Scott. Work is progressing nicely. We hit one snag so far, when we turned on the water we discovered water pouring into the garage from the bathroom above. Now we're getting quotes from plumbers on getting much of the plumbing redone.

Anybody have experience with replacing a bulk of the plumbing and taking Before/After pictures to use a selling point? What were the results?

See this is where when you estimate 25-30K remodel costs, you're probably looking at 30-35K realistically.

I am rehabbing my first project...
I am doing not to flip but fixing a foreclosure to rent. Still have similar issues. First the furnace worked but to my surprise it kept shutting off... So I had to replace it. My hot water heater was old so I decided to update it so avoid a headache in a few months. Turns out the code has changed and now I needed to update the whole system.
Some of the issues I am finding is ordering cabinets took longer than expected as I was planning on doing
Home depot premades but when i priced it out I was able to get a lot more with the sales and making friends with the sales associate. But it cost me two weeks.
Now my sump was not set up properly and not up to code...
So as you can see the trend ...
I new going into it I would have surprises so i budgeted it for it and I am still with in budget but mostly because I had more time so I did some work myself.
The one thing I would advise as someone who has a RE license and has enough experience to know that people often price things wrong because for greed. the attitude that they dont want to give it away or all it takes is one person is often used.
I only did a few deals just to learn the business but I can say I did my deals fast and clean for one reason. I made my clients price aggressively. They set the tone of the market instead of waiting for the market to change. First weekend six showings three offers an done was accepted. It was lower than the asking and the sellers initially were disappointed but when they saw their friends sitting for months and eventually a year they were real happy they took my advice.
The fact is it costs money to sit on a property and it cost you buyers if you price it wrong...If you price it to low you will get multiple offers so in my opinion set the tone and price it aggressive and move on to the next deal.

Depends on your market and the area.

One of my current rehabs that I'm doing got $50 psf on the way in on the appraisal for a dingy gross no window finished basement. A monkey could finish a basement for less than $50 bucks a foot.

Huge bonus in this area to have a basement. Keep in mind the above grade here will be going for $300 psf.

Sorry for the lack of updates. Here goes: We bought on January 28th for 36K. We estimated 30K in repairs. We went over budget, of course, but with all the unforseen expenses and work we only ended up going 5K over.

We were expecting to sell for 90-95 because those were the comps. Which gave us a nice spread. However, we didn't factor in closing costs, delays and commissions.

If we had sold for 95, after everything was said and done we probably wouldn't have even broken even.

However, once we were finished with the job, we realized it was such a beauty that we listed it for 130. Lowered to 115 in a month and went into escrow in June for 110.

After paying the contractor his share (15% of profits), we came away with around 13K in profits.

Although mistakes were made, we also learned valuable lessons.

End Result: SUCCESS!!

Congrats on the first successful project!

Sorry, I never saw your post about the plumbing issues, or I would have responded. Don't know if you replaced all the plumbing supply lines or not, but you're probably looking at about $3-5K to do that, in a typical area and a typical house.

As for factoring in all your fixed costs, here's a good read for next time:

Calculating Fixed Costs (J Scott Blog Post)

Between PEX replacement and much rewiring, that ended up costing about 5K. Yes you are correct.

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