Flip report - Sinkhole (56k go home)

Rehabbing & House Flipping
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Flip report - Sinkhole (56k go home)

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

Well, some of you may recall that some months ago I posted a flip blog for the Heart Attack house. We bought two houses, side by side, on a street in a developing area. The Heart Attack house was a gut-out renovation.

The other house was a complete tear-down. I've been meaning to post the pictures and story on that one for awhile, but things have kept me busy... so here it is, belatedly.

This house was listed on the market for a couple of weeks before we took interest in it. Usually, houses don't last long... the fact that this one had been up for so long meant that there had to be something really, really wrong with it.

We weren't disappointed! The house was actually occupied by a very sad-looking addict who had made a habit of leaving blood-soaked cotton balls and bandages throughout the house. The center of the house had fallen in on itself and virtually everything was oozing and decaying front wood rot, termite damage, water damage, copper theft, and virtually every other form of abuse a house can possibly be subjected to.

We picked the house up for what was virtually a song - under $25k. We knew from the first time we stuck our heads inside that the house used to be beautiful, but needed to be completely torn down.

Closing was... interesting, to say the least. The owner was a very nice but very old lady who came dressed as though she was going to church, resplendent in a large hat with a lot of decoration. She complained the entire way through closing that we were "stealing the house from her" (as she signed document after document) and that she should be getting the full purchase price (Even though there was more than $12k in unpaid taxes and utility bills), and that the house was "beautiful" and that we could "just move in"

All in all, pretty funny in retrospect.

Anyway, here are some of the "before" pictures...

Front yard -

Back bedroom -

Weird back room that someone DIY-added somewhere in the distant past -

Another of that same room -

Kitchen -

Bathroom -

Hallway -

Front bedroom -

Dining room -

Front porch -

Living room -

Front of house -

Back of house -

Back yard -

Side of house -

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John Moore
House Flipper · East Stroudsburg, PA · Member since 2013 · 1k+ posts · 205 votes
13y

Are you tearing the house down and building a "new house"?
Or are you going to do a remodel? What do you think your improvement costs to be for the area you're in.

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  • Dawn AnastasiPro Member
    Rental Property Investor · Milwaukee, WI · Member since 2013 · 6k+ posts · 4k+ votes
    13y

    Oh ... but wow. Please keep posting pictures. I do like show and tell!

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  • John Moore
    House Flipper · East Stroudsburg, PA · Member since 2013 · 1k+ posts · 205 votes
    13y

    Are you tearing the house down and building a "new house"?
    Or are you going to do a remodel? What do you think your improvement costs to be for the area you're in.

    1Reply
  • Aaron McGinnis
    OP
    Contractor · Atlanta, GA · Member since 2008 · 978 posts · 985 votes
    13y

    This was a complete tear-down and new construction build. Our cost to build was around $110/sqft.

    I'm sorting some "during" shots right now...

    0Reply
  • Sam W.
    Investor · Northeast, OH · Member since 2012 · 239 posts · 106 votes
    13y

    Aaron McGinnis .... don't want to side-track you in the middle of sorting photos, but I am looking at at tear-down option myself on a property. Just for a point of reference, what did the tear-down / haul-away cost? (acknowledging you're in ATL and I'm in NE Ohio so things will be different).

    How much of that demo work did you do yourself?

    Thanks

    0Reply
  • Aaron McGinnis
    OP
    Contractor · Atlanta, GA · Member since 2008 · 978 posts · 985 votes
    13y
    Originally posted by Sam W.:
    Aaron McGinnis .... don't want to side-track you in the middle of sorting photos, but I am looking at at tear-down option myself on a property. Just for a point of reference, what did the tear-down / haul-away cost? (acknowledging you're in ATL and I'm in NE Ohio so things will be different).

    How much of that demo work did you do yourself?

    Thanks

    Tear down and haul off was just at about $12k. We spent extra time with a mini-excavator because the house was so close to the neighbors (careful work takes longer)... also we had some hiccups with our dumpster company not doing what they were supposed to, so we had the machine on site longer than it should have been.

    This house we hired out the demo but provided dumpsters. Demo was done with a mini-excavator and a bobcat. By the time we were done, we had scraped the entire lot of all vegetation and debris... which is something I recommend strongly once you've got the machines out there. (Makes yard work a lot easier when you don't have to deal with what was there already)

    I've gone back and forth about demo with machines vs. demo done by hand. My conclusion is that in most cases, demo by hand is actually a pretty cost effective way to do things... it also allows better opportunities to salvage and recycle the metal in the house. The downside is that demo by hand is a lot slower than demo by machine, and the risk of injury goes up if you're not using at least semi-skilled laborers for parts of the job.

    1Reply
  • Sam W.
    Investor · Northeast, OH · Member since 2012 · 239 posts · 106 votes
    13y

    Don't mean to hijack this thread (because we really are anxious to see the during and after pics....but great insights and information...thanks

    A couple more questions if you don't mind.

    - You wrote about salvaging scrap during the process. Was it worth the effort ($ vs. extra time spent)?

    - How much "prep" work needs to be done? Obviously prepping the utilities, but anything "weird" that needs to be taken are of that is time consuming or expensive?

    - How big was your 'crew'?

    Thanks Aaron.

    0Reply
  • Aaron McGinnis
    OP
    Contractor · Atlanta, GA · Member since 2008 · 978 posts · 985 votes
    13y
    Originally posted by Sam W.:
    Don't mean to hijack this thread (because we really are anxious to see the during and after pics....but great insights and information...thanks

    - You wrote about salvaging scrap during the process. Was it worth the effort ($ vs. extra time spent)?

    - How much "prep" work needs to be done? Obviously prepping the utilities, but anything "weird" that needs to be taken are of that is time consuming or expensive?

    - How big was your 'crew'?

    No problem - I'm trying to keep myself seated today and plunge through some back-logged honey-do type items, and posting these pics is one of them.

    The scrap isn't a big deal if you're doing one house at a time and don't have the tools to deal with the scrap (IE: Hands and a trailer). If you're doing a lot of projects and have the set-up, it's well worthwhile. (We get somewhere around a thousand dollars a month in scrap metal from various projects.)

    Prep work depends on the city codes. In our case, Atlanta requires a sewer plug, rodent letter, and Arborist permission before they'll issue a demo permit. After that, make sure that you have the dumpsters on site and that the house doesn't have anyone in it before you go to town on it with heavy machines. (In our case, we let the squatter know about a week in advance that we were going to tear the house down. He moved to a vacant house across the street and later got evicted from that one when that house got renovated.)

    We run around 20 people on our regular crew, and with subs we're managing around 35-40 people on a daily basis. (Bear in mind, we run 10-20 projects at a time... so we're by no means a typical set up)

    1Reply
  • Aaron McGinnis
    OP
    Contractor · Atlanta, GA · Member since 2008 · 978 posts · 985 votes
    13y

    So here's some highlight shots from the during-construction reel. I doubt that anyone wants to see the plumber gluing pipe together :)

    Foundation in, subfloor built -

    Exterior walls from the outside -

    Exterior walls from the back -

    Chalking out the interior walls -

    More chalking out -

    Ceiling joists going in -

    Bracing up the walls -

    That's a whole lotta wood!

    Building the front porch -

    Installing the Ikea cabinet boxes -

    Siding on the front of the house -

    The front porch, again -

    Wood floors in, walls painted... almost done.

    0Reply
  • Deborah BurianPro Member
    Rental Property Investor · Oklahoma City, OK · Member since 2013 · 1k+ posts · 412 votes
    13y

    Nice... keep 'em coming. Our idea of a re-build is to have a house mover put a salvaged house on the site. Conceptual only, haven't done it yet...

    0Reply
  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    13y

    House moving can cost more than the value of the house being moved. The distance of moving and height of the house and corners and turns and utility lines and bridges all increase the moving costs.

    Unless it is a house with amazing historical significance or charm I don't really see the point much over building new.

    I looked at those houses in Atlanta 2 to 3 years ago and I just didn't like the product and areas. It looks like it might be turning around now. I just didn't want to own a house paying the crazy taxes and code fines while waiting for the market to turn.

    Aaron so what is your expected profit on this one after you pay out any partners etc. and what timeline was needed to achieve it??

    Thanks

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  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    13y

    Are you seeing any issues with your new house appraising being around the older homes that are occupied and some that are vacant and in disrepair??

    How far does the bank let the appraiser go out for comps in that situation when selling to the end buyer??

    Due to the nature of flippers being taxed at a higher rate with profits and not having depreciation from buy and hold rental properties does that make you have a higher threshold for margins and profit on a deal??

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  • Aaron McGinnis
    OP
    Contractor · Atlanta, GA · Member since 2008 · 978 posts · 985 votes
    13y

    Joel -

    We actually sold this house about 2 months ago.

    We turned about a 15% profit after paying out all the necessary parties (myself included). The time frame got sticky because we started, stopped, and generally de-prioritized the project to work around some of our other investor customers.

    The house sold for $240k and the FHA appraisal come in at $250k (The buyer was quite happy). The appraisal was very easy, as the intown market has been booming for about the past 12 months.

    Actually, one of our biggest problems after doing these two houses was that the neighborhood got very hot and prices went through the roof. We got this house for the low-20s and a similar house is currently listed in the low-80s.

    Flippers are taxed like any other inventory-carrying business, so really we're not that different from, say, a used car lot that does light work on the vehicles. I will say that I hold a pretty stiff standard of margin, more so than most flippers I know... so I pass on plenty of deals and tend to only go after the 'really juicy ones'

    1Reply
  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
    13y
    Originally posted by Aaron McGinnis:

    Actually, one of our biggest problems after doing these two houses was that the neighborhood got very hot and prices went through the roof. We got this house for the low-20s and a similar house is currently listed in the low-80s.

    I hope that trend is continuing...we're just about to build our first new construction about a quarter mile from there, and our numbers are pretty close to yours so far.

    Though unfortunately, I have a feeling we'll spend as much time just trying to get permits as you spent on your entire project... :)

    Congrats!

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    0Reply
  • Ramon Jenkins
    Real Estate Agent · Milwaukee County, WI · Member since 2009 · 3k+ posts · 525 votes
    13y

    Belated Congrats Aaron

    0Reply
  • Aaron McGinnis
    OP
    Contractor · Atlanta, GA · Member since 2008 · 978 posts · 985 votes
    13y

    So... here are the completed pictures. Our designer did some things differently in this house than in our other houses, having proclaimed that she was going to sell the house to a woman. (All the other houses sold to either a man or a couple with a man who had a very strong opinion)

    It took us about 2-3 weeks to put this house under contract. We had it listed at $250k. We got an offer from... a young lady who knew the neighborhood from her student years and had been looking for a old house and hadn't been considering new construction until her agent drug her out to this house. She said she liked this one because it "Felt old inside" (We went out of our way to mimic period detailing and period trim cuts)

    Anyway, she offered us under list but we eventually haggled out to $240k with a very, very small closing cost concession. It got us our intended ROI so we were happy with it. The FHA appraisal came in at $250k, which surprised us a bit... but more power to the buyer. (Closing was very smooth)

    Front of house -

    Back of house -

    Foyer -

    Master bedroom -

    Dining room -

    Kitchen -

    Living room -

    Faucet detail -

    Shower niche detail -

    Master shower -

    Master vanity -

    0Reply
  • Lolita Ellis
    Real Estate Broker · Fort Washington, MD · Member since 2012 · 83 posts · 9 votes
    13y

    Thank you Lawd for Aaron McGinnis. You took the little church ladies house and done wonders. Beau-ti-ful. Congrats I learned a lot.

    0Reply
  • David NilesBusiness Member
    Property Manager · DeLand FL · Member since 2012 · 860 posts · 243 votes
    13y

    Very impressive and great work Aaron.

    0Reply
  • Ray Martzloff
    Arlington, VA · Member since 2013 · 5 posts · 0 votes
    13y

    This complete job looks amazing from the pictures .

    Job well done .

    Do you by any chance have as skilled contacts in Virginia or DC.

    Thank You

    Ray

    0Reply
  • Glenn Espinosa
    Rehabber · Alexandria, VA · Member since 2011 · 446 posts · 171 votes
    13y

    Really love the details and finishes that you put into this house Aaron. Did you design it? Also what was the final configuration/sq ft?

    0Reply
  • Aaron McGinnis
    OP
    Contractor · Atlanta, GA · Member since 2008 · 978 posts · 985 votes
    13y

    Glenn -

    We hired an architect and worked with him to come up with the floor plan and exterior elevations. Our in-house designer did the kitchen, baths, trim package, colors, fixtures, etc.

    It's a 1550sqft, 3/2.

    0Reply
  • Beth D.
    Grand Rapids, MI · Member since 2013 · 99 posts · 30 votes
    13y

    I'm an old house junkie/snob but I do LOVE the charm you put into this house :) great job! What a fun project!

    0Reply
  • Jon Klaus
    Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes
    13y

    Thanks for sharing, Aaron. How long did construction take? How long would it have been if you stayed on it without distractions?

    0Reply
  • Jon Klaus
    Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes
    13y

    I may have missed it, where does the (56k go home) in the title come from?

    0Reply
  • John Moore
    House Flipper · East Stroudsburg, PA · Member since 2013 · 1k+ posts · 205 votes
    13y

    Thank you for the time and effort put into you're post. Very impressive, your client certainly received good value. It's always nice to hear that the appraisal came in above and beyond. The inclusions in the house for the price is certainly an excellent reflection on you're company and should get you many referrals.
    It was the inspiration I needed to start my day out. Thank's

    0Reply
  • Ann Bellamy
    Lender · Tyngsboro, MA · Member since 2009 · 3k+ posts · 2k+ votes
    13y

    I think it's sad that the seller thought the house was move in ready.

    But I love the detailing, good job

    0Reply
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