Starting rehab on my first flip - FOLLOW ALONG!

Starting rehab on my first flip - FOLLOW ALONG!

South Metro Atlanta · Member since 2017 · 69 posts · 22 votes

I closed on this beauty earlier this month (Dec. 2018) and it has been quite exasperating dealing with the seller and the hard money lender! She's a 3/1, 1,200 sqft home in East Point, GA - a perfect starter home if you ask me. 

Being that this is my first purchase, I've learned quite a few lessons already. In retrospect, some seem obvious but you know what they say about hindsight...here are a few take-away's:

1. I bought the home from a well-known company with a pretty large inventory. I knew going in that they are difficult to deal with but I didn't want to pass up on the house so decided to take the risk. It was definitely a challenge especially since it is impossible to get anybody on the phone and emails go unanswered for days. If I decide to deal with them again (which is highly unlikely; I'd say a less than 10% chance) it won't be if I'm using a HML because being on a tight deadline with the seller doesn't mix well with a lender that doesn't care to adhere to previously set deadlines. Lesson learned: tight deadlines given by well-stocked sellers are very hard to manage when you are not experienced and are dealing with a lender who has a lot of requirements of their own but do not manage time efficiently and/or are dishonest with how long their process actually takes. 

2. If the seller has "no concessions" as part of the sale, I will run away from that. There are too many houses available in my market for me to get mixed up in something that obviously has major issues with it. Lesson learned: "no concessions" = behind the walls problems

3. Cut electrical wires in the breaker box mean big bucks during rehab. Because of the deadline issues (see #1) I didn't have enough time to have an electrician investigate the depth of the problem before inspection diligence expired so I had to decide whether to take a chance or pass up the property. I decided to take a chance. It was discovered that somebody was highly pi$$ed - likely from not getting paid - and cut every single wire in the house, in the basement and even where power comes in from the power company!! Lesson learned: have MEPS's on your call list willing to do a quick inspection of the different mechanicals if you don't have a regular contractor willing to do a full house inspection so you don't take a $5000 hit to your budget.

4. Contractors. Sigh. My first one disappeared like smoke in the wind right before closing. We'd done several walk-through's, he wrote up an estimate (a couple, in fact) for the lender, had several interactions...a lot of time wasted because when it came time to close he stopped answering my calls & texts. I had a feeling earlier on that he was seeing that he had bit off more than he could chew but I ignored my gut. However, even if that were the case, he didn't have to drop off the face of the earth. A simple response is the respectful thing to do so that you don't burn bridges. Who knows? I may have been able to use him for a different type of job. Lesson learned: be sure the contractor chosen is experienced in the type of work needed. If you need a rehab, get one that does rehabs! If you need one for high-end work, get one who works in high-end markets! Etc...

More to come! 

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Birmingham, AL · Member since 2018 · 10 posts · 8 votes
7y

@Melissa Dinas thank you I only need about 40k to finish this beauty and get it on the market, I should be able to get it sold for asking price 225k to 235k I paid 35k for it, I  have put about 25k in it already I sold one already in the neighborhood for 196K so this one will be even much nicer then that one 

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  • Real Estate Agent · Mukilteo, WA · Member since 2018 · 124 posts · 148 votes
    7y

    Looks like a great starter home to me! Good luck on your journey and I look forward to seeing more pictures before and after!

  • Property Manager · Saint Petersburg, FL · Member since 2016 · 183 posts · 51 votes
    7y

    Anxious to hear about scope of works (aside from breaker panel).

    How did you select the area to invest? do you live/work in area currently?

    I've been stood up by contractors too...might help to see that like a bad date; you didn't want to waste time on him anyway! 

    Good luck and keep posting.

  • South Metro Atlanta · Member since 2017 · 69 posts · 22 votes
    7y

    @Elise Hazzard Thanks, I'll be posting scope and more photos soon so be sure to follow this post. 

    I selected East Point because it is very sought-after with a lot of activity in and near it. The margins are definitely closing for flips though - not just in East Point but in many areas throughout Atlanta and its outskirts. It's a great time to pick up rental properties (or home buyers who are looking for a place to live). The area has some very rough spots so for any investor who's not familiar with Atlanta I would definitely recommend hooking up with someone who is. 

  • South Metro Atlanta · Member since 2017 · 69 posts · 22 votes
    7y
  • Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes
    7y

    Is the roof parallel to the ground slope?

  • South Metro Atlanta · Member since 2017 · 69 posts · 22 votes
    7y

    @Sam Shueh No it isn't. These are the rolling hills of Georgia! 

  • Birmingham, AL · Member since 2018 · 10 posts · 8 votes
    7y

    did you use a hard money lender if so who would that be I am looking for funding to complete my flip here in Birmingham, Al

  • South Metro Atlanta · Member since 2017 · 69 posts · 22 votes
    7y

    @Johnette Crawford Yes, I did use a HML. It was so frustrating! I don't know if it's like that with all of them or just the one I ended up picking. I used Do Hard Money.

  • Birmingham, AL · Member since 2018 · 10 posts · 8 votes
    7y

    @Melissa Dinas thank you I only need about 40k to finish this beauty and get it on the market, I should be able to get it sold for asking price 225k to 235k I paid 35k for it, I  have put about 25k in it already I sold one already in the neighborhood for 196K so this one will be even much nicer then that one 

  • Property Manager · Atlanta Ga · Member since 2018 · 19 posts · 3 votes
    7y

    Awesome. Good luck with this. What is your strategy with this?

  • Kevin PolitePro Member
    Investor · Decatur Atlanta, GA · Member since 2011 · 612 posts · 232 votes
    7y

    Good luck on the rehab. I hear East Point permitting is difficult to deal with. What are your numbers on this, acquisition, rehab budget, ARV?

  • South Metro Atlanta · Member since 2017 · 69 posts · 22 votes
    7y

    @Mendel Robbins Thank. This one is a flip. Although it would've been good to BRRRR too. However, I'm building up my cash at this time so that's why I'm doing flips right now.

    @Kevin Polite Thanks...I'm needing that luck! The process to close was crazy and a some things I didn't know about got past me (this is my first project) so I'm hoping to be able to stick to the numbers I saw before the start of the project. 

    I heard the same thing about EP permitting but my contractor has an expediter who commonly works in East Point so I'm expecting it to go smoothly (fingers crossed!).

    Here are the numbers:

    Purchase: 88k

    Rehab: 50k

    Resale: 185k

    Profit: 15k

    I was hoping to be able to clear more (don't we always want that?) but a few things have slowed down the process:

    1. I had to find a new contractor. As stated in my OP, my first contractor disappeared into thin air.

    2. The closing occurred right before Christmas/New Year holiday so getting anything done is hit/miss. Therefore my timeline has grown a bit longer than I had anticipated which means more overhead, less profit. 

    3. The HML gave me wrong information and the draw process is quite different than how it was explained to me. That means I have to figure out how to make money available that I wasn't planning on and how to reimburse myself. It's so convoluted and too much to type out but if anybody reading this is planning on using Do Hard Money, please consider going a different way. If you are currently trying to find your first deal with them, good luck!!

  • Kevin PolitePro Member
    Investor · Decatur Atlanta, GA · Member since 2011 · 612 posts · 232 votes
    7y

    @Melissa Dinas tight budget but sometimes the experienced gained from during your first flip is invaluable. I wish I knew about BiggerPockets when I did my first. Keppus updated. Also Lima One, Paces Funding are reputable hard money lenders in Atlanta. 

  • Flipper/Rehabber · Washington, DC · Member since 2018 · 66 posts · 7 votes
    7y

    @Melissa Dinas

    Are you using a LLC for this flip? If so, have you elected for your LLC to be taxed as a S Corp? You may create some savings that way as you won't pay self employment taxes on all the profit you generate. Just thought I'd share. Good luck with this flip.

  • Developer · Decatur, GA · Member since 2011 · 1k+ posts · 1k+ votes
    7y

    @Melissa Dinas  Great job jumping in!  You bought a house with great curb appeal.   

    I'm a little worried for you since you partnered up with a bad wholesaler and a bad lender.  Don't hesitate to ask around for help.  The pushy vendors marketing to you are sometimes the worst.

    By the way, "No concessions" lesson is not a good one.  Atlanta is very competitive.  You have to buy as-is -- moldy, damaged, fast, etc.  You just need to learn how to get your due diligence done and buy right.  Sellers who want $5k EM in hours and no due diligence are crooks.  

  • South Metro Atlanta · Member since 2017 · 69 posts · 22 votes
    7y

    @Rick Baggenstoss Thanks, she does have great curb appeal. The main floor is nice as well even though it's only a 1-bath. The basement however is scarrry! I knew I was gonna have to put some work into it but my worry factor has gone up exponentially with this "record-breaking rain" we've been blessed with this past month! Thanks for the note on "no concessions"...it took me 4 months to hook this one so I'm very familiar with the competitiveness. What I wish I'd had was a better chance to get mep's in there during diligence. Something I will definitely stay on top of moving forward.

    @Arthur C. the HML I use sets up the LLC and truthfully I don't much about it at this point. So much happened and it was such a flurry just to try to close on time so I didn't lose my earnest money (due to the HML being unreliable) that I didn't even study that part. I will now that you've mentioned it. Thanks!

    @Kevin Polite Yes, indeed! I'm still expecting to make some kind of profit although not as much as I had initially thought because of issues with the HML as mentioned before. But in the back of my mind, as long as I at least break even, I'm thinking I'll be fine because of the experience I will take to my next property. Thanks for the recommendations!

  • Developer · Decatur, GA · Member since 2011 · 1k+ posts · 1k+ votes
    7y

    What is your scope, Melissa? Are you planning to rehab the basement into livable space? That usually is not a money maker. Appraisers will often discount the basement square footage by 50%! At roughly $50/sf to rehab raw space, you'll be making back only what you spend -- 0% ROI on that.

  • Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    7y

    @Melissa Dinas. This seems like a tight margin flip... good luck. Also don’t use do hard money. Lots of posts on them and most of it isn’t very flattering

  • Roswell, GA · Member since 2019 · 6 posts · 3 votes
    7y

    Melissa - thanks for sharing. 

    Lots of bravery you have and wishing you well in this new adventure. I'm working on my first property and had the misfortune of running into electrical problems that required permitting and an upgrade. What I learned is to be humble when dealing with the Permitting office, whether or not you think you're right or it should be done some other way.

    All the best.

  • South Metro Atlanta · Member since 2017 · 69 posts · 22 votes
    7y

    @Rick Baggenstoss nooooooo!! It's just where the water heater, hvac, etc. are mostly housed. It seems like someone tried to make it into a livable space at some point but it turned out looking like a creepy holding cell for a kidnapped person. (I tried to upload a photo but it's sideways and I can't rotate here) What I'm needing to do is stop the flooding that's pouring in through a cracked window and some cracking on the concrete along the the foundation. Also, the areaway drain is completely blocked up so water gathers at the bottom of the stairs and flows right under the doorway into the basement. So. Yeah. Lots of rain is definitely not helping my situation! 

  • South Metro Atlanta · Member since 2017 · 69 posts · 22 votes
    7y

    @Caleb Heimsoth yup, I can't wait to finish this project for several reasons, not the least of which is so I can sever ties with dhm!!

    @Will M. Ballard Thanks. I have an electrical issue as well but I knew it going in. It seems like someone did a beautiful job rewiring the house and then wasn't paid so they snipped every wire, including in the basement and outside! 

  • South Metro Atlanta · Member since 2017 · 69 posts · 22 votes
    7y

    So here are some photos of the interior and a brief description of the work. Sorry for the rotated photos but I can't rotate them here and this is how they're uploading. If anybody can explain to me how to fix it, please do!

    Above is the living room with a very sexy gas heater fireplace. She's a beaut', ain't she? Obviously, that's coming out and hopefully there's a working fireplace behind it. The far room is the dining room. The front door is on the left.

    Above is the existing cabinetry. The wall to the left of the cabinets will be knocked down to open it up to the dining room. 

    Here's the master bedroom - with a door opening into the kitchen! That will be filled in. The ceiling has some old staining and texture drooping (which is also happening in the living room). The 2 other bedrooms look like this (minus the ceiling issue) but smaller. 

    Here's the bathroom. It will be gutted. Initial plan was to demo the tiles and paint but when I removed the mirror, I discovered that the wall is just a thin, bendable sheet of some type of cheap wood! So the whole thing needs to come out. 

    I thought this was just crazy! It's an old oil or gas tank used for heating the house...right in the middle of the hallway!! I can't imagine the fumes. The tank will be removed and we will be installing a nice linen closet. 

    ****

    So, that's most of it. There's a bonus room off the other side of the dining room that is an enclosed portion of the front porch. I'll probably dress it up as a home office/kids playroom. And another small room off the other end of the kitchen that was likely the back stoop that someone framed in. It will be the laundry area and exit to the backyard. 

    Basement photos to come soon!

  • Property Manager · Saint Petersburg, FL · Member since 2016 · 183 posts · 51 votes
    7y

    Melissa,

    hope the fireplace heater is working.

    dedicated laundry space is always a crowd pleaser.

    there should be an edit feature when you open pix that allows you to rotate before transferring/posting pix.

    Hope all is well...

    Elise

  • Developer · Palm City, FL · Member since 2018 · 326 posts · 99 votes
    7y

    @Melissa Dinas congratulations! Looking forward to seeing your journey with the house

    Good luck!

  • South Metro Atlanta · Member since 2017 · 69 posts · 22 votes
    7y

    It's been a couple of weeks and it was a slow start but we're off to the races now. We got the permits for the plumbing, electrical and framing and there's been many changes and some surprises...(BTW, I apologize for the sideways photos but I just can't find any button anywhere that will allow me to rotate them. Anybody have the answer???)

    The first thing to happen was the floor in the kitchen was gutted. It was quite a shock to walk in and see the crawl space underneath in full view! I wasn't expecting that so yeah, I had to catch my breath. But some of the joists underneath had to be replaced for leveling. The bathroom was also gutted down to the studs (but the floor remained). 

    The living room ceiling has been taken down. Initially I was told that the bowing down of the ceiling was caused by the heavy coats of spackle that were put on it - likely to cover up water stains from a previous leak. We had the same issue in the master bedroom. However, it was discovered that the joists were uneven and the ceiling hadn't had proper support thereby causing a huge bow in the center. I guess at some point it would've all just come crashing down! So the plan initially was to cut out the parts of the ceiling that were damaged and place sheetrock in the bare areas for a smooth ceiling and call it a day. Surprise! The entire ceiling had to be demoed, joists replaced and ceiling replace. In the LR, as of this afternoon, the new vaulted joists had been installed and the MBR ceiling had been knocked down. At least I'm getting a beautiful new high-ceilinged LR out of it! 

    A new awning also went up 

    And my most favorite part up to now is the fireplace. The lovely gas heater fireplace. I tore it down myself so it was extra gratifying!

    Here's what it looked like at purchase:

    When the wood came off I found this red brick with an interior of white brick. The top of the back wall is actually caving towards us. I guess it would've crumbled at some point. There were also several corpses in the 4 inches of black dirt on the floor of the fireplace. 

    When the red brick was removed, I saw that the bricks had covered up the original fireplace, which is the arch-shaped brick you see in the photo below. So weird to have been covered up, right? Also, the white brick side-walls jut out past the walls on either side now. The only reason I could come up with as to why the original fireplace was covered up by a white and red brick monster then by the ghastly gas heater is because it wasn't up to code and was a fire hazard. You see how the wall was heated up? There's black burn marks all around the fireplace on the plaster of the walls!!

    So all in all, I'm still very excited about this. It's a real construction zone there! HVAC has come through, plumbing has begun, electric is still needed. Unexpected expenses were the ceiling joists and I have to get a new hot water heater because the one there won't work. I'm sure there'll be more. But I've found myself a great team and I can't wait to get back there tomorrow to see the ceilings!

    More soon!! 

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