Go/No-Go?

Question

Property:  5br/3ba, 1 acre lot w/ 30x40 Pole Barn

ARV: $215,000 - $220,000

Purchase Price: $70,000

Renovation Required: Estimated $80,000-$100,000... 100% complete renovation required - home in disrepair, utilities shut off (but operational per seller), owner living there with kerosene heater and gas generator currently; drywall repair/replacement throughout; new flooring; some new windows; complete kitchen demo/renovation, everything else you'd expect in a flip.

Potential issues: Home exterior is 100% brick; my partner thought he saw some issues (bricks cracked/missing) in a couple spots on his way in; house smells (like money to me - like a combination of dog urine and marijuana to most others!); INSIDE walls have either real or faux-stone on the walls - if it's real it may be labor-intensive to remove; it's winter in Michigan so exterior work has to be done around the weather

Question: We typically don't sink this much into renovations in Midwest properties, but the ROI still looks good. And I'm working with a new partner/general contractor who is VERY talented, but who hasn't done a ton of flips, so the scope of work is a bit overwhelming to him as he looks at the house in its current state of disrepair. Is it worth investing this much in a renovation with these numbers, or would you pass this one by and go after two more cosmetic flips instead?

David Kelly · Answer

@Nate Miersma Hi Nate, I just noticed your mention of the brick exterior on that house.  Having worked for a mason for a few years after getting out of the Navy, one of my main jobs was to fix exterior brickwork.  Depending on the extent of the damage and if you can find the same brick, chinking out the mortar and replacing brick and re-mudding the joint is not a difficult job. With the right tools it's not all that time consuming either.  Hope this helps.

Nate Miersma · Answer

@Michaela Graham

The contractor is a good friend of mine and is essentially managing the projects as the GC, not doing any of the work himself or charging for his time (we share the profit at the end of the deal). So that's squared away - we're not getting "retail quotes" and he knows the industry well enough to know the difference.

I'm going to guess at this point that he floors AND subfloors need to go based on condition. HVAC is good; newer furnace, newer hot water heater.

Structural work is highly likely - it appears that this home was converted from a duplex long ago and there's no flow to the floor plan. They're using a breezeway as a master bedroom right now as an example.

Structurally (critical structures- foundation, load bearing members, etc) the building should be sound or I won't purchase the property regardless of the rest of the description I posted.

Thanks for your input! I sincerely appreciate you taking the time to post your thoughts.

Michaela G. · Answer

If that contractor partner of yours hasn't done many flips - is he giving you a quote like a normal customer? If he's your partner, I'd assume that he'll share into the profit? If so, then he shouldn't make any profit on the rehab imho.

80-100K seems really extreme, if you have good roof and good exterior walls. Rewiring 3-5K (depending on size). Replumbing 3 baths/1 kitchen - 3-5K depending. You can do a really nice kitchen for 5K or under. Not clear on the sheetrock - needs to be completely gutted and completely new installed? Or needs repair in all rooms and some bigger sheets in some places? 5k?

All new floors means new subfloors and everything above? Or just new flooring material? Hardwood, tile, carpet?

HVAC  - depends on size of house. About 1 ton per 600-700sqf. Maybe 5-6K?

Everything will need to get painted

I just don't see where there's 80-100K of work and I've done mostly major rehabs. Or do you need to do a lot of structural work? tearing down walls, building new walls, supporting members rotted, sills rotted, foundation cracked? You don't mention any of the major things.

John Horner · Answer

I think for a rehab this big it's most important to have very accurate numbers.  Get multiple quotes from contractors to get a good idea of where you should be.  $80k-$100k is a big difference.

Nail down the numbers and if the profit is worth the risk, go for it!