Long story short I have my first flip under contract. It's in a flood zone. I'm buying it cash, and I'm probably going to use a personal loan to fund the repairs. Anyway I would greatly appreciate it if you could look over my plan and the numbers.
The property is a REO from Wells Fargo. Single family. It has 3 bedrooms and 1 bathroom. Two floors with a basement and a huge attic (can be made into two bedrooms). Two car detached garage. Sits on a 100x100 lot. Located in Manville, NJ. It sits higher than other properties in the area. Still, it was flooded back in 2011 and 2012. The whole basement was under water and the first floor had 16 inches. The previous owner started the repairs and managed to fix:
-Walls on the first floor
-New furnace (steam heat)
-New electrical panel
Since I will be doing all the work myself, I'm estimating around $12,000 for the repairs. The property really does not need that much work. Off the top of my head it needs:
-Flooring on all of first floor
-TLC in bathroom
-New carpets on second floor
-New windows in basement
I will hopefully have it inspected by the end of the weekend. General home inspection, oil tank sweep, mold inspection.
Purchase price is: $46,000
Rehab cost: $12,000
Taxes: $7,200/ year
Flood Ins: $200/ month (structure only)
Homeowners Ins: $70/ month
Holding costs add up to be around $870/ month plus electrical, gas, water, sewer.
Overall the property appears to be in good condition and it does not need a lot of work. The goal is to flip it. Just recently a house two streets down, also in a flood zone, sitting much lower than this one, sold for $155,000. It was a smaller house with a yard half smaller and it was only two stories. Being very conservative and planning on doing quality work I'm estimating the ARV on this property to be around $120,000 on the low end. It's a complete shot in the dark. I do plan on getting an appraisal done and getting a better feel for the market through talking to the person doing it. I drove this neighborhood back and forth 100 times by now and it's very safe, quiet, and besides being in the flood zone there is honestly nothing wrong with the area. Below I will attach a screenshot from the house flipping calculator so you can take a look at the numbers and see if they make sense. I must say... They seem too good to be true.
Also, I had to sign an "Owner Occupancy Certificate" even though I'm paying cash. Still working on that issue. Will post another thread in the right forum. No big deal, I can live a this property for one year to satisfy the sellers requirements if need be. Again being conservative I based the numbers on a "flip" that I will hold for 365 days.
I'm looking for any and all feedback. I know there is things I forgot to think about. I would greatly appreciate if somebody could point those out to me. I'm just a new kid trying to do that first flip, make some money, and not make too many silly mistakes. Thank you in advance for your help!
By hiring a GC instead of doing the work yourself it will most definitely take quicker (unless if you have prior experience in doing jobs like this), so the amount you'll pay more for the GC you can save on carrying cost and you can meanwhile use your time to do other profitable things (even if it's to continue with your current job). In general when people wanna do things themselves to save money, you should only do for yourself what others would hire you to do for them. If your not an expert at something you should sub it out and you do what your best at.
I agree with @Moshe Eisenberg on the GC part, some times you can save money by having someone else do the work because what you pay them to do it faster you save in holding fees. However, I do everything myself just for the pride factor, I like to look back and say ya I did this. In your situation, since you have to live there for a while and you are fine with that. I don't think that really applies, since you have to have the place for a year anyways.
My only other two cents is to convert that heating to gas instead of oil. I just did a conversion on an oil boiler to a gas boiler. Very straight forward and easy. cost me $2500 eveything installed. Majority of people cringe at the idea of oil and if you install a high efficiency it can be a selling point.
Congratulations on getting your first flip under contract.I am currently working on my second flip here in Colorado Springs. We go on the market on Tuesday 16 of Jun. We have owned the property for 7 weeks and have been rehabbing for the past five weeks. The first house we flipped sold back in Feb of this year for a 15% return. The second flip should return us about 12%.
From a newbie and part time BP user’s perspective here is my two cents.
- 1.If you don’t already have a copy of J Scott’s and Bigger Pockets book on flipping houses – get it ASAP. Worth every penny.
- 2.Check out the resources tab on BP for a good rehab calculator there are several to choose from. Find one that works for you and run your numbers again.
- 3.Most importantly - Do a very, very detailed scope of work (SOW) - You need to be able to account for all your costs in a very detailed way. (This is advice I have heeded from seasoned rehabbers). I have done detailed SOWs on my flips and have maintained positive control of my costs.
From your description of the property it sounds to me that you may be underestimating how much work needs to be done, in terms of cost. I will agree with Tariq and Moshe that out sourcing has a ton of benefits. I personally have outsourced 90% of the work done on both my flips. However in your case, since you would be forced to live in the property for a year it makes sense for you to take on more of the rehabbing (if you have the skill set to do it).
Biggest issue I have with doing work myself is that it doesn’t allow for scalability. I plan on flipping at least one more this year and five next year. Early next year I want to get two properties going at the same time. Can’t do that if I’m rehabbing myself.
@Jake Recz Nice! My only comment is that the taxes look on the high side - you can appeal the tax basis, forms are available at the municiple bldg. Prep for that also helps you as they require comps as well as a copy of your appraisal. This would save you some on holding costs and lower taxes are super nice for the buyer as well.
Thank you guys for your advice and the detailed responses. I understand how hiring a general contractor can save a lot of money in some cases. With this property I had to sign an addendum that I will occupy the property for a year. Considering I will be living there I might as well do it all myself as I have a year to complete the work. I do have the experience and I have family members who are willing to help out on the project.
The heating is converted. It's a steam boiler fired by natural gas. The reason I want to do a sweep for the oil tank is that there is always that chance that the heat was oil at one point and the oil tank might still be somewhere on the property. That would be a deal breaker for me.
I stopped by the property again today with my father and my father-in-law. Both of them know construction. So far all looks good. It seems like I should be able to fit within my $12k budget for repairs if I do all the work myself. It's gonna be tight but doable. If I go over a little it will still be fine.
I have a list of everything that needs to be done to the property. I will stop by Home Depot tomorrow and calculate how much all the materials will cost me.
Ceril mentioned the taxes. They are very high on that property. I believe they are based on a $280k appraised value. That's something I have to look into. I know I will be able to lower them quite a lot. There is now way that property is worth $7200 of taxes per year.
At first glance your deal looks solid. However, I feel you have underestimated the repair costs. I don't know what kind of kitchen you intend on installing but a decent kitchen can easily eat up half of that budget. Paint can certainly be one of the items that you can save a ton on as it is labor heavy in cost. Appliances and carpets are pretty much the same cost regardless, installation of these items are nominal at best. A good trip to the hardware store with a comprehensive list will be helpful. Additionally, as a contractor myself I would recommend that you find a GC to at least walk the property with you and discuss the issues that the house has/had. Good luck! It looks like a great property and regardless of your expenses it looks like you have a viable flip! Look forward to reading about your success soon.
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