Houston Flip - Regular Updates from Start to Finish

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Houston Flip - Regular Updates from Start to Finish

Mark Parzych
Wholesaler · Houston, TX · Member since 2014 · 73 posts · 57 votes

I am closing on my 5th house, which is my 7th deal, on October 17th and my plan is to renovation and sell it. I'm buying it from another investor who started writing about it in his BP blog but I won't share those details until it's officially in my possession. 

A year ago at this time I only had 2 houses and 1 deal. I don't count my primary residence as a deal despite house hacking it. A lot has happened in a year and I've had a major setback as described below. I'm still relativity new to real estate but I have built a strong foundation thanks to BP. I've done a little of several things and I'm still I'm trying to figure out where my time should be spent to get the most out of it.

I have several reasons for writing a public diary like this. 

1. To keep me accountable because I want to be able to go back and see what went well and what didn't. I want to be able to state specific goals/desires at moments in time and see if they're met.

2. To be a learning experience for other new investors for things I do well and things I screw up.

3. To serve as a forum for advise and help if/when I'm stuck or not sure what to do.   

I've attempted one renovation before and that was a disaster. I worked with a partner 50:50 who had much more experience but multiple contractor issues, health issues to my partner, and high crime in the area lead to most of my capital being tied up for 9 months with no profit to speak of. I did learn a lot about what not to do, so maybe I'll be better off going forward. I'm definitely coming into this flip much more prepared than last time. I may post that story if I get some interest. 

This time around I'm using a local bank as my lender instead of doing all cash. They lend 80% of the (purchase price + reno cost), or 75% LTV of ARV, whichever is lower. At only 1PT, and 6% interest it's a great resource for cheap money. The downside is they need 4 weeks to close like a traditional bank so the seller needs a flexible closing date.

I'll post pictures, show the numbers, and provide much more information as things get going. I don't want to be too premature since I don't own the house yet. I'm hoping to finalize my contractor's bid proposal this weekend so we cant start on Tuesday. 

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Julie MarquezPro Member
Investor · Skagit County, WA · Member since 2016 · 1k+ posts · 807 votes
9y

@Mark Parzych Thanks for sharing your journey. My husband and I are about to close on a 2/1 house that is currently down to the studs, so it looks almost the same condition as yours! This is so much great information here. Except my numbers seem exponentially more. $250,000 purchase price and $90,000 in rehab costs. $30,000 for the plumbing and furnace alone! I'll be following along!

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  • Jeremy Pakalka
    Houston, TX · Member since 2016 · 349 posts · 142 votes
    9y

    @Mark Parzych Its a great idea to keep yourself accountable. The best way to do so is to set goals for yourself. These goals should be yearly, 6 months, 3 months, weekly and daily. Once you hit those time periods, think about what failed and what went right so you can set better goals down the road.

    The bank offering 6% and 1 point is awesome but the closing window will cause problems. You will be able to find home owners that can meet that criteria but you will also miss out on some deals because others can close faster and don't need bank approval. Don't let one bad experience close you off to other lending sources. Lots of investors use hard money and will continue to do so.

    I am also in the Houston area so please feel free to message me if you need anything. Good luck with the flip!

    0Reply
  • Mark Parzych
    OP
    Wholesaler · Houston, TX · Member since 2014 · 73 posts · 57 votes
    9y

    Update:

    Closing was successful and my contractor is lined up to start tomorrow. I had a lot of back and forth with him over the past 2 weeks and did a 3 hour walk-through yesterday to go over the bid in detail. I feel my expectations are clear, and the vast majority is captured in writing. His bid was not the cheapest but I have room in this house to pay for a more reliable contractor, and after my last attempt I feel like it'll be worth it in the end. 

    Here are before pictures:

    I have a lot more but this gives a good idea.

    As you can see by the before pictures, some work already started when I bought the house. It has new framing, new roof, new siding, and new windows. It's basically a shell in it's current condition. It'll need HVAC, all new gas and water plumbing, all new electric, insulation, drywall, moldings, floors, paint, kitchen, bath, etc. Something unfortunate is that a the previous owner poured new concrete for the foundation but it was done horribly. I'm going to have to tear it up and redo it with rebar to strengthen and level out the floors. 

    I purchased this house for 29k. Found it from craigslist and later found out the seller was on Bigger Pockets. It's a 1270 SqFt, 3 bedroom, 1 bath house. Much of the house had termites and framing had to be replaced. The previous owner modified the house from a 2/1 to a 3/1 with new framing. I'm not in love with the new layout but it was definitely the right decision to add another bedroom and create an open floor plan. 

    My budget for this remodel is 45k; where 39k is to the contractor and 6k is for some materials I'm responsible for purchasing. I'm paying for all flooring, tiles, appliances, kitchen and bathroom fixtures, lighting, and a few other things. I'm good with that so I can stay in control of design. I'll systematize as I do more houses but this gives me a good understanding of prices for different materials. 

    ARV from my lender's appraisal is 110k. I believe ARV is 135k+ with how I plan to fix it up. I know that's a very big difference. Days on market is very low in this area and I'll push my listing price at the top end of comps. It'll be interesting to see who is right. Even if it is 110k that still gives me plenty of room for profit.

    My timeline is to be on the market by Jan 5th. I have a business trip from Jan 6th to 29th so I'd like to come back with my house in escrow, close sooner after, and start on my next one in Feb. That gives my contractor about 2.5 months, which he is a little hesitant about, but I feel like that's very doable.

    The first step is fixing the concrete slab. Once that's complete then HVAC, electric, plumbing, and some exterior work gets started.

    0Reply
  • Mark Parzych
    OP
    Wholesaler · Houston, TX · Member since 2014 · 73 posts · 57 votes
    9y

    Concrete is broken up and will be poured tomorrow. Things appear to be on schedule. I want the electrical/plumbing/HVAC to be on site by the 27th and finished with rough in and inspections by the 7th. 

    1Reply
  • Kevin Nguyen
    Houston, TX · Member since 2016 · 12 posts · 1 vote
    9y

    Mark, thank you blogging your journey.  I am trying to immerse myself and these diaries are very helpful. 

    Looks like you have a great numbers on that house. The cost of reno and purchase price is right at 70% of the conservative ARV of 110k. Are you going solo on this one? How are you planning the details of this reno? Like where the AC units and supply vents will be located or where outlets we be placed etc.

    Will be following. 

    0Reply
  • Mark Parzych
    OP
    Wholesaler · Houston, TX · Member since 2014 · 73 posts · 57 votes
    9y

    @Kevin Nguyen

    I am doing this alone. My failed flip taught me a lot of what to look for so I'm much more confident this time around. The previous owner went through an architect to get a new floor plan. He was nice enough to send them to me to finish off the rest. You will see old and new layout along with lighting placement. I actually am modifying the lighting quite to create better flow. For example the dining room table light fixture is tied into the living space and they really shouldn't be. 

    As far as details of AC vent locations, that's going to be my GC and his HVAC subcontractor. The living room's ceiling is very low and there's only about 3-4 inches from the ceiling to the roof so we're going to have to be a little create to get good flow to that part of the house. 

    In terms of light switches, I went through my modified lighting layout with my contractor which includes light switch locations. For outlets, there electrician will be following code which takes care of itself on my end. 

    0Reply
  • Julie MarquezPro Member
    Investor · Skagit County, WA · Member since 2016 · 1k+ posts · 807 votes
    9y

    @Mark Parzych Thanks for sharing your journey. My husband and I are about to close on a 2/1 house that is currently down to the studs, so it looks almost the same condition as yours! This is so much great information here. Except my numbers seem exponentially more. $250,000 purchase price and $90,000 in rehab costs. $30,000 for the plumbing and furnace alone! I'll be following along!

    1Reply
  • Mark Parzych
    OP
    Wholesaler · Houston, TX · Member since 2014 · 73 posts · 57 votes
    9y

    Today the concrete was finally poured. I peaked inside to see but didn't take any pictures. My contractor has been taking longer to get things done than I wanted, but at least it continues to move. My GC texted this afternoon saying he has a tree trimmer on site ready to do some work. We got him down to $400 which I thought was a little high, but after checking it out I can live with it. They will finish up tomorrow morning and are doing both the front and back yard. There were a lot of branches by the power lines that had to be removed as well. I'll send before/after on Friday when they are done. A tree in the front got trimmed to where it's leaning heavily on one side. The tree trimmer said if he cuts it down to a few feet above where the tree branches split off it will cause the tree to regrow evenly. My issue with that is the tree will look dead and I'm worried about it being able to sell like that. Do I keep it as is or trim it down almost all the way? Or just remove it entirely? 

    0Reply
  • Mark Parzych
    OP
    Wholesaler · Houston, TX · Member since 2014 · 73 posts · 57 votes
    9y

    @Julie Marquez

    30,000 for plumbing seems like a lot, especially on a 2/1. Are they using copper instead of PVC/cPVC. Even PEX should be much cheaper.

    0Reply
  • Julie MarquezPro Member
    Investor · Skagit County, WA · Member since 2016 · 1k+ posts · 807 votes
    9y

    @Mark Parzych Take the tree all the way down!

    0Reply
  • Mark Parzych
    OP
    Wholesaler · Houston, TX · Member since 2014 · 73 posts · 57 votes
    9y

    The tree has been taken down. It looks much better overall. I just need to cover up the stump with mulch and flowers to hide it. I can recommend a good tree trimmer in southeast Houston if anyone needs one.

    So after doing some thinking and analyzing the numbers, I am leaning towards making this a rental. I talked with a bank today and they had no issue allowing me to pull my money out by refinancing. In fact I'll net 10k profit and cash flow $500 a month according to my numbers. BRRRR method all the way! Something that I didn't think of before, is that they will have me deed the property from my LLC into my personal name, then get me on a conventional loan. I assumed it would need to stay in my business name to refinance, but this is perfect. I want to utilize my 10 Fannie Mae / Freddie Mac loans ASAP while interests rates are low. If this plan's execution is as easy as it sounds, I'll have found the perfect combination of lenders to do BRRRR until I reach my limit. At that point it should be easier to find lenders for BRRRR properties that stay in my LLC. Listening to the past few podcasts helped me have a change of mindset to explore this option further. I have to remind myself that my goal is financial freedom and think more long term.

    Permits will be pulled Monday and the electric, plumbing, and HVAC should start Tuesday. Later than I wanted so hopefully no more delays. I think I'm going to put a "coming soon - for rent" sign in the yard next week to line up tenants to move in when the house is complete. It's very early in the process but it won't hurt.

    0Reply
  • Lorin K.
    Tacoma, WA · Member since 2015 · 141 posts · 29 votes
    9y

    So what did the previous investor do wrong that provided you a great deal? BTW, I think you did well....and took out ALL certainty of any issues with the framing condition. Properties in Houston are so cheap! Want to see insane pricing look at Seattle..then Vancouver BC Canada. Are there lots of these fixer properties in Huston?

    0Reply
  • Mark Parzych
    OP
    Wholesaler · Houston, TX · Member since 2014 · 73 posts · 57 votes
    9y

    @Lorin K.

    The investor was new to investing and found the property through marketing for around 15k; which is basically lot value. He decided to purchase and started the renovation. He put about 15k into it before he was halted due to work and family. He held onto it for 7 months or so until he realized it wasn't going anywhere and wanted his money out. I can understand this same mentality since I went through something similar.

    He found and had a great deal, but undervalued the ARV when attempting to sell. I'm not sure why. I saw the ad, did a very quick ARV check my phone at work, went to another house where I had a contractor giving me a bid, told him about this house, and we came there. He gave me a rough estimate, I called up the seller at the property, and we agreed to a price within a few minutes. I liked it because it was clean with a nice exterior and no unknowns in the interior. The sellers ARV still made sense and I didn't see any red flag comps during my quick check earlier. It wasn't until a few days later when I had more time to do thorough research on comps until I realized the seller miscalculated ARV.

    Houston has many properties built in the 40s and 50s that need complete remodels. Prices range depending on area but almost nothing close to the city is cosmetic. You can find many many fixer uppers in poorer neighborhoods but I'm sure that's any city. My target is finding property in areas with signs of gentrification and making those long term rentals. This particular one doesn't fit that model but I'll do any deal that makes sense. It's on my route to and from work so it's easy to manage. 

    1Reply
  • Lorin K.
    Tacoma, WA · Member since 2015 · 141 posts · 29 votes
    9y

    Thanks for the info. Managment would be a headache if it was to far out of the way. What are rents going for in that area? I think seattle has all but lost the 1-2 percent properties as value has far exceeded rent rates. 

    0Reply
  • Mark Parzych
    OP
    Wholesaler · Houston, TX · Member since 2014 · 73 posts · 57 votes
    9y

    @Lorin K.

    For this remodeled 3 bedroom 1 bath 1270 Sq Ft Home.

    I'm expecting $1350 and I believe it can sell for $135,000+ so it's right at 1% for essentially a turn key property. Because literally everything will be brand new, maintenance costs will be very low for the first 7-8 years.

    In Houston 1% is doable in many areas. 2% Can be done only in certain areas but even then it's rare to find. 

    0Reply
  • William E.
    Investor · Pearland, TX · Member since 2016 · 246 posts · 136 votes
    9y

    i agree with that, i'm still trying to find that easy 2% deal around Houston. 

    i also agree that the layout isn't the best, but you work with what you have and i'm sure it will turn out great. 

    good luck,

    B

    0Reply
  • Jaime Ruiz
    Investor · Houston, TX · Member since 2016 · 22 posts · 5 votes
    9y

    @Mark Parzych, Do you think buying a property in a gentrification area to House Hack is viable in the Houston market. I am currently looking at this situation for my second investment purchase. I plan on doing a similar remodel in turning a 2bed/1bath home into a 3/2 and modernizing the kitchen. The purchase price is right at market value but i hope to add value and sell when the area reaches the "Heights" trends. Thanks, and good luck sir!

    0Reply
  • Mark Parzych
    OP
    Wholesaler · Houston, TX · Member since 2014 · 73 posts · 57 votes
    9y

    @Jaime Ruiz

     Of course it's possible. I bought/live in a townhouse and rent out two rooms in an area that has the potential to drastically change within 7-10 years. There's bunch of cheaper homes not too far away that will see large price increases when groundbreaking is announced. There are several areas in Houston I like for long term growth and appreciation. I've been analyzing the market for a few years and can see trends in the early stages. I also drive around these areas to see how things are changing. I care more about potential appreciation over cash flow but I'd never buy a property that risks negative cash flow. 

    1Reply
  • Reed Huddleston
    Real Estate Professional · Colorado Springs, Colorado (CO) · Member since 2016 · 30 posts · 11 votes
    9y

    Great looking deal and work in progress! I'm enjoying reading about the potential in Houston and the potential to come out way ahead on this project. Keep it up, I'll be trolling. 

    0Reply
  • Mark Parzych
    OP
    Wholesaler · Houston, TX · Member since 2014 · 73 posts · 57 votes
    9y

    Update:

    So it's a full two weeks into the renovation. Tree trimming is complete. Foundation is complete and looks nice. It might have been hard to see in earlier pictures but what we did had to be done for an even floor. Plumbing rough in is almost complete. Preparation for exterior painting is almost complete. We had to replace some Hardy and caulk windows/edges/doors.  I'm choosing a gray paint color for exterior with white trim. It'll give it the pop I want and keep it looking more modern. The electrical rough in started today and is ongoing. 

    I spent a couple hours with the electrician today discussing location of each lighting fixture and light switch plan. To some it's minor detail, but I feel like these types of details are very important to make sure it has functionality. I see a lot of contractors/flips who don't take the time to plan out details. An example is that on my disaster flip they put in a new wall and door but put the light switch on the opposite side of the door opening. This electrician also brought up adding coax cable outlets so that when the tenants ask for cable/satellite installation they aren't ripping up walls. I didn't even think of that but it's well worth the extra money on the front end. 

    Here are some pictures of new foundation and plumbing.

    My contractor says all rough in for HVAC, plumbing, electric will be done, with inspections passed, by end of next week. Begin insulation and drywall by Monday the 14th. 

    4Reply
  • Mark Parzych
    OP
    Wholesaler · Houston, TX · Member since 2014 · 73 posts · 57 votes
    9y

    The plumbing for water is just about complete but they need to do gas. The electric is about 60% complete. HVAC will start tomorrow and take two days. They've started painting the exterior earlier today.

    I've scoped out most of my fixtures and appliances. I'm waiting on some more Black Friday sales before pulling the trigger.

    2Reply
  • Mark Parzych
    OP
    Wholesaler · Houston, TX · Member since 2014 · 73 posts · 57 votes
    9y

    It's been awhile since my last update. This is an update for the end of week 3. All HVAC, electrical, plumbing rough ins are complete and inspections have passed. We are on to insulation right now. Then it get's into drywall, tape and float, then texture. All that should be done by next Monday.

    The outside is still being painted. We actually had a mix-up with getting the wrong paint color. It was too gray. I had them add more blues in it and it came out pretty nice. The downside is that it might be hard to replicate in the future. 

    My GC called today saying the gas line from the meter to house needs to be replaced, costing $2200.  The price seems reasonable from my limited experience but it's an unforeseen expense. I asked to verify this with his plumber myself. 

    2Reply
  • Mark Parzych
    OP
    Wholesaler · Houston, TX · Member since 2014 · 73 posts · 57 votes
    9y

    Week 4 is complete!

    Progress this week seemed really slow. All they did was put insulation up and Sheetrock the ceilings. Next week will be slow again due to Thanksgiving but I'm hoping for all the wall sheetrock, taping, float, and texture to be done and ready to paint by Monday/Tuesday the 28th. 

    1Reply
  • Reed Huddleston
    Real Estate Professional · Colorado Springs, Colorado (CO) · Member since 2016 · 30 posts · 11 votes
    9y

    Looks like everything is coming together really well! 

    I'm hoping to do my first flip in the beginning of next year. My time will be limited to maybe 20 hours a week so I just wanted to get an estimate of how you manage your time:

    About how many hours a week are you spending on this project? Is it an everyday thing?

    Are you getting your hands dirty or is all this work hired out?

    Thanks for keeping this diary going, it's definitely giving me some good insight. That portfolio loan you got is unbelievable! I'm looking at using hard money for somewhere around 14% and 4 points!

    0Reply
  • Mark Parzych
    OP
    Wholesaler · Houston, TX · Member since 2014 · 73 posts · 57 votes
    9y

    I'm actually working on another house that has been taking up more time. I'm not sure what I'm going to do with it yet. I may post about it sometime soon.

    This house I usually stop by everyday after work for between 15 minutes to an hour. In terms of being physically at the house I may have spent 20-25 hours since we started 4 weeks ago. And a few times I've spent 2-3 hours which is skewing those numbers. I've spent probably 6-8 hours driving to or being at stores for it.  I've spend a lot of time on my online researching what I want to purchase because I'm involved in the design, buying fixtures, and flooring. I don't have an estimate for that time. 

    I'm not doing any work personally. It's all hired out. 

    There are a few things I caught that may have possibly been missed by my GC such as not having an outlet for the above the stove microwave, some support beams in the attic were cracked and had to be reinforced, and making sure the location of the dryer vents were higher up due to it being stacked washer/dryers. 

    I'm going to continue to use my lender as much as possible because it is a good deal. I'm limited with my credit line however. As I do more properties it should be able to increase.

    0Reply
  • Kevan SheltonPro Member
    Developer · Houston, TX · Member since 2016 · 54 posts · 29 votes
    9y
    Mark Great Job I'm in the Houston Market what lenders and contractors have you been working with?
    Podcast Guest on Show From No Savings to Building 60 Houses in 5 Years!
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