BiggerPockets Founder · HI · Member since 2008 · 16k+ posts · 5k+ votes
Back in March 2013, BiggerPockets and J Scott collaborated to release two books -- The Book on Flipping Houses and The Book on Estimating Rehab Costs (check them out here if you haven't already). As part of the book package, J was planning to do a detailed case study of one of his renovations (even more detailed than he does for most of his projects on his blog). We decided that instead of doing a case study only for those who purchased the books, he'd instead do one publicly here on BiggerPockets.
In this thread, J is going to provide a practically day-by-day diary of his first new construction project, from acquisition through sale -- including pictures, spreadsheets, invoices, bids, etc.
We hope you find this valuable! I know that I'm planning on following it closely so I can pick up a thing or two.
1/5/14 Update: The project is complete . . . read on!
2/19/14 Update: We've taken all the content of this thread and converted it into a free ebook for everyone who may be interested. Get your copy here: Diary of a New Construction Project Ebook
Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
13y
INTRODUCTION
I'm currently working on my first new construction project in downtown Atlanta (with a partner). While we both have a lot of residential rehab experience under our belts (over 100 projects between us), we have absolutely no new construction experience. The purpose of this thread is to chronicle in as much detail as I can, the process of acquiring an existing house, tearing it down, designing a new house, getting permits, construction of the new residence and finally the staging/listing/sale of the house.
My hope is that this thread will end up being part case study, part diary and (if I don't screw up too badly), part textbook. I plan to provide links to everything that might be useful throughout the process -- pictures, videos, budgets, schedules, plans/drawings, contractor bids, invoices, etc. And if there's anything I don't provide that you want to see, just let me know.
As of this writing, I'm currently about 4 months into this project, but we haven't even started to build yet (you'll see why as we move through the thread). I'm planning to start at the beginning (I've been keeping copious notes), and over the next couple months, I'll try to post updates at least several days per week, and hopefully catch up to real time by the end of the project.
Lastly, I hope this thread will be interactive. There are a lot of BP contributors with new construction experience (Rich Weese, @Karen Margrave, Aaron McGinnis and many others). I hope they'll jump in and provide insight, and I hope others with less experience will ask questions and help us all learn from one another. And again, if there's anything you want me to provide in this thread that I'm not already providing, feel free to ask!
Full-Time Investor · Charlotte, NC · Member since 2009 · 2k+ posts · 1k+ votes
12y
J,
This is something I've noticed and quite enjoyed with the new construction. Not sure about your experience with flips, but my buyers almost always were difficult to deal with, hated that I was making money, had an image in their head that I took shortcuts like on TV..etc. With new construction, there is a perceived value that you've added, and the buyers are genuinely happy to see you. At least, that's been my experience :) Congrats again!
Full-Time Investor · Charlotte, NC · Member since 2009 · 2k+ posts · 1k+ votes
12y
As an example,
My last buyers brought a bottle of whiskey and a thank you card to the closing table for me..and it was a complete spec--not a custom build. When does that happen when selling flips? And Jon is dead on-- building practically stopped the past few years so inventory is low :)
Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes
12y
Originally posted by @Account Closed:
As an example,
My last buyers brought a bottle of whiskey and a thank you card to the closing table for me..and it was a complete spec--not a custom build. When does that happen when selling flips? And Jon is dead on-- building practically stopped the past few years so inventory is low :)
Smart buyer. Your warranty service should be a tad better.
Jacksonville, FL · Member since 2013 · 226 posts · 115 votes
12y
J,
Be careful with clay and water. If your crawlspace is mostly clay, the clay may make your crawlspace act as a giant bathtub. Make sure that crawlspace is sealed tightly and the stormwater run-off from the roof has somewhere else to flow too away from the house.
Be careful with clay and water. If your crawlspace is mostly clay, the clay may make your crawlspace act as a giant bathtub. Make sure that crawlspace is sealed tightly and the stormwater run-off from the roof has somewhere else to flow too away from the house.
Thanks Kevin...that's exactly what the engineer from the waterproofing company said, and it's likely what we're currently seeing. We have good postitive slope from the front to the back of the crawl space, so what we're planning to do is dig a small trench through the center of the crawl and install a french drain under the footer.
Our grading around the property is good and the foundation is well sealed, so hopefully there won't be any additional water getting in. But, if it does, that should take care of getting it out.
Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
12y
DAY 350: WATERPROOFING / APPRAISAL
As I mentioned in my last post, we believe all the water sitting in the crawl space has been there since the foundation went up 6 months ago. And all investigation over the past few days continues to lead to that belief. We had our waterproofing company come out, they dug a trench down the center of the crawl space, and ran a french drain through and under the footer at the back of the house. This should alleviate any water that might get into the crawl in the future.
While they were there, they also excavated both sides of the house, re-sprayed the foundation with waterproof material, and checked the foundation drain leading underground from the downspouts to the rain garden. For all this work, they charged $200 -- it always nice when a contractor is willing to work hard to get/keep your business. This one certainly will.
We also had the appraiser come out to the property to do the appraisal. On the phone (prior to visiting the property), he basically asked my wife, "Why are you giving this house away?" Apparently, he had done another appraisal around the block recently, and that one was sold for a good bit higher. I'm guessing that the time of year was better for a resale, and also that that street was a little bit nicer.
Regardless, he basically did a drive-by appraisal -- he was at the house just long enough to introduce himself to my partner and take a few pictures. Based on all that, I'm confident we shouldn't have any issues with the appraisal.
At this point we're just waiting for the loan to get through underwriting, and we're hoping to close before the end of the month.
Real Estate Broker · Holly Springs, NC · Member since 2010 · 53 posts · 14 votes
12y
Wow...Just read the entire diary. Thank you for all the details. Not that you made it look easy, but certainly doable. Hope everything goes smoothly through the closing. : )
Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
12y
DAY 364: SLIGHT CLOSING DELAY
It was looking as if everything with this closing was going to be too easy, and we were going to hit exactly 365 days for this project by closing tomorrow. Alas, it wasn't meant to be... :)
Turns out there was a slight snafu with the appraisal -- it came in too high! Yup, that's right...the appraisal came in more than $20,000 over the contract price, and this spooked the underwriter and the investor who is buying the loan from the bank (the house is big for the neighborhood, so the square footage adjustment is what brought the value in high). Turns out the investor doesn't want the loan any longer, and the underwriter had to find a new investor. This wasn't difficult, but the new investor wants another appraisal to substantiate the value, and given that this all happened just a couple days before closing, we're not going to hit our deadline.
The appraiser was at the property this morning and -- assuming no new appraisal issues -- we expect the loan to be cleared tomorrow. Wednesday is a holiday, so closing will likely be either Thursday or Friday.
YAY!! You did it! This has to be the all time longest running, most active thread on BP! Everyone loved going with you on the journey. Happy New Year!
Don't pop that bottle of champagne yet. The money has yet to be in the account. At least it looks like 2014 will start on the foot for J. Fingers crossed for you J. Yeah, we love you J.
Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
12y
DAY 365: APPRAISAL / NEW CLOSING
The second appraisal came back yesterday. The appraiser pegged the value at $100 over the contract price, which is good news...I believe this is the final condition of the loan, and we've rescheduled closing for this Friday at noon.
Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
12y
DAY 368: CLOSING!
We closed on the sale of this one today, a year and three days after starting work on the project. The numbers turned out pretty good -- I'll post the final HUD, the final analysis and the final budget numbers in a follow-up post...
We closed on the sale of this one today, a year and three days after starting work on the project. The numbers turned out pretty good -- I'll post the final HUD, the final analysis and the final budget numbers in a follow-up post...
Congratulations! Thanks for sharing the entire journey with us.
I guess a year and a day makes it a long term capital gain, so not a bad deal.
Hey Sophia,
Unfortunately, it's not that simple. "Intent" is more important than the amount of time held, and given that our intention has always been to rehab and resell the property, it's no different than if we held it less time. Either way, the IRS will classify it as earned/ordinary income... :-(
Congratulations! Thanks for sharing the entire journey with us.
I guess a year and a day makes it a long term capital gain, so not a bad deal.
Hey Sophia,
Unfortunately, it's not that simple. "Intent" is more important than the amount of time held, and given that our intention has always been to rehab and resell the property, it's no different than if we held it less time. Either way, the IRS will classify it as earned/ordinary income... :-(
Can you delay paying the taxes until April 15, 2015 and use the money to fund other projects this year?
Congratulations! Thanks for sharing the entire journey with us.
I guess a year and a day makes it a long term capital gain, so not a bad deal.
Hey Sophia,
Unfortunately, it's not that simple. "Intent" is more important than the amount of time held, and given that our intention has always been to rehab and resell the property, it's no different than if we held it less time. Either way, the IRS will classify it as earned/ordinary income... :-(
Can you delay paying the taxes until April 15, 2015 and use the money to fund other projects this year?
In general, it would depend on how you pay taxes. I pay income tax when I take salary from the business, which is a few times per year. Technically, if I didn't take any salary from the business this year, I could probably defer taxes until 2015.
Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes
12y
"Can you delay paying the taxes until April 15, 2015 and use the money to fund other projects this year?"
"In general, it would depend on how you pay taxes. I pay income tax when I take salary from the business, which is a few times per year. Technically, if I didn't take any salary from the business this year, I could probably defer taxes until 2015."
"Can you delay paying the taxes until April 15, 2015 and use the money to fund other projects this year?"
"In general, it would depend on how you pay taxes. I pay income tax when I take salary from the business, which is a few times per year. Technically, if I didn't take any salary from the business this year, I could probably defer taxes until 2015."
Enough time for a few inventory turns.
Exactly. Assuming I can actually find some decent new deals... :-)
Accountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes
12y
Yes, definitely defer it. J, you might want to consider paying one annual salary in December. You can assess how the year went and pay accordingly. It will also give you more time to churn the money on deals.