Hey Bigger Pockets! Once again, I am starting one of my posts out by making the disclaimer that I truly would like to post more, and share all our successes and failures so that everyone can learn from them. It takes a lot of time to do our business, and posting does too :)
So that you know what you are in store for, this house made me feel like I was brand new to real estate again. Everything that could go wrong, did go wrong. Things that MY Company knows not to do, we did. Things we know to plan for, we did not. Mistakes we have made before AND made systems to avoid, we made those mistakes again. For whatever reason, this house almost got the best of us, and we were saved by the market and not so much our skill.
From my project manager quitting half way through the job, General contractors doing horrible workmanship, my sub contractors failing at their work, the Cops being called on us TWICE, me working at the property personally till 1am multiple times, being almost 90 days over schedule, the city of Bellevue creating challenges, us forgetting about holes in roofs, being over budget by $26,000! you name it...lots of rookie mistakes for us on this one.
This is a long post, but the information will help you on your next deal.
Before Photos (How we bought it)
The Property:
Before: 3bed/1Bath Finished 1010 sqft Rambler (rancher)
After: 4bed/3Bath Finished 2020 sqft Rambler with daylight basement
This house was tied up on market (believe it or not) for $400,000 by a local wholesaler, whom I purchased from for a total of $410,000. This was the "worst house in the neighborhood" and was in this current state for almost 3 years. No one lived there the whole time.
I have done a lot of ramblers in my time, so this one was no different for us. There is a simple way of take 2 of the beds on the top floor, and combining the two of them to make a master suite with a full walk in closet and a master bath. We then built an additional bath in the basement and added two beds in the basement as well. Normal stuff for us.
Budget: $90,000 - do higher end modern finishes throughout
Take about 4 months to complete
What went wrong?
We always have a rehab plan, if you just wing these jobs, you'll always be over budget and over time. Our budget was tight for us, but with our in house project manager, multiple subs we have used over the years and a GC we can bring in after sheetrock to finish the house up, what could go wrong?
We got too confident in our successes, and we mis managed the job. By not paying attention to the details (like we teach everyone to do), a lot of challenges occurred for us. Here is one pic for instance:
Anyone see a problem?
This sort of thing happened to us so many times.
- We had a deck built crooked.
- We have electrical outlets placed in the way of cabinets.
- We forgot to frame out a closet (left it off the plan).
- We didn't order tile soon enough, and tile we picked was special order, took 3 weeks
- Original tile guy walked off the job and left us 2 days before stagers arriving
- Got two tile guys out to property till 1am the night the original guy bailed. Cops got called on us. Midnight with a tile saw in a carport?
- Tried to convince cops to let us pay the Noise Ordinance fee and let us keep working, didn't work.
- Found two holes on the roof 4 days prior to listing - plumber put them there 2 months prior, forgot to tell us...does it rain in seattle?
- Original kitchen cabinet measures were wrong. Cabinets that were sent didn't fit. Had to get all new set. Major delays, and created electrical problems since the electrical was placed based on original plan - budget hit
- My full time Project manager quit half way through the job. I had a lot of other projects going on at same time too. I had to jump in
- I personally worked at the property with my Acquisitions Manager till midnight and 1am about 5 different nights in a 8 day span
- I got the cops called on me personally the night before listing...chop saws at 11pm pisses people off
I could keep going with this list...
After photos:
What did I learn?
Never take things for granted. We worked hard on this house, but not till things got bad. If we would have done what we normally did, and made a very thorough plan from the start, managed that plan, took time to hold people accountable, we would have done a lot better.
By not doing these things, I went 3 months over schedule (Holding cost increase: $14,454) and added about $20,000 to our rehab budget.
Total loss of profit due to mis management on my part: $34,454
Final Numbers:
Purchase: $410,000
Rehab: $110,000 (approx)
Total holding costs 7 months: $33,727
Loan points: $10,200
Selling Costs (listing/fees/excise): $56,700 (WA has 1.7% excise tax on sale amount)
Final Sales Price: $700,000
Total Profit: $76,877
WE GOT LUCKY!!!
Our original projection for sales price when we bought this house was $635,000!!
If we would have sold for only $635k, my profit would have been only $17k. And a house that took so much time, energy, and effort, would have been a total failure.
Some of you may be thinking that you would still be happy with $17k! And that I should not be complaining if that were the case.
Well, remember that we are investors, and a 3% ROI, is horrible over 7 months. Not to mention the amount of personal time, stress, sweat, and personal labor costs that I went through on this house. That would make this a failed investment, if that were the case. We are not in the business for 3% with a tremendous amount of personal effort. Remember, your time is valuable. I do not work on houses unless the **** hits the fan, and neither should you.
Thankfully the market is insane, and this house got an offer at 700k in 3 days. I am glad it is behind us. We have re tooled our systems, we do not take our success for granted anymore, we hold people accountable always now, and this will never happen to us again.
Feel free to reach out to me anytime! I am always happy to help and share as much a possible!
