I bought this flip, and it started out so well. It was a 3/1 in very good side of town. We bought it for $127k, and our renovation budget was $90k, giving us an ARV of $325k conservatively. That $90k renovation budget was going to add a master suite, an open floor plan kitchen and an additional 750 square feet to the already existing 1,006 square feet.
The hard money lender came out, evaluated the deal, and said, “You know what? I don’t really like the location, but I like you guys. I will do the loan.” He then stated, “I want 10% down. I’ll do a $100k rehab, with 13% interest and 5 points.” (Note: a “point” is a fee added by the lender. One point = 1% of the loan amount, so 5 points = 5% of the total loan amount.)
We stomped our feet like 4-year-old children about the down payment. My partner hates down payments. I am new to rehabbing — especially doing it the right way that puts you in a position to make money. I figured down payments are not that bad. It’s only once you get multiple projects going on that you look at your account and realize down payments are the devil. We decided to go through him to get the loan. We closed the deal. It took about 3 months to get started due to acquiring plans, going back and forth with the city, and just dealing with life.
How to Estimate Rehab Costs!
Estimating rehab costs accurately can make or break your real estate business, and it takes years of experience for even the best rehabbers to master the art. However, you can expose yourself to less risk and get more accurate with your projections by learning how the pros think when estimating construction costs.
A Behind-the-Scenes Look at a Flipping Show
Before we were able to get started, a TV network posted an ad on their Facebook page stating they were looking for Charlotte house flippers. I thought, why not apply and see what happens? I applied and went back and forth with the producer. At the time they needed a house to film a pilot because they wanted their popular TV show host to have her own flipping show.
I agreed, and they paid me $250 for the day to use this property for filming. I think it was a reality shock to the directors and producers to see real house flippers flip a house because, of course, like the cheapskates we are, we did not have electricity, water or a decent place for them to use the bathroom.
The director told me to stand by because he might need me for a scene or two for shooting. I was like, “Of course. I’m about to get an Oscar for this performance.” As the morning went on, the TV host played the realtor/flipping adviser. And as for the flippers, they were paid actors. Yes — the people who claimed to flip the houses were paid actors.
The director was yelling at them because they kept asking me questions about how to get started in flipping. The director needed them not to break character and continue to act. Who would have guessed it that TV is fake. After the morning taping, they went to lunch, and I advised the director to just lock up when he was done. I got tired of sitting on the bench hoping they would put me in the game like my name was Rudy…
The Rehab Project
Well, as you previously read, that taping did not go too well at all. At this point, rehab started. We got the plans in and started the extension to house. After we laid the foundation, framing was up, and then we realized there was a support beam in the middle of the kitchen.
My partner tells me that is against code to have a support beam in the middle of the kitchen. So we had to get plans redone to move the kitchen. The contractor then tells us he’s come across things he did not expect in the initial quote. We are now $20k over budget. Oh yeah, guess what? The HM lender agreed to $100k. So now we must cover that last $20k in work.
Then, on top of that, I get a call from my contractor about a note on the door — as you will see in the photo above this paragraph. Apparently, someone used a brick out of our front yard to break in to his house and steal a laptop. The guy had the nerve to blame it on us. I should blame the $20k over budget on him because he did his house so nicely that now we have to get ours done nicely too. 🙂
What’s the biggest fail you’ve experienced while flipping houses? What annoys you most about those “house flipping” TV shows?
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