I recently flipped a house that I learned quite a few lessons from. I received a referral lead in a hot pocket of town. The landlord was tired and really had no use for the property anymore. He called me up and gave me the opportunity to buy it. I said, “Of course I will.” I had to put up $5k nonrefundable as an earnest money deposit. I purchased the house for $90k. I called up my hard money lender that agreed to lend on the house. My rates were 3 points and 15% interest rate. He is really easy to work with, so the rates were not a big issue. I closed on the house in June and got the tenant out by end of month. My contractor started in July, with an expectation to have the project finished by October.
I then purchased plans because we were doing an extension on the house, adding 130 square feet to complete a master bedroom. We had a two-week delay in the beginning of the project. FYI, always make sure your contractor is licensed to prevent delays. After we resolved that issue by finding another GC to obtain permits, we were up and running.
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.
Getting a Real Estate Agent’s Help Before the Flip
I consulted my real estate agent before the project, like I always do. He came up with things needed to sell the house fast. It’s always a good idea to have a real estate agent who is out in the field getting things done. The reason being, a real estate agent who is out doing business knows what home owners want and don’t want. So, my agent walked the property and asked for the plans. I provided the plans, and he advised that the house did not have a dining room. He stated at this $250k price point, we needed to have a dining a room. I figured that made sense, especially since we are in Charlotte, NC. Fortunately, his father was an architect for most his adult life. His father improvised a dining room in the front of the house, and all was well for the time being.
The project started to move along — then we came across a snag that cost us two weeks. The GC did not follow the plans with the roof, and we had to get a letter from the architect stating that it was structurally safe. And, of course, the inspector was on vacation. The inspector had taken a two-week vacation, so we had to wait for his return.
The two weeks finally passed, and we could start the insulation on the house. After insulation and sheet rock, the project usually moves pretty fast. Of course, just my luck — my GC is not that good at handling multiple projects. So October turned into November, which pushed the finished product back to December. The original budget was $75k, and of course, the unforeseen items came up and that turned into an extra $20k. So I ended up spending an extra $20k on the construction. The lender agreed to $75k, so I still had $20k of my own money stuck in the rehab until it sold. If you have never worked with a hard money lender before, you can’t get your last draw until it’s finished.
Completion of the Project — and What I Learned
Now the construction was done. I needed appliances, and of course, the real estate agent recommended staging. Fortunately, it was fourth quarter, so a lot of the retail stores were having a sale on stainless steel appliances sets. I ended up spending $2k on appliances and $2k for staging for 60 days. After the initial 60 days, the cost will be $350 a month. We went on the market a few days before Christmas. That’s also a bad time to list a property due to everyone focusing on the holidays and going out of town. I signed a contract the day before Christmas. The list price was $289k, and the final offer accepted was $286k, with $5k in seller’s concession.
In conclusion, looking back, I should have made the master bathroom bigger to fit a bigger vanity. I also should have put the refrigerator in a better place to not make the entrance to the rest of the house look bigger. Also, since we were doing an extension and eliminating a bedroom, we should have made the master closet bigger. The buyers did their inspection and found a few little issues. I must say the GC was a stand up guy and fixed all the little issues on the list that needed to be repaired. That’s one thing I can say about the GC — he is trustworthy. Also, whenever you rehab a house with a chimney, make sure you state that the chimney is “as-is.” Fortunately, I was able to fix the little things that the inspector wanted for the chimney, but it could have been avoided by putting in MLS description “chimney is as-is.”
Investors: What projects are you working on right now? Do any of these lessons ring true to you?
Let me know with a comment!