Thank you for your comments and interest in the Fix and Flip project that I recently wrote about.
I will be very honest about the fact that this was my first professional project. It came to me as a result of helping a client/friend find a fabulous patio home to scale down to. Timing and circumstances beyond her control left her in a position of needing to sell fast. Knowing the market as I believed I did, I crunched the easy numbers up front for the paint, carpet, tile, granite and fixtures. It looked like the possibility of a very nice return on investment if we could get it back on the market quickly. Holding costs in the summer with that pool and huge yard and massive A/C bills was a bit scary.
Did I have a formula? Not exactly.....having been interested in flipping for years, asking every contractor I came in contact with how much things cost, and consulting with a highly successful and respected Investor in Houston gave me some general idea of how to proceed with cost estimates. Of course, the HGTV shows are full of ideas and scenarios as well, but the best model I found was in the new Best Seller, FLIP the book.HOW TO:
Below is a Copy of FLIP
It's available through most book stores.or find out more at millionairesystems.com
The most valuable information I found in it was the repair cost checklist which takes you through the house, item by item and helps you to assess the house without emotional attachment. It is a business deal and the numbers must work.
FLIP also helps you decide which of 4 Design Levels to finish the house with. It doesn't make sense to put granite and designer appliances in a $120,000 house. As a Realtor, it was good that I had been in most of the home's recent competition to be able to decide what level most of the homes in the market area were finished out to.
FLIP covers the holding costs that you should calculate as part of the expenses you'll need to cover. Many forget that you'll need lawn care, pool chemicals, utilities, insurance, and your share of the accrued taxes at the closing table along with the commissions and repairs.
FLIP also reminds you to PLAN on a few expensive surprises along the way.
An informal appraisal to verify square footage and an appraiser's idea of the Bank's valuation of the property after completion could really save you some serious grief in the final week of the transaction.
Because I was working with a friend as the seller, I trusted WAY too much and inspected WAY too little. I would have negotiated for less if I had know of 3 non-working systems that I was assured were all in working order.
That spelled several thousand unexpected expenses.
So, I did not use a hard and fast ratio or formula. Every property is unique in its requirements. The first thing you need to find out is the average selling price and finish out in the neighborhood. It's risky to set precendence by price and it makes you question, "is there even a market for this house all fixed up"
I brought in the general contractor first to determine what the big ticket items were going to come to first. I wish I had gotten the electrical and plumbing estimated first as well, but I did not have a reliable source at the beginning. I also got an HVAC estimate.
My philosophy follows the footsteps of the Investor I mentioned before in Houston...his houses always sell very quickly, he had developed an excellent reputation for top notch quality flips. I represented a buyer of one of his first, his personal residence. The inspector took me aside and said, "This is the best d--n renovation I've ever seen, this guy really knows what he's doing. Excellent work and no shortcuts" I liked that, so I decided to follow suit.
Other investors make the mistake of seeing a good deal and not considering the bones, floorplan, location, curb appeal, and quality of construction before deciding on pursuing the project. Every market is different even from Houston inside the Loop to Sugar Land or Richmond as far as what is an acceptable profit on a flip. Greed will get you a lengthy stay on the market and big holding costs.
So, finish a little above average, price just below average, make sure there are no major objections to location, curb appeal, floorplan, and quality before considering. Pay attention to the details, that speaks to quality and gives the buyers confidence that you've taken care of things they can't see. Don't cheap out on flooring especially. Educate yourself on paints. There is a HUGE difference in quality .
Since I chose to Flip in Pecan Grove, my neighborhood of 13 years, it was vitally important that I produce a Quality Fix and Flip Home. I hope you've found this helpful. I'll provide more details out of the book in later entries.
And, I'm sorry to say that I have no before pictures....jumped right in and never looked back. I'm not a picture taker for some odd reason. I will say that we had nasty stains on 90% of the carpet, glossy white and salmon tile in kitchen, pale 1990 pastel colors in wallpapers and on walls. White formica counters with dingy oak cabinets. Old brass and glass light fixturees, raggedy old plumbing fixtures, rotten doors, 3 rotten arbors,green swimming pool,dead and missing grass, overgrown trees, shrubs, brown brick with pale pink trim, water damaged ceilings,black and green mildew all over outside house and patio, nasty front door, clogged A/C with $900 electric bill,non-working appliances, and discolored brass plate door knobs. It was a lot of work, but worth it for the beautiful outcome.
Comments(3)