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It needed $20,000 in rehab work and I estimated $25K
for my budget. I was looking at a potential gross profit of $40K, minus
holding costs. Not bad.
The property was in bad condition. The positive
spots were that it had a newer roof and windows. However the interior
needed all new flooring, a kitchen, two bathrooms, interior doors, frames,
baseboards, electric, plumbing, ceilings, some drywall, paint, and a
loving touch. To top the work off, it had roaches, spiders, and more. We
bombed the interior for bugs, had the exterminator out, and got to work.
The first problem erupted when I got the call from
the contractor. They were delayed on a previous job so they would have to
delay the start time by one week. Ok, I am an optimist, so this isn't the
end of the world - only a challenge.
My wife (partner), and I dove into the work. We
figured we would do as much of the demo as possible. Pounding away on the
kitchen cabinets felt good, but was tempered by the showering dead
roaches.
We demoed the kitchen, one bathroom, and baseboards.
Afterwards, it was on to the wooden back porch. We replaced several
stairs and railings, sanded the wood, and coated it with an exterior black
paint. The stairs looked great and it really wasn't that hard at all. We
saved $800 on our budget by doing the work ourselves.
Ten days after they were suppose to start, the
contractors began demolition on the rest of the property. They brought
the dumpster and went to work. Five people were working our job and
things were getting done. It was impressive.
The canned lights were run, the wall knocked out the
kitchen and living room to make way for a breakfast bar. The first
unexpected twist was in the basement bath, where the concrete had to be
broken up to make way for the bathtub plumbing. The contractor had
noticed this during the initial walk through and was prepared for it. We
were feeling good about the project and this contractor.
Thirty days had passed and we prepared to make our
interest only mortgage payment. We had actually hoped to be finished with
the property by then. They were not finished, but what was worst was that
instead of five people on the job, there was now only two.
All of the major work was completed, leaving the
finishing work to be done. Obviously, this was a major sore spot during
the project, but I have been able to grin and bare it. I allowed them to
go over on the timeline but I still needed to get it done.
We had to remain flexible to change, but nothing
catastrophic occurred other than the time delay. Some of the adjustments
we made included adding carpet throughout, instead of hardwood floors,
fixture switches, and a last minute decision to change the siding on the
property. In this market, we want to ensure our product is the best it
can be.
It took my contractors over two months to complete
the project. In fact, at the time of this article, they are 98% complete
and awaiting a final walk through.
I have learned some valuable lessons during this
process.
Lesson one, never buy a property without doing a
walkthrough. I bought this property without a walkthrough the morning of
closing and went to the property after purchasing it to discover a big
tree had fell less than 15 feet from the property. It could have been on
the house. Lesson learned.
Lesson two, incorporate a timeline and consequences
for not adhering to it in your bidding process when dealing with
contractors. We should have had a plan on paper, signed and agreed to by
the contractors. Then, we should have held them to that timeline.
Lesson three, have a back up crew or two ready.
Forty days into the project, I should have fired that contractor and been
ready to switch crews. This should have actually been done when they went
down to two workers.
Overall, my lessons were learned and I will follow
the advice given. In future ventures, I look forward to flipping again
and wish you well in your journey. I have to go as I still must get this
property finished and sold.
INSIDE THE NUMBERS
Property
Purchase Price:
$75,000
Estimated Rehab
Budget: $20,000
Loan
Amount: $95,000
Actual Rehab
Cost: $25,000
After Repair
Value: $145,000
Holding
Cost: $5,500
Gross
Profit: $44,500 |
