Flip This House - Number Two

Parent Cafe
541

<p>CLOSING</p>

<p>We are closing escrow on Monday. I don’t know how we pulled it off with my injured carpenter, but we did. The reason we are closing is because the Buyer’s interest rate lock on her 50% loan is expiring on Monday and she doesn’t want to risk trying to get an extension or opening up for a new interest rate. </p>

<p>On Wednesday afternoon her listing agent came through for a final walkthrough. We have created a punch list of things that need to be completed and she will be holding out her ‘side funds’ until that list is complete. Through this whole ordeal she has asked for a lot of changes. We did not want to be changing the official Sale Price of the home during the escrow because it just would not make her bank happy. So, the listing and buying agent have been keeping track of a running total of extra charges that she will pay me directly. This saves us all a lot of money because it is not included in the sale price, commission, property taxes, title costs, etc. Our final total is about $6,000 extra that she owes me. This will be paid after I finish the punch list.</p>

<p>There are 3 things on the punch list that are just out of my control and I’m not happy about it. I am at the mercy of these replacement items showing up. My carpenter is going out of town for 6 weeks and I am going out of town for 2 weeks. I know that these replacement items are going to show up while I am gone, and even worse, she will get into the house and start finding all kinds of things that she wants corrected or changed while this punch list is still officially open. My agent is drafting a document that makes it very clear that the punch list is final and no further work will be completed. I just don’t want this transaction to drag on forever. She actually is not arriving from Pennsylvania until about July 1st so the house will be vacant for awhile.</p>

<p>Grohe faucet… she purchased a really expensive kitchen faucet that has a serious leak. It took us forever, but we isolated the leak to the factory hot and cold water hoses that are inside the cartridge. We had to dismantle the faucet and I had to call Grohe on hold for 40 minutes. The replacement hoses have arrived but we cannot figure out how to get the old ones out. I’ll have to search the Internet for some kind of instructions. I think that we might be able to get this issue fixed this week.</p>

<p>Kitchen Cabinets - her custom kitchen cabinets from Shenandoah (Lowe’s) are installed but there were cracks in one of the drawer fronts. I had to call into Lowe’s and now they will be sending a replacement drawer front. It’s obviously easy to replace, but who knows when it will show up.</p>

<p>Replacement Windows - she didn’t like the new side windows in the living room with the craftsman grid pattern because they were double hung and had a bar across the middle. So, I had to order (at her cost) clear replacement top sashes. These came in about 2 weeks ago but we didn’t open them up until early this week for installation. Of course one of them had broken glass and I had to madly drive it back to Home Depot and order a replacement of the replacement! Once again, who knows when that will arrive.</p>

<p>I’m going to work on final numbers this weekend and update. Some new photos have been loaded, check out the difference between clear window and window with grids by the fireplace.</p>

542

<p>Oh cb, I hope this will be over soon!</p>

<p>And what’s next??</p>

543

<p>When I finish a project I always like to look back at some of the homes that I missed out on during the search. I like to see what my competitors did with properties where I was outbid and didn’t get them. So, there were about four properties that I really tried hard to get back in February:</p>

<p>House #1 - in La Mesa where I was negotiating and Seller was stuck at $495,000 and I was at $475,000. He took it off the market and announced he was going to remodel and sell himself. I went over there when the work was going on and he worked me for a bunch of design suggestions. Property is kind of stuck in remodel stage 4 months later and it has never come back up for sale.</p>

<p>House #2 - Another house in La Mesa where the heirs were selling and one of them was a real estate agent. They were listed at $525,000 and they would not accept my offer because they thought the house was worth a lot of money. It expired off the market and the listing agent called me a couple of months ago and told me that they ‘had a contractor in the family’. Just drove this last week and it is vacant and decaying. Nothing happening.</p>

<p>House #3 - the mid century in Point Loma where I lost to a higher $35,000 offer. Purchased by homeowners and under renovation. Not a competitor</p>

<p>House #8 - this was an expensive house that had big issues with the stairs and decking in back yard. Sellers were ‘motivated’ but stuck at about $590,000. I offered $540,000 and they rejected. Four months later it finally sold for $575,000 to homeowners. If you factor in savings in commission and four months of carrying costs, my offer was worth about $560,000 to them at that time.</p>

544

<p>I forgot the most important one… cannot remember what House # it was. The one where the listing agent sold to another investor because they would be ‘easier to work with’. I’m not sure whether I shared that my written offer price was actually higher than the other investor. Based on the legal records, the other investor paid $520,000 for the property and my offer was $525,000. They also used the listing agent as their buying agent but I think that they took a private money loan from the listing agent’s ‘Financial Company’ so that is probably a reason they got the house.</p>

<p>That transaction closed on 2/28/14 and it has not come back out to market yet. Still being renovated probably. I’ll need to drive by and see what is happening.</p>

545

<p>I remember that transaction, cb. Some of us encouraged you to take legal action. It will be interesting to see how the house has fared. </p>

<p>Are you looking at new possibilities to buy?</p>

546

<p>I will not be searching for properties again until about July. Taking a family vacation for 2 weeks in June and it may be the first time that I do not have something in the works… escrow opening/closing, project underway. My family will be amazed if I am not glued to my laptop or running around trying to find some place to print and fax documents.</p>

547

<p>Hi guys,</p>

<p>I know cb had a great season and her job was well done.
Well, as you know I have not write any thing here, maybe you are wondering what is going on.
I did not write here because the last time I did, I was jiinxed :)) The day I wrote about closing on my property, the buyer backed out of the deal, the reason: they did not “like” what I did with the sewer pump. But the sewer pump had passed all the inspections with a clear bill for no inspections for the next ten years.</p>

<p>So, after 6 months in the escrow, I did not closed the deal and I was mad as hell. It was unheard of in CA, especially in the Bay Area. Part of the problem is my agent that let the escrow go for 6 months. In that period, I had questioned the buyer’s capability to close and non-release of contingency many times, but my agent either did not deliver my demands or the buyer ignore the demands. Part of the problem stems with the CAR form we used to enter the contract, that form had languages were nebulous to contingency release. From the surface, the contingent period is 17 days, but in fine prints there are clauses that prevented the Escrow Officer to cancel the Escrow after 17 days without both parties signatures. In other words, the seller cannot cancel an Escrow unilaterally when the contingency period is over. I should know better the next time to use another form(contract), PRDS, so this problem will not happen.</p>

<p>The escrow dragged on because the buyer fail to obtain loans from one bank to the other, finally, they got a loan from a hard money lander. Perhaps the cost of money is too high, the buyer start picking on the house, which they have inspected many times, to get an excuse for backing out.</p>

<p>Nevertheless, the market actually went up on the property, so I actually could sell this property 40K more after this void. But I decided to rent instead of selling because I cannot find a replacement property with the proceeds I got from the sale. I do not want work with small margins as CB in her project, I need a bigger margin for my time to be worthwhile. During the interim, I have looked many properties, but none of them could rival the property I have now. I do not want to write about it until I have a lease in hand. By renting, I could profit more, let me explain.</p>

<p>As of June 1, the property is rented for $3200/month to one single tenant. In SF Bay Area, in good neighborhoods, a single family residential property demand $3200/mo could sell for around $850K~$1M dollars. My property is not in the good area. but still could sell for around $500K, that is about $150K more than what was the last sell price that fall out of Escrow. In the last sale, I intentionally reduced the price for quick profit but I failed to close. So, right now I have value added the property for about $150K just by holding on and renting.</p>

<p>I could rent the property to three different tenants and get about $500 more on rent, but I did not want the trouble to deal with three different tenants and some maybe section 8(low income).</p>

<p>Because the location, the property had a real problem to rent to some one for $3200. The property had a vacant lot next to it and I have to collect rent for that which became tricky. And because of the vacant lot, the rent can demand such a high price. It took me two months to seal the deal and it took a lot of negotiation, however, I had the job done. Now I am no longer a flipper. :smiley: </p>

548

<p>So now you’re a landlord, instead of a flipper?</p>

549

<p>Yes and no
The market became so heated that it is very difficult to find suitable properties in desirable areas to flip. I still have some funds to acquire more properties but it will be difficult to repeat my past performance. That is to double my investment in two years. </p>

<p>For now, I will take a short breath and enjoy a 65000 annual rent on a $500k initial capital out lay. </p>

550

<p>Not too shabby!</p>

551

<p>Perhaps I am math-challenged, but 3200/month * 12 is $38.4K, not $65K. Or is there more than one property included?</p>

552

<p>yes two properties.</p>

<p>one I bought for ~$350K and it rents for $2400/mo
the other I bought for ~160K but put in 80k to renovate it rents for $3200/mo</p>

<p>Different location, different neighborhood. Market value is over million now.</p>

553

<p>Now if you add the 350, 160 and 80 together, it will be 600K instead of 500k, that is because I throw in the profits from house flipping into the current investment.</p>

554

<p>FINAL BUDGET UPDATE</p>

<p>Well, it’s time to let the dust settle and provide the final numbers.</p>

<p>Original Estimate:</p>

<p>Purchase = $420,000
Future Sale = $560,000
Renovations = $60,000
Closing/Carrying = $30,000</p>

<p>Potential Profit = $50,000</p>

<p>Here’s the reality:</p>

<p>Purchase = $423,500 which includes prepaid title insurance and purchase transaction costs</p>

<p>Sale = $560,000 + $6,000 in additional scope of work requested by Buyer throughout the project</p>

<p>Renovations = $63,500. I went $8,500 over budget because Buyer had pulled out a lot of large cost items such as appliances, landscaping, concrete removal, half bath in studio, etc. I thought I was going to save a lot of money in renovation cost and be way below the original $60,000. But NO!!! the wood restoration alone cost close to $2,500 after it was all done. Plumbing and Electrical again way over budget. But at least I stayed within my original estimate for demolition!! (well, we won’t count all those extra trips to the dump at about $200 each)</p>

<p>Closing/Carrying = $8,500 carrying and $27,000 closing = $35,500. The carrying costs went up because I had to hold the house about 1 month longer than I thought due to 2 weeks over at other project and 1 week lost due to worker injury. In closing costs I have a very large California supplemental tax bill estimated at $1,600 because the prior owner was sitting on a property tax bill based on about $70,000 property value. And I have a little bit of hard money private lender costs.</p>

<p>Actual Profit = $43,500</p>

<p>In hindsight, if I had ripped out all the concrete in the back and done some really good landscaping and patio design, built the studio and some other things I probably could have gone to market and sold for about $570-$575k. But it would have cost another maybe $5,000 in costs.</p>

<p>I just cannot figure out how my numbers are always so much lower than those TV shows like Flip or Flop??? They always seem to make between $50k and $80k :slight_smile: </p>

555

<p>Here are the details in renovation costs for those that are interested:</p>

<p>Kitchen - I just cannot believe that we were able to build a really beautiful kitchen with high quality white wood cabinets, soapstone countertops and a lot of fancy inserts into the cabinets. LED recessed lights, new plumbing and electrical. </p>

<p>Cabinets, lighting, countertop, sink, labor, custom broom closet build = $9,900<br>
This does not include appliances, faucet (Buyer purchased) and plumbing and electrical costs - they’re inside those costs</p>

<p>Bathroom - $5,700 (does not include lighting, sink or pedestal stand purchased by Buyer). This includes some very expensive tile (although it doesn’t look like it) at about $15/square foot</p>

<p>Plumbing - $4,600 just kill me, always over my estimate which was $3,500. This includes new ABS drain lines, new copper water lines and new black steel gas lines. One bathroom, one kitchen, laundry, HVAC with AC, water heater and laundry sink in garage, new cleanouts, connection to main lines in front yard and pressure regulator.</p>

<p>Electrical - $5,200 does not include light fixtures. Again, way over my budget of $3,500</p>

<p>Demolition - $1,750</p>

<p>Fencing, Exterior Wood Repair - $3,000</p>

556

<p>They are lying. :)</p>

557

<p>Artlover,
I am really sorry about getting stuck into escrow for 6 months. That is just horrible. Thank you for the lesson about contingency release. I have often been stuck trying to get contingency release, I use the Notice to Perform as soon as the date comes.</p>

<p>I am going to make sure that I research how to get past the problem of trying to cancel an escrow where one party will not sign the form. I had some special language in my escrow that just closed to protect the Non Refundable Deposit because normally escrow companies will not release a deposit without signature from both parties, but I wanted to make sure it was released if Buyer cancelled for any reason.</p>

558

<p>Coralbrook, I’m impressed with how well you contain costs given the quality appearance of the finished product. I also think that the TV flippers don’t fully disclose their costs and overstate their profits. I can’t let dh read your numbers or he will want to know why our remodel was so expensive. </p>

559

<p>My guess is that on the shows they don’t include carrying costs or closing costs.</p>

560

<p>cb, when you do your estimates, are they real estimates, or do you include, say, a 10% or 20% contingency in them?</p>