<p>This is so exciting, Coralbrook. Congratulations! Like the others, I have followed this saga so closely, I almost feel as if I was part of the work crew. He’s of luck for a successful closing.</p>
<p>Now I have a problem!</p>
<p>After 2 months going back and forth, the buyer stalled on the loan. I had a feeling that way when the 30 days was up because they did not even ordered the appraisal on the 30th day… Then the appraiser came and gone, every thing needs to fixed is in place. Violation removed, sewer checked and repair is on the way… the buyer won’t respond to calls, no matter who did the call. They are not coming with the docs the bank required.</p>
<p>Its my bad luck…</p>
<p>Have you directly contacted the lender/loan officer? Are they telling you that the buyers are not providing the documentation? Yikes… not good. </p>
<p>Put up the For Sale sign again quick :)</p>
<p>THE UGLY!
At the beginning of this saga I promised to tell the absolute truth. Well, I wish I didn’t have to reveal how massively over budget this project went! </p>
<p>As a reminder:
• Home purchased for $290,000 plus purchase costs = $291,803
• Desired profit margin 7 ½% on purchase price (I conveniently ignore the amount of money spent renovating the home) = $ 22,000. 7 ½% percent of total cost would be $27,525.
• Schedule 12 weeks to market
• Budget $75,000 for renovations (plus carrying costs at $1,600/month)
• Target Sale price $425,000 (later revised to $430,000)</p>
<p>HERE’S WHAT REALLY HAPPENED:</p>
<p>Demolition – I just cannot figure out how so much trash and debris was generated on this job. Here we are at the end and there is now a brand new pile of rotted lumber in the back yard from the garage. I estimate 4 more trips to the dump! I’ll have to go to the dump daily. Budgeted $3,000 for demolition (labor, dumpsters, dump runs). Final cost will be $5,800. Just unbelievable. I consistently underestimate this on every project.</p>
<p>Plumbing – I should have seen this train wreck coming. We hired a helper for my lead who just was piddling around and not getting the job done. I let it go on for two weeks (two weeks too long) before he was released. Second mistake was hiring the fancy pants plumber who spent wads of money on fancy materials and kept jumping around and ‘fixing’ things and charging me for his services later (same guy who showed up to the Open House to drink a six pack of beer). Budgeted $3,000 and we spent $6,209. Part of this cost was the tankless water heater and I believe it actually helped sell the house. We did everything to make the house ‘Energy Efficient’ and it was a huge selling point and is very popular in our local market.</p>
<p>Landscape, Fencing, Decks and Front Porch – This was just a flat out error on my part. I wholly underestimated how much fencing needed to be built for the property. I over did it with the cute little front fence (which is one of my favorite things). We had to pull down our posts for the big front porch and start all over again to build the new overhang because of historical review issues (one week of labor to build and paint that thing!!). Then my agent talked me into full irrigation and sod for the front and back yard. Not to mention I actually paid some guy $400 to butcher the gorgeous tree in the back yard. I could go on and on. Budgeted $3,000 and the final cost was $7,146. Wow!!! Way off</p>
<p>Garage – I had budgeted to demolish and haul away the garage. Well, as you all know I am now rebuilding the garage – everything is basically brand new. I estimate the final cost for rebuilding the garage to be $6,000 (versus $1,000 to demolish and haul away). This type of thing is part of the risk and an unforeseen cost. So there’s another $5,000!!</p>
<p>Everything else kind of evened out as it usually does on my projects. </p>
<p>TOTAL RENOVATION OVERAGE = $15,000
More than 20% off, geez how bad can it get </p>
<p>CARRYING COSTS:</p>
<p>My carrying costs on this project run about $1,600/month and include:</p>
<p>HELOC cash capital interest
Property taxes (current and future supplemental)
Property Insurance
Utilities</p>
<p>SCHEDULE - we were 4 weeks late getting to market</p>
<p>This equals a Carrying Costs Overage of $1,600 on the budget</p>
<p>I have two months budgeted for market time and escrow time. So we should be OK if this escrow goes through.</p>
<p>So, here are the final numbers if this escrow closes:</p>
<p>Purchase Price = $292,000
Renovation = $90,000
Carrying Costs = $9,600</p>
<p>Total Cost = $391,600</p>
<p>Looks like you are in good shape.</p>
<p>Yes we have talked to everyone we can, they are missing docs that bank required. Basically, the buyer tried to load up too many properties as investment and they cannot justify. The loan broker did not know what was the intent so they issued the commitment letter.</p>
<p>Sorry cb, did u factored in the commission? The 5000 credit and the closing cost?</p>
<p>I’m just setting out the total cost at this point. I don’t want to calculate the profit yet until we close escrow and I know the exact “net” sales price, less commission and closing costs. I never know if something else needs to be negotiated during escrow. Although I’m only paying 4.5% commission on the net sale price after credits.</p>
<p>Lets look at the flipping market.</p>
<p>The thread was opened by cb in August, and she was not able to land on a project for 6 mo. prior to that, so total turn around time, including closing and escrow, is about ONE year. In that year, she worked her a** off to earn maybe 8-10% of the selling price, in the mean time she had to take the risk of being sued by the new owner and other risks associated. After the sale is completed, it will take longer and longer to buy a suitable deal because the price in S. Cal. had risen so much, deals that can make money are scooped up by all those hot money came from overseas.</p>
<p>I mean, to me, it is not worth the effort to make a living like this. And my career of being a flipper probably is near the end as well. However, based on my observation, I still can slip in a few projects if I travel more than 1.5 hours away from my house.</p>
<p>Besides, the profit from flipping is totally ordinary income, you have to pay the highest tax rate for the money.</p>
<p>Several things cb has not included in her “total cost” calculations:</p>
<ol>
<li>Gas and mileage on her truck.</li>
<li>Phone Bills</li>
<li>Wear and tear on her tools, including lost and stolen.</li>
<li>Sweat Equity</li>
<li>Metal anguish, including taste of the sewer :)</li>
</ol>
<p>CB,</p>
<p>How do you feel about this project? Was it worth it to you? Does that fact that you saved an old dilapidated home mean something to you? Do you plan to do this again, if a suitable property comes along?</p>
<p>Another factor, in addition to sec. 7044, we did not figure in our cost is the implied cost of insurance, those are worker’s comp and construction liability, which most, if not all the owner-builder type will not pay. However, it is spelled out in the application process, you are responsible for your “employee’s well being”. This hidden cost could be substantial.</p>
<p>cb think it was funny that she hold the legs of her lead while the lead was nailing on the siding of the garage. I see it is a dangerous act. What if… well, everyone can come to their conclusion. She could lose everything if there is a slip or accident and it does happen.</p>
<p>As I have reported before in this thread, I had an unscrupulous “employee” who understands the dynamics of owner-builder permit and faked an injury on site. Ambulance was called and the total bill came out to be around $9000, the guy “settled” with me for about $3000. Home owner Insurance investigation revealed that I was NOT at fault because the stairs the guy fall off from was solid without a problem. So the incident was NOT covered.</p>
<p>OP, do you ever consider doing this kind of thing for someone else, so you don’t hold the financial risk? If I had a big project, I’d hire you in a minute, who wouldn’t? That way you’d be guaranteed your pay without taking the financial burden yourself. You obviously really know what you’re doing.</p>
<p>Busdriver11, </p>
<p>Lets say a project costs $400,000 and the profits are 7.5 percent pre tax.</p>
<p>That is $30,000. </p>
<p>The project takes 6 months including the time it takes to find a deal.</p>
<p>How are you going to allocate the profits between the investor and CB?</p>
<p>With those numbers, and assuming the sale goes through at that price, this project will generate about $50K in profits. That’s around 13% return pre-tax… or 17% using just the purchase price.</p>
<p>That seems pretty solid… Coralbrook, is this a home run? It’s double the expected profit.</p>
<p>How many hours of work do you have invested in this project?</p>
<p>You don’t necessarily have to split profits, but do it for a fixed, or daily rate. And I mean less for investors, but more for homeowners who have a big project to take on. We don’t know what subcontractors to call, or how to even start on a big project. We’re going to need to find someone like coralbrook if my parents ever, ever want to sell their house!</p>
<p>I agree with you busdriver11. I think there is an opportunity to work with homeowners.</p>
<p>nre
“With those numbers, and assuming the sale goes through at that price, this project will generate about $50K in profits. That’s around 13% return pre-tax… or 17% using just the purchase price.”</p>
<p>Where did you get that 50k number ?</p>
<p>Here is what’s going to be if it closes at the contract.</p>
<p>sale price 462000
credit 5000
gross sales 457000
after commission 436400
closing cost seller 5000+
net sales 431000
“cost” 391000</p>
<p>gross profit 40K</p>
<p>I will do something else and make more than 40K/year, don’t forget that 40k is subject to full SS Tax, not half</p>