Flip This House - The Reality

Parent Cafe
141

<p>Not meaning to hijack but since there’s been discussions about leveraging and as there is a bit of a lull in the flipping house action:</p>

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<p>I’m sure there are many volatile markets where it’s risky to be highly leveraged. And also we do rental investment (with serious upgrading) rather than flipping which is another animal altogether.</p>

<p>Some markets, like ours which is a medium sized town with very stable economy, can work very well with careful leveraging. Local conditions include:</p>

<ol>
<li><p>Slowly but steadily appreciating value. Currently 7% but historically about 5%. Even at the worst downturn few years ago, house prices dropped max 10%.</p></li>
<li><p>Strong rental market for many past years that is getting stronger due to regional economic factors that are slated to continue for at least next 20+years. Not uncommmon to get 10%+ positive cash flow on rentals with 75% mortgage.</p></li>
<li><p>Housing prices that are still very reasonable overall. Possible to get a decent 1000 sq ft 2-3bd house in a good neighborhood for 150-175K</p></li>
</ol>

<p>If I have 150K to invest, I can buy a house outright, rent it, and realize 10-15% annual ROI including 5% appreciation. Or I can buy 4 houses for the same amount at 75% mortgage and get 30-35% annual ROI including 5% appreciation on 600K worth of real estate. </p>

<p>We are pretty cautious investors but it just didn’t make sense for us to not leverage the probably very special conditions in our local market. We also do our own property management and much of our own repairs.</p>

142

<p>Good morning,
Artlover, the very first thing I do is replace all angle valves at sinks and toilets. When the valves are open for many years they cannot close properly anymore. So, for water safety we want them all closed properly in the vacant house for nights and weekends.</p>

<p>Here’s today’s dilemma. Today is payday in cash to most of the workers. I had left a bundle of cash with my lead, but stuff happens!! I am on pre planned family vacation and its early morning here. After a long phone discussion we realized he did not have enough left. No problem, I’ll transfer some cash to his bank account (same bank) and he can go pick it up. Well of course this is the day that BofA. website brojen</p>

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<p>Sorry about that…continued</p>

<p>Website broken. Hour on the phone with bank and they will not transfer to someone else’s account via phone. So I will probably not be able to pay some of the guys. Hope I don’t have a work stoppage or riot on my hands when I get back :)</p>

<p>And of course roofing guys have disappeared onto some other job and haven’t finished the roof because they know I’m not back until next Tuesday and they’ll probably do it on Sunday and completely annoy the neighbors!</p>

144

<p>I don’t know rental property investment very well but you should check with your lending institution about mortgages for non owner occupied. My bank won’t give loan until it is owned for 6 months and then you show your rental income etc. That might answer your question on how you can leverage. You might want to be safe and buy only 2 right now.</p>

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<p>Such an quip might amount to a TOS violation on CC, as the person potrayed on that show is just as annoying as the other flippers on the most recent shows. I am slowly starting to believe that most of those shows are as real as the House Hunters International. For the record that means … scripted and mostly fake.</p>

146

<p>One thing I learned from the show is that the very first thing upon possession is to put alarms in a vacant home, I suffer dearly on a previous purchase. I posses the house upon closing and locked up everything with new hardware, the next day, my property manager/contractor called me and told me one of the back door have been kicked in, the walls and the ceiling have been ripped apart and the wires and copper pipes have been stolen.</p>

<p>Now I know what is my second thing to do.</p>

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<p>In a commercial real estate setting Multi-family properties can get mortgage even it has high vacancy or totally vacant that needs rehab. That is another subject matter and demand for such discussion here is not high.</p>

<p>And there are banks will loan on un-stabilized properties.</p>

148

<p>ihs76</p>

<p>In a “normal” condition, investment in real estate should be and can be leveraged. However, the 2008 crash reveal many problems in real estate investing practice prior to the crash:</p>

<ol>
<li>Over leveraging: lots of no money down loans made to the borrower.</li>
<li>Negative cash flow: Most of the SFR/Condos were bought with negative cash flow and investors were speculating capital appreciation instead of income.</li>
<li>Sub-prime lending and greed on the wall street, as a result, over leveraging.</li>
<li>Down turn in economy and increase in unemployment, so renters cannot pay rent and initiated a domino effect to the over leveraged real estate.</li>
</ol>

<p>If you do not practice in any of the above, there is no reason not to leverage. However, in California, the value of houses before the crash were so high that no one can buy it with proper cash flow. As a result, one can own 20 leveraged homes and go bankrupt over night.</p>

<p>I came to CA in 2000, at that time, I could not put my foot down to buy homes, it was out of the world. My family would have to make 200K to afford a tiny house. We saved and saved until after the crash and in the mean time we have developed a leverage phobia. In addition, now a days, the bank is so tight on the lending practice that only all cash deals are worth looking.</p>

149

<p>Coralbrook</p>

<p>Turned on the tv, fliping Sd is on. This is a two house on one lot in Normal Heights. Know nothing about the location and perhaps you have not seen the episode, can you just comment the neighborhood?</p>

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<p>Normal Heights has only a small pocket of good area. The rest of the area is depressed housing in poor condition. Very old homes. I’d have to see if it is “North of Adams”. However, in general two homes on one lot are flying off the shelf in other downtown areas. Lots of multiple offers as young couples are buying these properties and counting on the small rental income to offset their mortgage costs and investors are buying them for rent potential</p>

<p>Sent from my Nexus S 4G using CC</p>

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<p>My relatives like buying properties that have or COULD have more than one home on the property. They are able to generate more cash flow thru more tenants, once they repair and retrofit the premises.</p>

<p>One bought a place that had three houses on it. The lived in the largest and rented out the other two for years. Finally, they moved everyone out and demolished everything but the pool and rebuilt one McMansion that they live in.</p>

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<p>“I wish I could find houses that only need cosmetic work.” - Of course. But those houses have the best chance of selling the traditional way. Flippers are likely to get the less desirable houses. It sounds like a highly stressful way to earn a living. I hope things get better after you return home from “vacation”.</p>

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<p>I will be returning to the project uesday and promise to give afull update. My lead sent pictures of all the finished headers and rafters for vaulting the ceilings. That took a full week of work x 2 people plus a lot of expensive lumber.</p>

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<p>Good Evening, I have just spent all day catching up on labor payments, sub contractor payments and a lot of receipts from Home Depot. As promised, I will give a reality status as often as I can.</p>

<p>ROOF - I had budgeted $3,500 for new roof. I underestimated the effort required to take off 6 layers of old roof and the amount of wood damage. We had to tear off all the old fascia and repair a lot of rotted 1 x 6 roof sheeting. The cost for demolishing the roof and repairing and replacing all of the roof sheeting and fascia was $1,800. The actual cost of the new roof paper and shingles and installation was $3,000. So, I am over budget $1,300. But I have a gorgeous charcoal grey dimensional shingle roof now :)</p>

<p>FOUNDATION - I had estimated $7,500 because I thought that we had stem wall/footing deterioration. As I said earlier, it turns out that it was just root intrusion between the stucco and the concrete stem wall. This was caused because the original 1925 home had stucco going over 12" below grade. We have cut off all stucco to about 12 inches above grade. And, we have trenched around the whole house and put in Root Kill and plastic barrier. Because we did this, there will have to be a lot of stucco work done on the house. Cleaned out the crawlspace and put in all new concrete pillars and posts, including some extra ones placed underneath new structural posts in the house (for vaulting the ceiling). But, we are completely done now and the total cost was $2,750. Yeah, below budget $4,750!!</p>

<p>VAULTING CEILINGS - We have completed all of the header/rafter/post work to vault the kitchen, breakfast nook and the master bedroom. We are going to live with 7’3" ceilings in the small 2 bedrooms and the bathrooms. I had budgeted $800 but it really cost $2,250. OK over budget $1,550.</p>

<p>DEMOLITION - OK, this is where I really blew it. My original thought was 2 dumpsters and one week of 3 laborers. Well, let me say that we are on our 4th dumpster and this 4th dumpster is a special low boy that is for concrete only. There were over 200 bad condition concrete blocks in a retaining wall that was falling down. We couldn’t save them because they were covered in mortar and could not be re-used. And, we are going to need another dumpster because I have no choice but to tear down the old garage walls (roof already caved in and hauled away). Original Budget $2,000 and final cost will be $4,500 when we are done. Ooops, off by $2,500.</p>

<p>So, as you can see it is all a big fat guesstimate on what is really going to happen. You just have to hope that it evens out in the end.</p>

<p>SUMMARY:</p>

<p>Budget to date: $13,800
Cost to date: $14,300</p>

<p>OVER BUDGET $500</p>

<p>Next we are going to pull out all electrical and old plumbing and do new plumbing and electrical. But that means I need to get my butt in gear and design 2 new bathrooms and a full kitchen - everyone is waiting for me to tell them where the plumbing needs to go :slight_smile: We are going to try to squeeze in a 2nd bathroom into the property where an old laundry room used to be.</p>

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<p>Whats your labor cost for plumbing and electrical? So, you say you don’t need any permits?We got hung up with the inspector and much labor and material was wasted.</p>

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<p>Thanks for the update. Very informative.</p>

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<p>phew! All I can say is, given your conscientious and thorough planning and budgeting and wealth of experience behind everything you are doing, not to mention the risk you are taking, you should be well compensated for this - but at the same time it sounds like much of the “excess returns” have been squeezed out of the business.</p>

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<p>As I see it, coralbrook, your project basically is a total rebuild. Actually the demo would be cheaper if you take it down all at once. And the vaulted ceiling, additional bath room, you shouldn’t have to spend time to consider those.</p>

<p>I was on the phone with a pre-feb home mfg. From factory, they can CUSTOM build a 2 story 2000 sf home for about $100/sf in two weeks and put it up in one day. This home will be built to code with all the finishing, appliance is extra, so are the hookups and the foundation. You have many styles to choose from.</p>

<p>Yes, I notice the historical aspect of the neighborhood, but a pre-fab could pass the design review.</p>

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<p>Wow - glad you had some savings to offset the over runs. Coming within $500 sounds pretty darned good. Good luck on the next steps!</p>

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<p>A modular home is not ready in one day. They set it on one day. Then the finish crew takes 3-4 weeks to do all the remaining stuff and hook-ups. I suppose, maybe, depending on location, this might be viable if one were to re-sell it. To live in forever? No, I wouldn’t do it again. They may use the “good” names–Andersen, Moen, Delta, etc., but it’s the cheapest builder grade of <em>everything</em>.</p>

<p>OP–love following your thread. Please keep updating us!</p>