Overview and Quick Numbers:
Close on the House March 11th, 2019
Found the property from a wholesaler in the Tampa Bay area
Negotiated the house to $74,000
Initial Renovation Budget: $27,200
House Cost: $74,000
Actual Renovation Cost: $43,245 (15,345 over my initial budget)
Hard Money Fees: $4,200
Loan Interest (8.5 months): $7,500
Fees & Closing Costs: $14,010
Total Project Cost: 143,955
Sale Price: 152,000
Number Breakdown: **numbers are slightly rounded to the nearest 0 or 5
Renovation Costs - 43,245
$230 in equipment - had to buy some tools to help with my self preform work
$15,900 in materials
$27,115 in labor
Hard Money - 11,700
$3,000 in points
$1,200 in service fees
$7,500 in interest payments
Fees & Closing Costs - 14,010
$2,065 for Closing Cost on the buying side
$1,380 for Title Charges
$685 for Government Recording and Transfer Charges
$4,560 Buyers Credit (end buyer asked for 3% of purchase price of $152,000)
$3,505 Buyer's Realtor (2.5% of purchase price of 152,000 minus $295; $295 is the fee for listing on the MLS)
$3,880 for Closing Costs on the selling side
$420 for Title Policy
$1,065 for Document Stamp Tax (State Deed Taxes)
$965 for Title Charges
$1,030 for Property Taxes
$105 for Lien Search
This was my very first flip. I was analyzing houses for about 7 months before purchasing this deal. I met the wholesaler through a connection I made at the Tampa Bay REIA (Real Estate Investment Association). The wholesaler asked for my criteria and sent me a few houses that I turned down because they were either out of my area, thought the rehab would cost too much or there weren't enough supporting comps in the area. The wholesaler sent me this property sometime in late January. I went to go look at it the next day and liked what I saw. It seemed like mostly cosmetic updates and I didn't see a whole lot of scary, costly rehab items jump out at me. I offered $74,000 and had the house under contract by the beginning of February.
The house had an open lien on the roof. Apparently the owner did some work on the roof in 2008 and never got the work finished up. The contractor didn't close out the permit for whatever reason and now it rest on the owner to get this cleared up so closing could go through. This delayed closing by 2 months! I finally closed on March 11th, 2019.
I researched over 30 lenders (mostly hard money lenders) to find the lender that I wound up going with. I used LendingHome because they were able to offer me some terms that weren't nearly as brutal as some of the other lenders. A huge plus that I found with LendingHome was their willingness to work with first-time flippers.
Will fund 85% of the purchase price (74,000 x 80% = $60,700)
Will fund 100% of the rehab costs (I originally estimated this to be $27,200)
Costs $3,000 in points (3.41% due to their lowest limit)
Costs an additional $1,200 in 'service fees' (aka tack on more points)
11.75% monthly interest on the entire loan - not just what gets drawn
Monthly payment of $860 (60,700 + 27,200 = 87,900 | $87,900 x 11.75% / 12 months = $860.69/month)
Draws cost $200 per draw (Had 3 Draws over the period of the project)
Fast close - around 1 week to close
From the numbers above, you can see that I went way over the initial budget and had to input my own cash to cover the costs. I was working a full time job during this time and basically every paycheck was being siphoned into this renovation. I also had a ton of support from my loving girlfriend. She was able to help me out when things got sticky. She invested her own money and was truly my safety net during this renovation. I always recommend some type of safety net!
To start, the house needed to be demolished on the inside and cleaned up on the outside. I had started the project thinking I was going to do the demo myself... I quickly realized I needed to hire a crew to do the demo because EVERY SINGLE WALL WAS CONCRETE. I'm talking the structural walls, the non-structural walls, the bathroom walls, the closet walls. They built this house like a bomb shelter. I called around 10 demo crews to get a quote and one came in at $2,000 and I talked them down to $1,850. I hired the crew and they were able to get in there a couple days later. I showed up on a Saturday when they we're doing the demo and they had around 8 guys there! They demo'd the whole house in less than 10 hours and did an awesome job. Not only was I happy with their work, but most importantly, I found my demo crew for future houses.
Next I had to deal with the major systems in the house which included plumbing and electrical. I called around 15 plumbers and they all said I needed to do a complete re-pipe because I had galvanized piping... There goes the plumbing budget. I had budgeted around $1,000 for cosmetic plumbing to be done to the house and now I'm getting quotes from $3,000-$15,000 (*stomach drop). I delayed this decision for about 2 weeks because I didn't know what to do. I went to my local REIA (real estate investment association) and asked for some advice. During the REIA meeting I made a good friend in the meeting and he gave me a God-sent plumber who was able to do the plumbing for $4,000 total + cost of material. I jumped on it and he was done in 2-days! The plumbing job wasn't perfect but it was done. The lines were ran a little sloppy and the yard was tore up because they had to re-pipe but I wasn't complaining. Overall I think they did a great job and they did it for a great price. I'm going to use that crew in the future which means I get to spend less time on my next flip looking for a qualified plumber!
At about the same time I was looking for an electrician to get into the house and start working. Same story here - called around 15-20 contractors and got quotes from $1,200 - $12,000. I met with a young guy I found on Thumbtack (same place I found my demolition crew). After vetting him for around 30 minutes he seemed very honest and seemed like a go-getter which I liked. He also told me he'd be able to get the job done for $1,500 and I liked that too. The reason why he came in at this price is because he's looking for repeat customers to do work for. If a young electrician gets in with a flipper early in his career, he'll have more work in the future. Could be a negotiation tactic for someone out there. Well it turns out there was a reason for his price. I think he ultimately underestimated his amount of work. He tore the house up during his electrical install. Ripped up drywall, drew electrical diagrams in sharpie all over my walls, left fallen insulation all over the place, but the worst part - he didn't even install the electrical correctly. I had three-way lights that weren't connected properly, you'd turn one light switch off and the the other one wouldn't work. There was a hallway light connected to the bathroom light switch and the worst 'mistake' was he disconnected the power to half the house. All the bedroom lights and fixtures were disconnected. I didn't find this out until it was time to put the new lighting fixtures in! He told me that he'd have to rewire those three rooms and was going to charge me $1,500!! I was fuming because those lights all worked fine before he got in there which led me to believe that it was his fault they were disconnected. I refused to hire him for the rewire and put the problem into my hands. After hours of looking for the problem I finally found out what was going on. There was a junction box in the attic that was disconnected. I had to crawl into the attic, which is only 2 foot tall in the highest spot, army crawl over the insulation and in-between the rafters to get to this box and hook it back up. Once I found the problem I knew it was disconnected on purpose. The wire that was disconnected and hidden under the insulation had a brand new wire-nut on it which couldn't have been put on by mistake. I was so mad but at least the problem was fixed.
As the electrician and plumber finished with their rough-in, I began looking for a framer and drywall crew. It was unbelievable how long this took me. I called 43 companies in the Tampa Bay area and 4 companies responded. That's right... 4. Out of the 4 that responded, I got quotes from 2 of them that were actually worth a damn. One came in at $5,500 and another came in at $4,000 but it was for a limited amount of work. I was just about to move forward with the company that quoted $5,500, but after delaying and asking around, I got in contact with another person from my REIA. He sent me the number to his handyman/do-it-all guy. I met with him the next day at my property and he really put me at ease. I vetted him for about 30-40 minutes. Asked about previous work, got a feel for who he was as a person and this was before we even walked through the front door of the house. He wanted to do the whole house - everything from framing to flooring to tile, drywall and trim. I wound up hiring him and I didn't regret it but I wasn't blown away by the results either. Him and his team of young workers did complete the work and did it on a decent budget but it took so long that it almost wasn't worth it anymore. Their work was decent and overall I didn't have many problems with them. The crew handled the rest of the project which was great. I loved that aspect and it opened my eyes to how valuable a team that could do everything would be. They did the drywall, insulation, doors, floors, painting, and other miscellaneous repairs that came up around the house. Only bad thing was that they took several months to finish. They were slow, didn't show up all the time and I had to babysit them a lot. A prime example of you get what you pay for. At the end of the project I wound up paying this team $15,000 for labor
I wasn't planning on doing anything to the HVAC, that is until the Florida summer had other plans. During the hottest month my A/C unit decided to quit on me.. Talk about a drag... I was pretty bummed when this happened. I knew this was an unplanned expense and it was going to hurt the pocketbook. I reached out to my network and got some referrals to some great A/C technicians. Luckily this hiring process was nice and easy. I wound up costing me $4,000 for a new one and being without one also prevented my handy-man crew from working since the house was over 100 degrees for most of the day. Moral of the story, if the A/C is 9 years old or higher, budget for a new one and replace it in the beginning of the project.
I knew going into this project that I'd have to do some of the work myself, I just underestimated how long this was going to take me and just how much work I would have to do. To sum it up, I basically did all the work on the outside of the house. From painting, to soffits, to landscaping, repainting the deck, all decorative trim work, and even repairing the fence. I did a lot of work on this house by myself and some of the painting was assisted by my wonderful girlfriend (she deserves an award for putting up with me through all of this btw). I did a lot of the work because I needed to save myself some money. This was more costly than I budgeted for and being able to do some of the work really saved me in the end. I probably would have went into the red if I hadn't done the work myself. Thank goodness for being handy!
The house finally finished in the middle of August and I was so relieved to have finally finished... or so I thought. I went about this project thinking that once the project was done, selling it was going to be the easiest part of all. No manual labor, no managing subcontractors anymore, no more spending money.... I was wrong. It was very difficult. I took the pictures myself and a lot of them turned out great but some of them weren't as impressive as I'd like them to be. I thought "this will work" and listed it on the MLS anyways (as a precursor, it should be noted that I am a licensed realtor in the state of Florida and listed my own property. I did this intentionally to save some money on my commissions and put offers in on houses - this is for another blog post).
I originally listed the house for $169,900 and I was getting so many hits on the property. There was like 30 showings in 2 weeks and over 3,000 views on Zillow. I received multiple offers in my first week-and-a-half and I was pumped! One offer came in at $162,000 and another at $165,000. Both asked for some money in credit to help with the down payment and they were both asking me about the tree in the backyard - more on this later. One was conventional and the other was FHA. If you know about mortgages, you'd know that FHA lending is pain in the you-know-what when it comes to lending approvals. Before making my decision, I wanted to make sure that the tree wasn't going to be an issue because I knew how bad it could get. This was a live oak that was 6' in diameter - absolutely massive and better yet, the city of Tampa protects them like crazy. You can't even cut the thing down if it's in good health. Anyways, the conventional buyer wanted me to take the thing down - not going to happen. I continued negotiations with the FHA buyer and eventually got them to agree to leave it alone! Great news, I accepted the contract and the initial inspection was ordered. Home stretch - I thought... The inspection report came back and the inspector absolutely ripped my pretty little rehab into shreds. The inspection report was 25 pages long and listed all the issues with the house. He listed the tree in the backyard was likely causing foundation problems, leaves on the roof might age the roof quickly, and my favorite one - the garbage disposal was noisy... Are you kidding me!?! A noisy garbage disposal?? The thing was brand new, garbage disposals make noise. C'mon give me a break. The contract scared off the first time buyers and my house went from having 2 offers to having zero offers and now it was back on the market which also makes the house look bad.
I relisted the house on the MLS and a week went by, I dropped the price, ran some more marking on Facebook, nothing worked. Another 2 weeks went by and I dropped the price again. Nothing. I was getting worried and did a ton of research about selling houses. I even asked a couple of my realtor friends to run comps on the house. I decided I needed to stage and professionally photograph the house. I took the property down, found a staging company and a photographer and relisted the house for a lower price. A couple more showings and a couple more weeks went by and I grudgingly lowered the price down to $150,000. This was going to cut my profits down pretty close to a break-even point. I must have hit a sweet spot because I had more showings and finally another multiple offer situation!
After two months of being on the market, I received multiple offers on November 21st 2019. One was 147k and the other was 152k and asked for 3% in buyer's credit (equals $4,560). I went with the 152k offer. I signed everything and sent it back and heard nothing for two weeks. This is out of the ordinary. Usually the realtor is in contact, the buyer is making demands, asking for repairs, etc. Instead, I heard nothing at all. Now, this is about the time where I got worried because the inspection period was up and I haven't talked to the realtor since the offer was accepted. It turns out that the buyer ordered the inspection, reviewed it, accepted the condition of the house and went forward with his mortgage application. He didn't request any repairs or offer any negotiations. I was stunned! This was unheard of, especially since the last inspector tore the house to pieces in his report. So the house is now going through the hoops of the bank and I'm checking in with the realtor twice a week. No problems arise between and the closing is scheduled for the 23rd of December. All seems to be going well and I'm speaking with my title company during this time to make sure they have everything they need. I give my closing agent a call and she drops a bomb on me - tells me they can't get ahold of the buyer. I'm sweating at this point. I couldn't possibly lose this deal and I started firing off emails and phone calls to the realtor and the mortgage company. It turns out the title company couldn't get ahold of them because nobody speaks English! Being in Tampa, there is a heavy Spanish/Cuban/Latin influence and this is unfortunately a common problem.
I put my closing agent in direct contact with the mortgage lender and this really sped the process up. There was a slight hiccup on the lending side of things around the Friday before the closing was supposed to happen. The buyer's identity was stolen! Luckily the mortgage lender caught it quickly and they got it fixed but it unfortnately delayed the closing by a week. With the Christmas holiday mixed in there and the identity theft the closing was finally here. I pre-signed the documents on the 19th since I was going to be travelling for the holidays and the buyer signed his end of the documents on the 30th. One day before the new year began! Wire transfers completed the next day and I had officially just sold my first flip!