Almost everything we know about flipping houses, we learned from TV. Fortunately we have a realtor who graciously gives us advice and encouragement. But that doesn’t mean there aren’t still surprises.
On Monday we closed on our first “flip house”. The first closing, that is. We’re at the beginning phase of rehab. There will be another closing at the end of this process.
At the closing, we discovered the contract included line items for Title Insurance and Title Handling by Lender. Since we declined Title Insurance and we’re paying cash via a home equity loan, we were not prepared to pay for either of these items. We’d already wired over the cash, but a paperwork change meant we’d be reimbursed over $600. Yes, I wanted the paperwork changed. It took two iterations. (Oh, and…it will be up to us to chase down the reimbursement.)
While waiting on the revised paperwork, we discussed the rehab items that needed to be tackled. Our realtor expressed surprise that we were purchasing a 3/1/1 and not a 3/2/1. I was surprised that he was surprised. I’m not a fan of surprises, in general. I have a feeling this is the first of many.
Since our realtor will represent us in selling this house, I’d like to think he was considering the future marketability, but who knows.
Lesson 1: Be sure to ask the realtor “what about this house will make it hard to resell?”
He also mentioned the urgent need to acquire insurance. We were not prepared for the premium associated with insuring unoccupied houses.
After the closing we went through the house with the realtor, specifically reviewing the minimum effort and expense needed to get the house back on the market. Mr. H and I need to get aligned on expectations and our realtor is also our mentor. He has a lot of experience, which will hopefully help us avoid some trial-by-error education.
His key points: 1) Clean, clean, clean. 2) Paint and carpet, paint and carpet, paint and carpet. These areas will give the biggest bang for the buck. Everything needs to be considered as an ROI algebraic equation. If I input X in labor and Y in expenses, will I get Z in profit? What, exactly, will be the Return On Investment? We’ll have to ask ourselves this question a million times before the project is a wrap.
Although Mr. H initially planned to repair the garage door, we’re now pricing a replacement.
Kitchen: The realtor suggested we should not need to replace these cabinets, but a little bit of sanding and a fresh coat of paint will suffice. This is great news and should save us about $1,000 (kitchen and bath).
We are in the market for a low-end (or used) stove and a microwave/hood. Mr. H will be replacing the flooring with tile. Elbow grease and cleaning supplies should cover the rest of the kitchen & dining area.
The house will be painted end-to-end, inside and out. Our realtor indicated we could leave the cheesy mantel. More good news! Not shown – the windows, which will be dressed with 2″ mini-blinds.
It may not be obvious, but the previous painters were
sloppy overly generous in their application of paint. Our realtor recommended soaking the outlet and switch plates in rubbing alcohol to get the paint off. I’ve already started this process on the door hinges, and it seems to be working. We’ll need to purchase more rubbing alcohol.
- Rubbing alcohol
- rubber gloves
- stiff-bristled brush
- elbow grease
We should have electricity turned on sometime Thursday so Friday morning we will be steam cleaning. I’m a girl who loves using chemicals so I consider these spots and stains a fine challenge. If we can’t get the spots out, we’ll be stuck replacing the carpet. I’m optimistic about the bedrooms but leery about the main room.
Another tip from the realtor: Replace the doors (front door and the flat interior doors with new, paneled doors) and replace the knobs so they match. We pulled all of the hinges, stripped the hinges of the latex paint and gone so far as to spray paint them with a metallic brass so they look as good as new.
And finally, the bathroom: I’m hoping that elbow grease and chemicals will go a long way towards sprucing this up. We’ll also invest in a new fixtures for the sink and tub, as well as a matching set of hardware (for towels & toilet paper). Mr. H can also work magic with caulk.
Everywhere there is linoleum, there will be tile. If we have to replace the carpet in the living room, the linoleum in the hallway will (potentially) be replaced with carpet. As of today, we’ve reduced our budget and our schedule by half. We hope to spend $5k and 1 month in this investment before we put the house on the market.
- Purchase price: $56,000
- Budget for rehab: $5,000
- Target sales tag: $90,000
- Closing expenses: $7,200 (8%)
- Holding costs (pending sale): ~$1,800
- Anticipated profit: $20,000