First Flip Dilemma in Philadelphia

[Tomer Shani]

Hello BP people 

I've been buying and holding in Philly for the past few years. 

I'm looking at my first flip deal and came across a fundamental question. 

The deal is: A historic home of about 3,500 sqf. needs everything pretty much. Sitting on a great lots.

Purchase price is about 100k 

comps are around 300k 

I've found a GC that quoted me $50 a square foot. comes to to 175k for everything. which is very nice, but where's my profit?!

My question is, should I be my own GC / Project Manager and just hire subs?

From my estimates, I can probably bring the project for about 105-120k. 

What are you flipping practices? do you just invest it all on one guy, or do you load yourself with work (gaining massive XP) and saving some cash. 

What am I risking by not going with a general contractor? 

One more detail, if I do it by myself then most of the deal (if not all) will probably be cash. 

Thank you for your help

[JD Martin]

If the GC that quoted you $50/sf looked at the place, I'd find another GC because they should be able to give you a fairly detailed estimate with a contingency. If you called them on the phone and they gave you that number, there's nothing wrong with that because they are giving you a rough guideline on what you can figure if you are rehabbing a total basket case, and they have no idea what finishes and timeline you want to work with. 

As someone who has built before, I will say this: a good GC will run circles around you acting as GC. They should be getting better prices through their subs than you can get with their subs, and the spread is their profit. In other words, for an honest GC, there's not going to be a big spread between what you save if you do it and what you spend if you hire it. GCs that turn high volume get better pricing on everything - labor, materials - and have connections with inspectors and other pertinent individuals. 

If you do a good volume flipping, then you would save a bunch of money being your own GC and having crews of subs that you deal with directly. 

Keep in mind that a bad GC can cause you all kinds of headaches from disappearing materials to subs putting liens on your property from not being paid/being underpaid. So choose wisely. 

[Matt Leonard]

Hey Tomer,

"A historic home" would be my first cue to run for the hills.  If it means the same thing in Philadelphia, you will be dealing with a Historic Home Commission, or something similar.  They will dictate what you can and can't do...and they care nothing about your budget or timeline.  Your local authority could be different, but it might make your project a nightmare.

"Where's my profit?" would be my second cue to walk away.  From what you wrote, you would be breaking even if everything went perfectly, which is probably not realistic, especially with an older home.  Unless of course you want to, and have the time to, be the GC for the project.  Have you factored in holding costs (insurance, utilities, taxes) and selling costs (commission, tax/deed fees, etc)?

Do you have any other exit strategies if you cannot sell it for what your expecting?  Would it cash flow as a rental or would it be feasible to run it as an Airbnb?

[Thomas S.]

@Matt Leonard I am with Matt on this one for the same reasons he gives. Never touch a Historically designated home and if the numbers do not work you walk.

I seriously doubt if you are inexperienced in flipping that you will do better than a GC quote assuming your quote is fair and reliable. 

[David Weintraub]

Originally posted by @Matt Leonard:

Hey Tomer,

"A historic home" would be my first cue to run for the hills.  If it means the same thing in Philadelphia, you will be dealing with a Historic Home Commission, or something similar.  They will dictate what you can and can't do...and they care nothing about your budget or timeline.  Your local authority could be different, but it might make your project a nightmare.

a majority of homes in Philly are historic.  It's more a question of where?  I live in Philly.  If you want to chat about the details, or finding GCs, send me a message. 

[Chris K.]

@Tomer Shani

Acting as your own GC is certainly doable on smaller projects depending on your familiarity with rehabbing and construction in general. But overall, I agree with @JD Martin that a good GC is invaluable. Now I also agree with him that terrible GCs can bleed you dry. 

One other point to consider is that going with the cheapest quote for a GC (or any of the subs) is not always the greatest idea. As they build their reputation and portfolio, they can often start charging higher rates/prices because of their track record. While this isn't to say that you should go with the highest quote, often times hiring cheaper contractors can come bite you later down the line. 

Just as an FYI, I think your numbers --- even with your reduced rehab costs --- is a bit tight. Aside from the rehab costs, you still need to deal with holding costs, finance costs (if any), and realtor commissions (if any). You ideally want some contingency padding in there as well (10%? 15%?). On top of all this, the profit you make from flipping is generally not great when it comes to taxes. 

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.

[Tomer Shani]

Chris K.
I'm redoing my numbers. Looks like like I'll be able to bring the contractor to about 135k. Plus purchase it for about 80k.

I'm pretty confident it will sell for 300k at the least.
It's my first flip and I want to make it work. How are these numbers sounds to you?

I decided to go with the contractor since I'm interested in developing and want to build some good relationships.

My only concern now is to figure out the regulations for the historical places..

[Nikolai Skhirtladze]

I dont see why you have to pay so much....