Contractor gone wild!!! Help!?

Question

Ok that was an exaggeration 😂 but seriously, I need advice! I recently secured a couple of cool properties to flip, these are my very first ever. The first property the contractor bid a really simple kitchen and a bathroom remodel, fresh paint, and carpets, nothing major just that and a new furnace...

Now he is bringing up all of these ideas of finishing the basement, insulating and running electric through the attic to make it a master bedroom, and adding central AC... all at a reasonable price, and trying to convince me of the value add.... I just don’t know if the value is there seeing as none of the comps had that and central AC is not as big of a deal in the city (Cleveland) as the suburbs.... at 55K for comps I don’t want to put too much into this and risk buyers not seeing the value and losing $$

What do you guys think? Is it enough of a value add or should I go with what we decided on from the beginning, a nice upgrade and quick flip? If you were buying a rental property would it really make that much of a difference to you if there was central AC and a finished basement? Would it add an extra $10,000 to the purchase price?

Matthew Moore · Answer

@Tadela Tedemet I would have to say that you’re the investor, he’s the contractor. You call the shots he does the work.

Sean McCluskey · Answer

@Tadela Tedemet wow youre flippingvto a $55k ARV? Definitely don't do that extra work, at that level. Paint, carpet, safety items, and you're done.

Mark Freeman · Answer

@Tadela Tedemet In this Covid environment, I say use the KISS (keep it simple stupid) strategy! Less is more! Especially with $55k comps! (I would be nervous about this flip making money - if you went all in .....even if someone gave you the property).

Erin Dorsey Robinson · Answer

@Tadela Tedemet Where is this property? You want to be careful with flips to be sure that you are flipping in a part of the city where more properties have been sold than listed in the last couple months. That’s first. After that, you want your flip to be clean and objectively attractive relative to others. Then you set the price right and it will move. But this all depends on the comps. I don’t mind looking this it and giving you a little more detailed advice if you like.

Avery Carl · Answer

I have never had a contractor NOT make suggestions to add more stuff during the deal. He's not trying to scam you, he's just doing business.Now what DOES concern me is an ARV of $55k. It's your job to do the math there but I can't imagine that a full kitchen, bathroom, and basement remodel isn't going to cost a lot more in work than your actual ARV of the property. I wouldn't go down that road.

Jason Allen · Answer

He is probably not trying to scam you, just trying to drum up some more business in these uncertain times. It's your job to do the math and see if what he's proposing makes sense. If you were buying that property, would YOU pay that much more? FWIW, I'm also in the CLE market, and I have found on multiple occasions that good tenants with good credit almost always will want A/C + dishwashers + extras.That said, small bites: give him a smallish project and see how well he performs and at what cost, evaluate and go from there. And always get second and third opinions (and bids). No one-bid-jobs until you are absolutely 100% certain you trust them: a bad contractor can ruin you as quickly as a bad tenant...

Teri Feeney Styers · Answer

@Tadela Tedemet I am with @Avery Carl in that contractors will frequently offer up suggestions for more/better. It is up to you to understand how much of that money spent would be recaptured. These are flip properties. I assume you will be selling them via an agent. Get that agent involved NOW on what upgrades will add value. Have him/her run numbers. Second bath? Third or fourth bedroom? Garages? Also look a overall comps. ALL houses like yours in your area that have sold in the past 6 months. What did they look like? What features did the highest sellers have vs. the lowest sellers? That will help you set your budget.

Tadela Tedemet · Answer

@Sean McCluskey that's how i kind of feel... what we're doing is already a big upgrade in the area... but ill definitely take all these things into consideration! Thank you guys! @Erin Dorsey Robinson I will message you!

CJ M. · Answer

@Tadela Tedemet It's hard to say. This could be a good thing, or a bad thing. Like others have suggested, it's up to you to run the numbers, to know whether or not those things will add value. Has this contractor worked with other investors? Is this contractor an investor himself? Does he have any references you can check? Personally, if I had a contractor who understood value adds and simply was giving me an honest assessment of his opinion every once and awhile (without being pushy), I think I would be very happy with that...especially since he's providing quotes at the same time. Also, you said these are your first properties. Does the contractor know you don't have a lot of experience? If so, he may just be trying to help you out.