Too Much Too Soon?

Question

What's up everyone!

I hope to get some response...

I'm looking to invest in Baltimore to flip a house.  I have a potential listing but it would need a full gut rehab.  The owner even told me that all metal and wiring has been removed - no plumbing, wiring, assuming no HVAC, gas line, and hot water heater.  The property also has active mold.  This property doesn't scare me and  it actually kind of excites me to see what I can manage.  This would be my very first flip/investment.

Purchase Price 20k

Rehab - Dont have enough details for this.

Comps - 180k

My main question is how hard/much would it be for the mold removal and also placing the pipes, wires, etc.

Seems worth it to me but definitely a tough one.

Please remember I'm a newbie and I'm really just trying to see what's out there and get opinions on things.

Thanks in advance for you opinions!

James Yepez

Jonathan Godes · Answer

The nice thing about a total gut is that there shouldn't be too many surprises (except for structural) lurking. Your contractor's bid will be huge (in scope and dollar amount), but there shouldn't be to many instances where you find surprises. Again, this is assuming that you are doing new roof, windows, plumbing, HVAC, wiring, etc. Those are where the surprises lie usually.

On another note, I would actively see if I could get another partner who has experience in this to go in with you on your first deal. It might not be necessary with a 25 year old home that needs a "facelift" but for something of this scope, consider it the cost of an education by a teacher who is FULLY invested in your (and their) success.

Good luck!

Jeff Bridges · Answer

Also consider the area you are buying in. If pretty much all the copper pipes and wiring has been stolen before, there is a good chance it might be stolen again during your rehab. Lots of rough areas of baltimore and copper theft is common. The longer your rehab goes, the greater the chance of stuff getting stolen and you having to come up with replacement materials/ labor. Rehab projects in low-income urban areas are tough, remotely managing any flip projects with contractors you haven't yet vetted are tougher, owning property in baltimore is icing on the tough-project cake. Re-think this being your first flip project positioned for success. For your very first flip, think closer to your home and rehab less than 30-50k AKA not a 60-100k gut job lasting 6 months. You might want to have more supervision and accessibility to make sure the project is going in the right direction.

Eric Black · Answer

Hi James,

I appreciate your excitement and passion however I would be very wary of this project as your first one. If you do decide to go ahead with it I would just strongly suggest that you go extremely conservative on your estimates, and then add another 20% to them.

For the mold, the cost will depend on how you are going to treat it. If the house is a gut job and you're going to rip out any affected materials then that should be included in the bid from your contractor. Some contractors won't deal with mold however and will require you to have it removed by a mold remediation company. Going that route gets very expensive, very quickly. We had to remove some mold from behind a water heater, an area just larger than the water heater itself, and that ran us over $2,000 not including replacing the torn out drywall.

My advice would be to get a licensed contractor in there to give you a full estimate on the rehab costs, including taking care of the mold if they will do it. Still add the 20% to their bid because projects, especially major projects, rarely come in on time and on budget.

Cheers!

Eric

Ned Carey · Answer

Your rehab could be as high as $120K That would actually make it a pretty tight deal considering soft costs (buying, holding and selling) On the other hand you might get it done in the $60K range.

Is this a detached house or a row house? That will make a  difference because of the cost of exterior repairs. What grade finishes are required to get the $180K price? Will high grade laminate work or does it need to be ceramic tile, or even expensive imported Travertine tile. The level of finishes can make a big difference in the cost of a rehab.

Chris Anderson · Answer

A full gut rehab like what you are describing should be able to be contracted for about $60 a square foot. Make sure your numbers work on that and then shop all the contractors and materials and it will work. I say go for it. Baltimore is supposed to be very tough to deal with so make sure you have plenty of money for holding costs.

Jeremy Pace · Answer

@James Yepez sounds like you're in for a gut job.  That's great because it makes replacing wires and pipes really really easy ... and helps make sure that your mold issue is solved.

You have to make absolutely sure that your comp is accurate, because it changes the face of the deal ... imagine you can only sell the house for $100k (instead of 180) it's going to influence not only your profit... but also your strategy.

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