My first project - Rehabbing my aunt's dilapidated house

[Dave Zarcone]

Hello all,

I'm new to the BiggerPockets forum but I figured there's no harm in sharing my experiences as a novice in case others have advice. I am currently in a house rehabbing and flipping situation not by choice, but by necessity and it has proven to be a very valuable experience. To put it simply, and without sharing too many family details, I am helping my aunt, who is a victim of senior abuse by her kids, fix and flip her home after it was cosmetically destroyed and left vacant for many months. The house was destroyed. It looked like the people who lived there before actively tried to destroy it before they left. This left us with a lot of work to do if we wanted to fix it up and sell it. 

My aunt purchased the home in 2012 for $225k and comparable homes are selling in the neighborhood for $390-420k. Unfortunately, the home was a complete disaster. It was an investors dream before I got involved. In fact, my aunt was considering dumping the house for a loss before I got involved.  I ran through the house with an inspector and a contractor to get an idea what we were in for and figured overall we needed to put about $50k into a rehab (this includes contingency $ just in case). We're talking about tearing up all the pee-soaked carpet (dogs..) and bleaching/disinfecting the concrete foundation underneath, replacing a majority of the second floor sub-floor, fixing the roof, fixing the HVAC, repairing the garage (door hanging on by a thread), scrubbing and disinfecting all the cabinets (roach feces everywhere), tearing up and replacing the landscaping, fixing the roof, inspecting and repairing any water damage... the list goes on and on. Let's just say that this was not a 'clean' job. Once all the dirty work had been done and fresh paint put on the cabinets and walls it looks like a brand new place. Beautiful. 

This was my first reno so I only had one contractor run through the house, in the future I will meet with 3 minimum, but I am lucky that the company we chose has been fair and effective. This could be a good partner for future projects. We are nearing completion and I'm happy to say that we have some money left in the budget. We are eager to get the place on the market and hopefully find some excited buyers. 

Anyway, I'm interested in hearing anyone's thoughts. Hopefully someone reads this... :)

Dave

[Ritch Bonisa]

Definitely hang on to that contractor.  3 bids is great, but don't get caught in the trap of going for the lowest bidder.  The reality is - contractors will often bid low - to get the job.  Then, they start to make changes and add things that weren't in the estimate.  Be very careful of this.  The other factor is this  - If a contractor bids too low, then realizes in the middle of the project that he won't make any money, then you are working with a contractor that either is not a happy contractor, or they have to do other jobs to make ends meet on yours, maybe they even misappropriate funds.  Just going with the lowest bid can cause you a lot of problems. When you do your next one, the trick is to make sure you can evaluate the costs BEFORE you ever buy it.  This allows you to evaluate and add contingency costs so you have room for anything that may happen like added costs, length of costs (holding costs).  What you don't want to do is run such tight margins that your only hope for reasonable profit it to squeeze it out of the contractor.  You squeeze too hard and it can cause alot of problems there as well. 

Be careful too on your planning.  Have a plan in place before you ever start.  In my experience, sometimes you get an exit realtor involved and they start adding things that aren't in the budget.  This drives up costs and sometimes it doesn't drive up profit. 

Looks  like you have found a great first deal and a great situation.  Get this rehab completed quickly and don't let it drag.  Don't get too emotional with it.  Regardless of who owns the home it is still a tool to make money, not something to be loved and cherished.  Of course, I'm assuming your Aunt is not going to live in the home anymore and it will be sold, looking for profit. 

Best of luck!