South Shore MA First Offer Disappointment/Fix & Flip Analysis

[Steven Tierney]

Hi Everybody,

This was the first Fix & Flip property I've put an offer in on, so it was pretty exciting for me...  I posted a while back about a property in a South Shore town here in Massachusetts and the water damage and mold problems this house had, so if you're interested, that post is HERE.  Well, I went ahead and did my due diligence on the property by getting certified mold remediation costs, and then estimated rehab costs on my own (again, I'm a newbie) based on what demo/remediation was necessary, and lastly verified these estimated costs by getting estimates from 2 different GC's in the area. Here are the numbers I came up with:

• ARV: $375,000
• List Price:  $275,000
• Rehab:  $175,000 consisting of 3 story (bsmt, 1f, 2f) mold remediation / 100% first floor & 50% second floor interior gut of a 2,000 sf/4 bed/2 bath home.  The "put back" was to include mostly new plumbing and electrical, which were assumed to be junk based on burst pipes + mold/water damage (and to be conservative because the house was winterized), solid wood kitchen cabs, granite kitchen counters and bath vanities, stainless appliances, tiled baths, hardwoods throughout, 28 replacement windows,  interior (obviously) and exterior painting, 100 feet of fencing in the backyard, and a few thousand dollars for landscaping considering the yard consisted of dead grass and stumps.  All of the planned finishes and scope was to get the house back to being consistent with other properties in the area.
• Fixed Costs: (6 months, traditional renovation loan financing) $43,000
• Desired Profit (includes contingencies):  $50,000
• Initial Offer Price:  $105,000

After preparing and submitting the offer to the seller's agent, she told us that she wouldn't even submit it to the seller because there were already offers on the table "above $245,000".  My newbie thoughts on this are as follows:

• Seller's agent is playing hardball?
• Other buyers didn't do their due diligence and were underestimating repair scope
• Other buyers were going to do an irresponsible mold remediation / rehab in general
• My rehab costs were coming in too high either because I was getting retail pricing from contractors (and estimating it that way on my own) and/or because a lot of that work really wasn't necessary
• Mold repairs are unpredictable:  Maybe it really did need to be a full interior gut, maybe it didn't need to be.
• I'm wasting my time even thinking about this, I submitted the numbers that worked for me, they laughed at them, and I need to move on and not look back!

Anyways, I know in this business it's not good to waste time dwelling on things, so I've kept my search going.  But... this being my first go around I thought there would be value in getting everybody's feedback on what I may have done differently.  

Thanks in advance!

[Travis Hamilton]

Obviously take this with a grain of salt (or liquor or whatever) but you can build, or re-build, at LOT of house for $175K.  It's kind of tough to say without knowing the specifics of the entire rehab you were looking at and what sold/listed comparables are carrying but to this armchair quarterback that sounds kinda high.

With that being said...what @Mike Hurney said is right.  And best of luck on the next one!!