House Flipping version 2.0

[Hugh Ayles]

Version 2.0? In 2005 we did our first flip. I had a very good paying W2 and decided not to continue pursuing real estate. Stupid, stupid, stupid.

In 2009 I started my own commercial construction subcontracting firm. I should have pursued real estate. My business became a job. 60 hour weeks and no vacations.

In April of 2015, Phill Grove sent an invite to Realtors (my wife included), inviting them to a local REIA meeting. Without much effort my wife convinced me to go.

Phill is a very engaging speaker. The first portion of the meeting was essentially a commercial for his 3 day seminar. It only cost $100 which is the annual membership to the Austin REIA so we signed up.

We did not take the next step and sign up for his guru program. We did meet a private lender at the seminar and they would end up funding the purchase price of our flip. Definitely glad we went to the seminar!

We bought the house through a wholesaler. We paid $140k for what we thought was a 1,007 sf house in the very hot east side of Austin. What do I mean by “we thought we bought?” Towards the end of the flip we started looking for the next house. They were 700-1400 sf. They made our house feel huge.

One day while working on the house there was a knock on the door. It was the county appraiser. We asked him to confirm the size of the house. SCORE! The house is actually 100 sf more than the current tax records and he will be updating the records!

At the time this house was presented to us, we could find private money for the purchase price only. That meant we had to get creative to fund the $50k repair. I have read threads where people have gone to guru seminars only to be asked to increase their credit card limits to purchase training. We applied that same principal to funding our repair. We also found that Home Depot has a Project Loan Card for up to $40k of in store purchases. This would come in handy.

Because of the financing we found, we would be doing all work ourselves except for the plumbing, electric and HVAC. I have been in commercial construction for 25 years BUT in a management type capacity. Early in my career I had some hands on experience. With this many years in the business, you tend to know a lot by osmosis. In other words, I would be figuring out a lot on the fly.

General scope of work:

1935 house with an addition done in the ‘60s and one done in the ‘90s. Both showed up in the city permitting so no issues there.

Frame new bedroom in front portion of house

Repurpose laundry room into master bath suite

Repurpose current master bath into master closet and washer/dryer closet

Enlarge openings into kitchen and family room

Total kitchen gut

Replace all windows

Relocate front door

Add front deck and replace back deck

Add central heat/air as the house had window units

When we first walked the property the front room felt like it sloped. Uh oh. A foundation company inspected the house and gave the pier and beam foundation a clean bill of health. We had heard from the previous home owner that they did a lot of improvements themselves.

For some reason in the front room they added a layer of plywood 10’ into the room, covered it with rubber floor, and then carpeted. We figured this out after removing the carpet. Sloping room solved.

Why do people sell their homes? We were about to found out a big reason as we continued demo and rehab. I think the repairs get overwhelming and they let things go.

The hall bath toilet did not work and the sink was clogged.

The very short hall had laminate floor glued down. As we pulled up the laminate, we found that it was also acting as the subfloor. I did not see that coming. Thank goodness for me including contingency.

We sistered in joists and put down new structural subflooring as well as cement board.

The previous home owner had added a tub in the master bath. What do you do when you add a tub and a floor joist is in the way? Cut the joist, of course! Now we knew why the bathroom floor sloped 2”.

What was the laundry room had an exterior door opening. They used an unpainted interior hollow core door for this opening. The threshold was at the exact same level as their back deck. The bottom of the door had rotted and apparently rain water could get inside. We were filling in this door anyway since this was not to be a bathroom. Again up comes all the subfloor and again we sister in beams to improve the structure.

We originally planned on scraping the popcorn ceiling. Popcorn ceiling that has been covered with oil based paint is almost impossible to scrape. My wife came up with the idea of putting wood slats on the ceiling. Originally we were going to paint them but the raw look just looked to good.

Permitting. As we were making some significant changes we went through Austin permitting. Since the house was built in 1935 it had to go through historical preservation review. That adds a week.

We backed up to a drainage ditch. Now we get to go through flood plain review.

Permitting added about 3 weeks we did not anticipate.

Speaking of schedule, I aggressively thought we could get this done in 2 months. Permitting delayed us. Our electrician delayed us. Creative financing delayed us (still had to find cash for the plumber and electrician). Since we were now working 80 hour weeks, fatigue and stress delayed us. We took 6 months. I think we could have been done in 3 if we were doing this full time. Our next flip is our full time focus. Yes, we are now another full time investor.

One delay in permitting was that they only accept residential permit applications on certain days of the week and during very short time windows. That alone cost us almost a week as our plan was to submit on a Friday.

By being on site daily and while the subs are there, we will better be able to control cleanliness and scope of work. By that I mean we will be there when vents or outlets are being placed. Also, we could have prevented the electrician from going Edward Scissorhands on the drywall. The amount of patching due to this ineptitude was pretty significant. He had one electrician who “got it” and was careful in adding outlets. Unfortunately he did not stay with this electrician long. Three different journeymen would show up and I would never see the same guy twice. We ended up contacting one of the journeymen directly and he finished the job.

For instance, the addition from the ‘60s was lower than the main house. When I went into the house after the A/C guys installed ductwork, there was exposed duct going through a wall about 3’ above the family room floor. What the???? Had I been on site at the time, we might have found a better solution. Now we have to add an unplanned closet and chase to conceal the duct. Did I mention I was thankful for having contingency in my budget?

Final numbers:

Purchase: $140k

Our original ARV: $250k

Our original rehab budget: $48,000

Final rehab budget: $52,000

Carrying costs/overhead: $26,000

List price: $289,900

Offer: over asking. House has not closed yet so I don’t feel comfortable listing this yet.

We got broken into twice and had to replace tools both times. After the second time we spent $500 on a Simplisafe system and theft stopped. Simplisafe is a system that we can easily take with us to the next flip.

I did not anticipate replacing or covering all drywall. There had been a heavy plaster texture. Plus the electrician was sloppy.

We listed the house at 9 AM yesterday morning. We had 3 showings by noon and an offer by 2 PM.

We could wait a couple of days for more offers but we were happy with the offer we got and want to get on to the next one.

Was this easy? Hardly. For starters we have worked 80 hour weeks since September (doing only this full time would have saved us about 3 months). Also, in spite of having construction knowledge, renovating an 80 year old house presented some challenges that kicked my backside. But like Rocky said it was about keep moving forward. Figure it out, solve it, and keep moving forward.

As they say on one of those shows…Time to find another house to flip.