Chronicles of a newbie part II

[Brandon Purdeu]

I wrote last time about how I had put my first flip project under contract thought I'd share a little about the process. The buying process has been a little slow since I am purchasing from an estate and decisions are made slowly by the family. Typically it takes 3-4 days to get a counter offer response and legal documents take some time. Anyways just a reminder:

I offered on a 3/1.5 SFH in North Carolina. I negotiated from $60,000 to $31,000. Rehab budget was $18,000 but has increased to $22,500 due to some home inspections issues brought up.

So last post I had put the property under contract which began my due diligence time. My contractor is also a home inspector who I had to the home inspection. I gave him priorities for the inspection basically I gave him my list of potential deal breakers. I told him I wanted to confirm the termite damage was old and treated, evaluate the damage from a leaky bathroom and assess the HVAC's condition. I ended up paying a total of $460 for all of my inspections- $300 for home inspection, $75 for termite and $85 for HVAC. All told there was only a couple of surprises. 1. The water damage did damage to 2-3 floor joists, the subfloor in the bathroom and a 6ft section of the band joist which would add about $750-1000 to the rehab budget. 2. The insulation was insufficient in the attic, the home had 16in wall insulation rolled between the rafters and was only rated at R13 which it should be R30 for my area. This added about $1000 to blow in R30 into the attic and fix the insulation under the house. 3. The HVAC system needed about $800 of repairs done to the exterior system, a duct cleaning and repairing some lines. None of these were deal breakers in my opinion so I moved forward. I did counter asking the seller to fix or compensate the price for these repairs. They flat out refused which was not surprising as I had them very far off their asking price. I re-assessed the deal and decided the profit margin was high enough to still warrant the deal.

Next I started on working out insurance. I am using construction insurance which will cover the house itself as well as up to $20,000 in materials with a $1000 deductible for $500 over 6 months. The insurance covers my contractors tools and everything I needed it to. I also had my attorney start working on a couple of things. 1. Drawing up my LLC which is going to cost around $750 (I know I can have it done by legal zoom for $250 but I want a professional to do this and do it right as taking the cheap route can really bite me in the butt on this one) 2. Drawing up a promissory note between me and my private lender $150 3. Handling closing and title insurance $650 for closing and $100 for title insurance. My attorney fee is much higher than I anticipated and I think I will shop around after this one but these guys are the best in town so I'll get my feet wet with some good legal backing.

Lastly I've been working with my contractor on materials. I'm not purchasing anything until after closing but it doesn't hurt to shop materials now and know lead times to get the right materials in place. My contractor and I went to the local Habitat for Humanity Restore and found a set of cabinets that will work for the house for $775 and they need to be repainted for $200 which drops my cabinet costs by $1200 from my estimates. Additionally I shopped eBay for some fixtures. I found the floor vents that need replacing for $4 each versus Home Depot of $9 each. I will likely use eBay for cabinet pulls, vents, light fixtures and various small items like that.

Closing is next week and I'm ready to get cooking on this project. Once I close I'll submit full pictures of before and any more tips and tricks I think I have.