All Forum Posts by: Matt Blutowski

"More generally, do you want to operate within the law or outside the law?"

I'd like to operate within the law. That said, I'd be lying if I said I wish I never asked to put parking in!

Thanks J, Jon.

"Why do you assume that the advice you're getting only applies if you'll be flipping the property?"

No, I'm thinking about one property that wasn't bought to rehab, and you are thinking in generalities.

J, I'm comfortable not being understood by you, I'm confident you feel the same; I should have began more emphatically regarding my intensions. In your world I'm a rehabber. In my world I do some buy and hold along with other investments. I don't do rehabbing. This has historically been a tough market for that, though things are changing. However, when an opportunity falls in my lap, I check it out. I apologize for not having an exit plan for an option that never existed until a few days ago.

I'm satisfied that what I have now is enough to continue to consider the option of rehabbing.

It is good for me to get feedback from two experienced guys who follow all state, federal and local laws to a T, pulling every permit as required. I have some influences that do business but don't follow the stringent line you two model! For instance a recent AC installation - really good work done, but no permit. The questions you raise will be fodder for future conversations with these friends of mine.

The PA state disclosure statements that I have used do not explicitly state permits.

"My biggest wtf is why this so-called "mentor" would put his "GC" license on the line by being involved in this type of project"

My mentor (I'm comfortable leaving the "quotations" off :-) hasn't seen the property nor has he given his thumbs up on flipping. Remember, IT IS BEING BOUGHT AS A BUY AND HOLD and that is how it shall remain until I decide otherwise. He is aware that I want to think about flipping. He won't be doing any of the work. He's there for advice and to make suggestions. He makes sure that when I have hired contractors, I get good work/prices. He sees things that I don't. When he tells me to get a permit - for instance the electrical - I do it.

"Some people want to worry about "future problems" in the future -- like dealing with disclosures and such. They don't realize that fixing these sorts of problems in the future will be a LOT more costly than just doing the right thing today."

Actually this is a big problem with my post, and likely a source of frustration for those kind enough to read/respond - I'm thinking way ahead and don't have any plan for flipping. There is a lot I won't know until I close on the property and have walk-throughs with my people. Perhaps I should respond to all your detailed questions with "Don't know, will figure it out later if we go that route". This thread began with my wondering what would a typical rehab cost other people in order to determine the feasibility of a flip.

At my purchase price, and in this market, yes flipping will very likely be feasible, though I don't know if that is the right move yet, and I certainly don't have a plan other than... close in 2 weeks, repair a few items and replace some appliances, then rent each of the units by Nov. 1 with 7 month leases. The rental market is really tight, and most of the current inventory is high end.

Thanks for giving me things to consider as I move forward. I'm sure my mentor will be grateful that others have already identified flaws with my ideas.

"I know market rents, and my estimates are conservative at $2,200/month.
If it takes $100K to rehab the property in order to generate $2200/month in gross rent, you're probably looking at about 5% cash-on-cash return if you put 25% down and get conventional financing."

This is a rent estimate for the property without major renovations. My all in to get to this rent, being very liberal, is $135,000 (initial purchase plus needed repairs/replacing appliances). I bet I'll be closer to $125,000.

I don't feel like I need feedback on this property as a rental, for me these numbers are good.

"At the price I'm buying, I could flip it without touching a thing and make money.
Have you seriously considered that exit strategy? May not be a bad option."

The place cash flows well and has great upside potential. It's a great rental property on the best street, in the fastest growing area, bought at a nice discount. Annual increases recently have been 16.5%. This is the only reason I'm spending even a moment considering a flip - it cost me nothing but a little time to do so.

"Have you checked the standard Seller's Disclosure document that you'll likely be asked to fill out before selling the property? Does it ask if any required permits weren't pulled? Do you plan to lie on that document?"

No such requirements.

Thanks J,
I appreciate your time, and I see your comments as candid, motivated by a bit of ego, but not harsh.

"In terms of exit strategy, you haven't mentioned market rents, so it leads me to believe you haven't researched those either,"

As I said before, I contracted this property to hold it as a duplex - that WAS the plan. The numbers work for me. I know market rents, and my estimates are conservative at $2,200/month. At the price I'm buying, I could flip it without touching a thing and make money.

"To top it all off, you have a mentor who you are expecting to give you a rehab estimate, but who hasn't seen the property prior to you committing to purchase. That tells me that either your mentor isn't very good (if he's letting you do this) or you're not willing to listen to your mentor (if he's suggested not doing this, but you've done it anyway). Either way, I don't see much benefit of having this mentor."

Again, please read the above.

"your mentor (who I assume is not a GC)"

You assume wrong, and again... please read the above.

"On top of that, it sounds like you plan to circumvent at least part of the permitting process, you plan to tackle structural changes without a formal engineering report and you are expecting your mentor (who I assume is not a GC) to tell you what can and can't be done structurally."

A city architect has the first look, my mentor the 2nd. I'm sure you get every permit required, but in my city I know that many find work-arounds sometimes. I appreciate that this is a risk.

"and you don't seem to be concerned that new construction is going up in this area at the top end of your ARV range."

I am concerned - I mentioned it, and despite all that you missed when you read my post, you caught this. I'm also concerned at the number of high-end rentals coming on line. The area is hot (for a city that doesn't have highs and lows), but I bought at a big discount.

"Basically, you're buying a property where you don't have a good understanding of:

- The ARV
- The rehab costs
- How the work will get done
- In what timeframe the work will get done

Sorry if this is harsh, but I've seen a lot of new investors come in thinking, "Oh, I'll figure it out as I go along, and it won't be that bad...it will all work out in the end." Sadly, it usually doesn't work out very well. And to be honest, most of them tend to be a bit more prepared than you seem to be."

I am unprepared to flip, but that isn't why I decided to buy the property. It's a buy and hold duplex... unless it isn't. I guess you could say I'm doing a feasibility study? No ARV, no rehab budget... I can't even enter the property for two weeks. But I appreciate kind people like yourself that are willing to take a moment to read, and to share. It's how I learn. For instance - it will take longer than 10 weeks and I need to use subs - understood. So by all means be candid, but please read carefully, then critique.

Hi Steve,

From an earlier post:

Steve wrote:
"What would your estimates be if you were doing most of the work?" - If you don't know the estimate, how do you think you will be doing this yourself? Not a rhetorical question ..."

I close on the property in 2 weeks, so I haven't been able to have my mentor take a look. In the mean time, I'm gathering info and considering my options. When I bid on this place I had no intention of flipping it, so I guess I'm trying to run best guesstimates to determine if I can cross this off my list, or keep flipping as an option.

Thanks Al, J and Brian.

"Wow, there are so many red flags from what the OP has written that I don't know where to start. I see trouble written all over this project if the OP tries to tackle it the way he plans."

I guess I need to reiterate - I don't have any plans yet. I'm in the initial stages of trying to put together the possibilities. Before I do something I consider all my options. I will probably buy, rent and hold. But before I make a decision I'll consider flipping, and I'll share my ideas and learn. I bet that in the end, I'll hit a home run, or at least a triple on this one. I'll do it by using every resource available, good preparation and hard work.

"As for your mentor, is he a construction expert??"
My mentor has 30 years as a GC, building commercial and residential. He was a buy and hold investor with about 30 properties, then sold them all 10 years ago and has been flipping since then. He teaches construction now at a local trade school.

"With a selling price of $250K, this is not a deal. At $340K its quite a good deal, if you can stick to about $100K for the rehab. What's it really worth? This range is too big to be useful. You need to have a much closer estimate than this."

The higher prices are more recent, and I will do more research to determine price differences that I can't currently explain. The most recent comps went for $300 and $340. Neither has curb appeal or the best location, one had siding, both had nicely finished interiors. My agent has asked me to let her know when I can make sense of it. I need another few months of comps and I will figure it out. Some new construction in the high $360 - 380s will be coming to market next summer. My turn of the century victorian 3 story has excellent location, parking and larger yard in a tightly packed area. I feel my number is $320 - 340, but again, I will collect more data between now and my intended start date for the rehab - June, 2013.

I wrote:
"As for the staircase, I know a local company that will come in, measure, build and install. All I need to do is pull the old one down - which I don't feel is that big a project? I'm confident that the current staircase is not the original - it currently bisects a 20' wide house horizontally."

Jon wrote:
"You are scaring the pants off me. This is structural work. Maybe this is no big deal. But maybe part of this staircase is structural. This is the sort of project where you start pulling sheet rock down and go "uh oh, we need a beam. And an engineer to design the beam."

I see how what I wrote comes off as dismissive - very fair caution on your part Jon. I have a city architect coming to survey the property and give me some ideas. He isn't coming in an official capacity, but is a friend of a friend. He'll let me know what I can and can't do. Also, my mentor will be there to ensure everything has proper support.

To my delight, the current owner revealed that she removed a board on the second floor and uncovered the old staircase to the 2nd floor! It's behind the current kitchen on the first floor - it would be wonderful if all I need to do is pull down the current staircase and install a beam.

"Are you getting permits?"

I'll have some of the permits. The city doesn't inspect without a reason. But, as an example, I won't pull permits for installation of air conditioning, or plumbing. The areas is too hot for me to get away with much. However I will be filing as the resident of the property.

My mentors wants me to invite bids for the whole project. If my numbers are close, am I correct that flipping makes sense?

As a rental, I'll need to put in another $25,000 ($135,000 total) to get $2,200 in rent. If I flip and spend $75,000 ($185,000 total), I can sell at over $300. At what point (price) does it make more sense to flip? If I only get $280k for instance?

Thanks Jon,
I always appreciate your advice. Home Depot is certainly the most convenient place, so I'll propably use it a lot even if it isn't the cheapest!

I don't expect to be able to finish in 10 weeks, but this is the amount of vacation time I will have when I get started. My brother owes me a lot of sweat too.

Steve wrote:
"What would your estimates be if you were doing most of the work?" - If you don't know the estimate, how do you think you will be doing this yourself? Not a rhetorical question ..."

I close on the property in 2 weeks, so I haven't been able to have my mentor take a look. In the mean time, I'm gathering info and considering my options. When I bid on this place I had no intention of flipping it, so I guess I'm trying to run best guesstimates to determine if I can cross this off my list, or keep flipping as an option.

I'm buying at $110,000, similar rehabbed properties are selling at $250 - $340,000 and rising quickly.

As for the staircase, I know a local company that will come in, measure, build and install. All I need to do is pull the old one down - which I don't feel is that big a project? I'm confident that the current staircase is not the original - it currently bisects a 20' wide house horizontally.

Thanks guys. I appreciate your guesstimates. What would your estimates be if you were doing most of the work?

The house is 2,500 sq. ft. I'll do most of the work, with the help of a brother, and a mentor for occasional advice. I have 10 weeks this summer to do the work. I'm open to ideas where I can buy materials more cheaply than Home Despot.

I'll have someone else make and install the new staircase, help with electricity and my HVAC guy will install air. I'll also hire a painter and some cheap labor to help tear down and landscape.

I think I can go higher end for under $70,000, that includes labor. 14,000 for the kitchen, 14,000 for three baths (two will be lower end), 2,000 for the staircase and so on.

If I do most of the work myself, do my numbers look like they are feasible?