All Forum Posts by: Cooper Bert

As others have said, $500 more for the granite is the correct choice, especially if you are holding the property for any period of time.  Granite IS the new laminate.  Quartz is the new granite.

We compete in the mid-level rehab & rent arena in the suburbs of our market.  These homes average value is $150K-$175K and granite or other solid stone is expected.  This has become so generic that a house without stone countertops is almost "distressed" eligible!  Unfortunately, our market is also one of those higher cost solid stone markets with prices averaging about $30-$50sf wholesale.

We have looked at a number of alternative ways to gain a competitive advantage and keep our prices down.  We are leaning toward getting a container of stone direct from a quarry in Italy.  The landed price for 70+ slabs will be less than $20 slab for good quality Granite & Quartz.  Our challenge so far has been finding fabricators in our area to work with us.  Most work for the big countertop shops and cannot moonlight for us.

Another option that is gaining great popularity is concrete poured countertops. This is far cheaper than stone and some consumers prefer it more than solid stone.  We are still in the exploratory phase of this but the CC I've seen in person are gorgeous! I saw one CC in white that I thought was quartz until I was told differently.  

We hold all our rehabs for long term rentals so durability as well as cost is important.  Comparison on cost for our typical counter & island of 50sf, fabricated and installed, is $2200 for granite, $3000 for quartz and $800-$1000 for concrete.

@Brian Pulaski - Agreed on the impact of wainscosting.  If you are good at that and want another big bang feature, add crown moulding, chair rail, picture frame window casing and tall base with shoe mould.  The actual trim is cheap (if you buy at a lumber wholesaler, not big box store) and home builders charge a huge margin so the perceived value is great.

We go back and forth on opening walls.  We do the work with our own crews and frame, LVL, drywall & finish material costs are usually less than $500 for up to 20' widths, so not much cost directly associated with the opening.  These changes do tend to add days to the project though.  The results are awesome and we do this on almost all of our mid-level renovations and up.  BUT... I haven't seen any increased value in appraisal or buyers who actually place a value on the "open concept".  We believe the value in opening walls is as a sale "closer" and is not really accretive to the property value.

The dillema of putting money into kitchens is that it has become difficult to differentiate kitchen "upgrades".  Seems like even entry level rehabs have white/grey cabinets, slow-close drawers, granite counters, stainless appliances and an island of some type.  Custom tiled tub and shower surrounds still seem to separate the truly "upgrade" bathrooms from the regular baths.  We are starting to see the need to put double vanities in even the mid-level rehabs.

We brought electrical and plumbing in house due to cost but mostly because of the delays. It's very frustrating to hold up a project because the crew runs into a hidden plumbing problem or electrical issue that needs attention. We made this change when we adapted the strategy to replace virtually all copper in our rehabs with pex, and all exposed electrical. We hold and manage all our rehabs so these total replacements eliminate repairs and CapEx costs of plumbing & electrical. I wouldn't advise this extensive replacement for flips.

I'd also consider that the $12/sq ft that J Scott wrote in his book was several?? years ago.  I'm talking about when he was using the $12 figure, not necessary when the book was "published".  Adjust accordingly.

I've also given up on anything being a true "cosmetic" only reno.  It's always "cosmetic" plus new doors or "cosmetic" plus appliances, roof & furnace, etc.

We use a simple, manual spreadsheet with ball park pricing for each of the rehab disciplines.  It follows the categories we use on the House Flipping Spreadsheet and is one number we can figure immediately after a walk through.  Takes about 10 minutes and we have an offer number on the spot.

As an example, new stainless appliances are almost always $2.5K, regardless of size of house.  We figure $3sf for laminate floors so that multiplied with a quick SF number + tile gives us floors, etc, etc.  We use a total of 24 categories to come up with the estimate.  If the offer is accepted, we go back and break down the estimate, reinspect the property on a micro level, and make sure the numbers are true.

Try this out and you'll be much closer to true reno number with very little additional time.

Good points raised above so I won't get into the technicals or make a judgement on your biz plan.

Here is my "feel" for the words used in marketing:

"Cap Rate" is associated with commercial investment, not so much apartments.

"ROI" is more widely understood but still a financial terms that has "alternative" meanings.

"IRR" is totally in the weeds and will confuse everyone.

How about a simple "60% Return" for marketing purposes.

Sometimes the simple way is the best way to get the message across.

@Russell Brazil - The strategy of offering pre-MLS good deals to your valued clients is win/win. My agents refer to these as "hoggers" since they keep both sides of the commission if I buy the deal. The agents also have more commission to bargain with if the sale is tight and needs some additional price incentive.

One other great advantage of having a good RE agent is the ability to leverage their professional relationships to help find/close deals.  It's no coincidence that my RE Agent, RRE Lawyer, Title Company Agent, Commercial Banker and Appraiser all know each other personally and work extremely well together.  Nothing better than the ability to have an "off the record" personal conversation to work out problems in deals and help both buyer AND seller.

As a young biz person in my early 20s, I inherited a relationship with a well placed, highly respected, business savvy, powerful attorney thorough my older sister who had baby sat for him.  His oversight, knowledge dissemination and introductions made a huge difference in my business career.  That relationship directly led to my RE agent and the others listed above, although I'm on a different generation of guys at this point.  You never know where you will find great relationships!

So yes OP, bring your RE agent in early, let HIM/HER do the information collecting and leverage his/her knowledge and connections. Separately, be loyal and give him/her as much biz and referrals as possible.

We evaluate capital allocation into renovations based on the following criteria:

(Note - The items listed are examples, not complete lists)

MANDATORY REPAIRS: (No Return BUT must be done for sale at Market Value)

Code Violations

Mold Remediation

Water Intrusion

Asbestos Removal

Insect Damage

Foundation Cracks

Leaking / Curling Roof

Leaking / Damage Gutters

Damaged / Rusted Railings

REPLACE SALE DETURENTS: (No Return BUT must be done for sale at Market Value)

Original Windows >> Replacement Windows

Oil / Electric baseboard heat >> Gas / Heat Pump

No Air / Window Units >> Central Air

100A Electric Service >> 200A Service

>> CONGRATULATIONS, AFTER THE EXPENSE OF THE ABOVE REPAIRS THE PROPERTY IS NO LONGER "DISTRESSED" <<

FORCED APPRECIATION: (Appraisal Inflaiters. Profitable 20%-40%)

Additional SF at below market cost

Change layout for more beds/baths

Change layout for Practical Reasons

Raise Roof for additional Level

BUYER & RENTER APPEAL: ("Impulses" Sale and can be Profitable 0%-25%)

Upgraded countertops & cabinets

Upgraded Bathrooms

Upgrade Flooring

Interior Trim Upgrade (Crown, Chair, etc.)

Fresh Paint & Wallcovering

CURB APPEAL: (First Impression Makers but not much ROI)

Upgrade Landscape

Change Exterior Colors / Paint Brick

New Entry Door / Door Surround Treatment

New Entry Lighting

Surface Coat Concrete Flatwork / Asphalt

I'd add that by including your agent in the deal you're "giving" him/her business in a literal way.  There is no cost to you and you're gaining favored client status points AND a professional RE advocate to help you in all aspects of the deal.

If you don't think it's a benefit to have your own RE agent involved with the deal, then you may need to find another RE agent. I don't say that to be snarky. I believe my RE agent provides great value to my deals with market/area/comp insight, a read on other agents and sellers, updates on what's happening in the market & market players, connections to the "aggressive" bankers & appraisers and a second set of eyes on the deal. I even discuss our property renovation & addition plans with him to get an opinion for ROI from a market partisipant.

In the long run, a good relationship with your personal RE agent will provide the benefits I've outlined above as well as access to the "good" deals that never make it to the MLS and connections into the RE inner circle (without the overhead of networking and schmoozing).

I'm always looking for ways to maximize the expertise of my RE agent(s) and ways to reward and pay them without cash coming from my pocket.

I'm not sure what you're asking.  Rents are dependent on the area and the size of the home.  When you say "10 year return" do you mean in the cost of the home or in value appreciation?

I have a 850 sq ft home I bought last Fall for $7,001 before closing costs. I put about another $7,000 into it (closing costs, appliances, paint, repairs, replaced the HVAC that had been stolen, etc). Tenants moved in last Thursday or Friday. Capex could be a killer on this deal, but it rents at $600 month gross so it will pay for itself every 3-5 years just in rents (twice over the span of ten years - once over the span of 10 years if I have to replace the roof and all supplied appliances).

On the other hand, I could turn around and sell the house for $30 - $35k today essentially doubling my money.  Estimates are prices will increase by 2-5% per year on resale value.  

With lower priced homes, you're looking at the percentages and hoping it works out.  With higher priced homes, you need to look at both the percentage and the cash amount.  Think about it...2% return on a $1 million home can buy you 5 or 6 $7,000 homes (after repairs).  The difference is the "hassle factor"

Sounds like your risk/reward is high with the unknown CapEx on this property. Why not cash-out the renovation appreciation of ~$15K and move into a less risky long term play? You've done a great job of making a profit on the "flip" part of this deal so why jeopardize that capital? Maybe wait a year to avoid cap gains.

As we like to say in the equity markets - "No one ever lost money taking a profit"!

Every market is different and I can only speak for my market (Central PA).  

There seems to be an inverse ratio between the ease of credit/availability of investment capital and the margin of REI. This is expecially true at the lower end of the market. The potential margins on distressed properties have definately gone down and the availabilty of credit / capital has increased.

A graph of this correleation would show a peak of REI margin in the period just after the financial recession that slopes downward to lower margins today. That graph's line representing ease of capital would display just the inverse with lowest availabilty post financial recession sloping up to the slush funds of easy money today.

My takeaway is that you don't have to be rich to purchase forclosures TODAY ... but you have less margin for error in purchasing forecloseures TODAY.

I keep this in mind as I read BP posts from years ago when the entry/risk/reward ratios were different.  

Wisdom is ageless but strategies are timely.

Our perspective is that the extent of the renovation and the "distress" of the property is all relative to our pro-forma of the property, regardless of if it's a flip or buy-n-hold. All our SFR properties are either built by us or totally renovated by us and then held and managed long term. We are neither Flippers or Landlords ... we are FlipLords. Everything is based on Forced Appreciation, Market Appreciation, Cash Flow and Equity Paydown long term.

We view almost all properties as total guts and complete renovations. This allows us to be totally assured of our CapEx costs long term and to minimize maintenance and repair costs. We also upgrade the fit and finish of the properties to give them a competitive advantage in the rental market.

We prefer a property be totally distressed, and therefore cheaper, than a property that just needs updated.  Example - a brick cape cod built in the 50s that has good bones and has been well kept has the same value to us as a brick cape cod 50s built frat house that has been stripped of cooper and has missing doors and windows.  It all gets stripped to the outer walls, mechanicals replaced, and upgraded anyway.

About the only things we consider to add structural value to a "distressed" SFR is the remaining roof life, HVAC upgrade (gas instead of oil, central air instead of window units), high ceilings (of the lack of low ceilings), replacement windows, and actual above grade square footage. Everything else gets replaced anyway including electrical & plumbing.

We also consider distressed properties with structures that cannot be renovated for one reason or another, a.k.a "tear-downs".  The value of the property is the land & utility hookups less about $10K demo costs in our market.  It's almost always cheaper to buy a lot with a completely distressed structure than to buy an empty, improved building lot.

The disadvantage to this biz strategy is that we usually lose out on "semi-distressed" property sales.  Many Flippers analyze the purchase with only the costs of a cosmetic overhaul while we project the costs of a total rehab regardless of distress level.

If you know your biz plan, work within your renovation abilities, and create a pro-forma for each property, you will know the level of renovation that works for that property to be profitable.