All Forum Posts by: Dave Zarcone

What big ticket items are inspected by an appraiser and hold the most weight in determining the ARV? If I am using the BRRRR strategy and need the home to appraise as high as possible what items do I absolutely need to rehab in order to receive the highest appraisal?

Hello all,

My wife and I are working on finding the right fix and flip project in the Inland Empire in California. We got into flipping last year when we renovated and sold a family home and realized a decent profit. Our goal is to flip a few homes and then reinvest all the profit into building a rental portfolio over the next few years.
 

We have visited a few dozen homes and seriously analyzed 3 or 4 potential flip candidates. We have also visited numerous properties currently for sale that have been flipped to see the material and labor quality standards for the area. The material quality and crafstmanship are both mid to low grade. We do not want to get into a business of cheaply flipping homes and providing low-quality housing to buyers... but we also want to realize a profit. So, this brings me to my question... I have run a few potential flip projects by my GC to get an estimate on the scope of work. We use that estimate and the BP Fix and Flip calculator to find our max offer but it always comes in much lower than what other investors offer. For instance, the last calculation I ran was for a 3 bed 2 bath home with an ARV of $360k, repair estimate $40k, profit requirement $20k, for a max offer of $258k. We made the offer and found out that another investor had an offer in for $280k.

I am worried that we are simply way over-estimating our rehab cost by running through a GC. Or, we are rehabbing items that are not necessary. I have listed below the basics of our rehab and am hoping you all can let me know if this is competitive and fair. Meanwhile, I am going to send the same scope of work to other local contractors to get an estimate.  I really appreciate your help. BP Rocks!

Single Story 3 bed 2 bath 1585 sqft

Paint Interior - 1585 sq ft - $1.9/sq ft = $3,000

Scrape popcorn ceiling, texture, and paint - 1350 sq ft - $3.1/sq ft = $4,185

Remove old carpet and install vinyl plank flooring - 1175 sqft - $5/sqft = $5,875

Replace carpet with new carpet - 410 sq ft - $2.2/sqft = $910

Remove dead grass and install sod - 1850 sqft - $2.1/sq ft = $3,850

New two car garage door/opener/track and installation = $1,500

New window and installation = $250 each

Bathroom remodel - vanity, mirror, light, toilet, demo and build back new tub or shower with ceramic tile - $4,500

Kitchen remodel - 30sqft quartz, 12ft upper cabinets, 12ft lower, backsplash, sink/garbage disposal, $9k

There are many more items to be repaired/replaced but I realize this is turning into a long post so I will stop there. Please let me know what you think or if you have any advice. 

Hey all,

Thank you so much for the reply. I love Bigger Pockets! This is just a fantastic place to discuss these kinds of situations and get real interest and quality information/advice. Thank you for the advice on contractors, Ritch! My aunt will not be returning to the house as it brings far too much emotion. This is another reason I am running the project since it is purely a rehab and flip project to me. I'm approaching it like an investor instead of a family member. Next time I run a rehab project I will apply your advice on contractors, planning, and contingency costs.

My aunt did buy the house for $225k cash. We will put in roughly $50k when all is said and done and hope to sell for roughly $400k. The rehab was funded by my dad, and he has also paid off unpaid property taxes, a pending lawsuit (lis pendens) and is paying the holding costs. The plan is to sell the house, pay back all my dad's financial input, and then my aunt and I will split the remainder 90/10.

Here is a quick breakdown of the financials. Please let me know if you see anything I have overlooked.

Sale Price: $400k

Deduct closing costs and Agent fees: $35k

Deduct Rehab Costs: $50k

Deduct Debts (property taxes, lis pendens...): $30k

Deduct Holding costs (cost to keep the home until it is sold which includes utilities, property taxes, insurance etc): $2,250

= Revenue after all debt paid : $282,750

So my dad will get all his money back, my aunt will get roughly $250k and I will get $28k. My aunt was desperate and ready to sell the house, and probably would have taken $150 for the home. So I consider this a huge success in comparison to the alternative. Obviously this isn't the typical scenario for an investors first project. This is much easier on me since I have no money invested and my family already owns the house, but this is a great learning experience for financial planning, and working with contractors and realtors. 

I don't have a whole lot of after pics yet, waiting for the reno to finish and then I will post more. 

FRONT OF HOUSE

ORIGINAL KITCHEN - Believe me, this kitchen was disgusting. Roach feces everywhere!...

NEW KITCHEN - I will upload more later showing the finished kitchen

ORIGINAL MASTER BATH 

MASTER BATH IN PROGRESS

ORIGINAL VIEW FROM STAIRCASE

NEW STAIRCASE

YARDWORK - That is my wife, Sarah! Such a hard worker!

Hello all,

I'm new to the BiggerPockets forum but I figured there's no harm in sharing my experiences as a novice in case others have advice. I am currently in a house rehabbing and flipping situation not by choice, but by necessity and it has proven to be a very valuable experience. To put it simply, and without sharing too many family details, I am helping my aunt, who is a victim of senior abuse by her kids, fix and flip her home after it was cosmetically destroyed and left vacant for many months. The house was destroyed. It looked like the people who lived there before actively tried to destroy it before they left. This left us with a lot of work to do if we wanted to fix it up and sell it. 

My aunt purchased the home in 2012 for $225k and comparable homes are selling in the neighborhood for $390-420k. Unfortunately, the home was a complete disaster. It was an investors dream before I got involved. In fact, my aunt was considering dumping the house for a loss before I got involved.  I ran through the house with an inspector and a contractor to get an idea what we were in for and figured overall we needed to put about $50k into a rehab (this includes contingency $ just in case). We're talking about tearing up all the pee-soaked carpet (dogs..) and bleaching/disinfecting the concrete foundation underneath, replacing a majority of the second floor sub-floor, fixing the roof, fixing the HVAC, repairing the garage (door hanging on by a thread), scrubbing and disinfecting all the cabinets (roach feces everywhere), tearing up and replacing the landscaping, fixing the roof, inspecting and repairing any water damage... the list goes on and on. Let's just say that this was not a 'clean' job. Once all the dirty work had been done and fresh paint put on the cabinets and walls it looks like a brand new place. Beautiful. 

This was my first reno so I only had one contractor run through the house, in the future I will meet with 3 minimum, but I am lucky that the company we chose has been fair and effective. This could be a good partner for future projects. We are nearing completion and I'm happy to say that we have some money left in the budget. We are eager to get the place on the market and hopefully find some excited buyers. 

Anyway, I'm interested in hearing anyone's thoughts. Hopefully someone reads this... :)

Dave

Hello all,

I just joined Bigger Pockets with an interest in expanding my knowledge and preparing for building a real estate portfolio. I have yet to do a deal but recently a family crisis has put me right into the middle of a real estate project. I will detail out the scenario below with questions and would love if you could help me navigate through this scenario.

Recently, my distant aunt fell into very hard times. Instead of explaining the entire messy scenario I will simply explain the outcome. She had a nice home in Lake Elsinore, CA that was being taken care of by her daughter... but in reality her daughter destroyed the house and left it abandoned. I am now helping my aunt fix up the house and sell it. 

She bought the house in 2012 for $225k. Comparable homes (similar sqft and bed/bath) in the neighborhood are currently selling for around $400k. However, this house needs a lot of work before we can sell it. I am estimating (after a home inspection and contractor inspection) that we are looking at around $50k in renovations. In order to keep this simple, let's just assume these numbers are correct. The house will have a $400k ARV and will require $50k in reno.

Now is where I need your help.  My aunt has no money and is currently incapable of running this project, so my dad will cover the reno costs and I will manage the entire project. Ultimately, after the house sells he will need his $50k returned, I will take a small cut for my time and effort, and my aunt will get the rest. So if the house sells for $400k, my dad get's his $50k back, I get $10k, which leaves my aunt with $340k to get her life back on track. (Again, I'm keeping things simple at this point and not including closing costs and REA fees...)

We are just starting to get our feet wet on this project so we are trying to plan out the best way to attack this scenario, so I will list out my questions and I'd really appreciate some insight... I'd also love to hear if you have any other advice on how you would handle this situation.

What is the best way to handle the finances in order to incur the least amount of taxes? Remember, she will need to pay my father back, and pay me a small chunk

She will pay capital gains taxes on the profit. In this scenario, is the profit = sale price - purchase price - reno costs... even though she did not pay for the reno? Should my father gift her the money to pay for the reno so all receipts are in her name? 

How should she go about paying my father back? 

If she wants to buy a new house and take advantage of the 1031, how does that work with paying capital gains, returning the $50k reno, and paying me? Can she simply use a portion of the sale price for the 1031 and then pay capital gains on the rest so she has the money to pay us?

Will I need to declare the portion I make as income? Or can she simply 'gift' me the money? Of course I want to do this legally and correctly, but if I can do that without paying taxes on it then I absolutely would. 

Wow... I have covered a lot and left a lot of questions on the table. What a messy discussion I have started..! Again, please understand that I am new to the world of real estate. At this point, I am just trying to understand the basics of how this scenario can play out and come up with a plan. Then I will do all the research to make sure we execute that plan efficiently. I really appreciate any and all help. Thank you so much. 

Dave

Hello all,

My name is Dave Zarcone and I live in Upland, CA (on the edge of LA county, but really I'm in San Bernadino County). I am a new Pro Member and plan on investing in my first deal by year's end. Currently, my goal is to focus on small SFR or MFR buy and hold rentals while I learn the ins-and-outs of the real estate world. If there are any real estate agents, contractors, property managers, or lenders that have worked with investors in the San Bernadino county area then I'd love to have a chat! Please say hello.

I want to thank each and every one of you who participate in the BP community; from the BP employees to all the members. I am super excited about real estate investing and that passion all started when I starting getting involved with BP. I've listened to tons of podcasts, attended webinars,  read books (even some written by the BP leaders), read through the forum discussions... but now I want to get involved in the forums, where I believe I will learn and grow the most. 

Thank you for taking the time to read my intro and I look forward to spending time growing with all your help.

Dave Zarcone