All Forum Posts by: Jonathan David

If you don't have a mentor, and don't know what you are doing, this is not an easy proposition.  I am closing next week on my fifth flip, and after four months of sweat equity, and about 500 hrs of work between my partner and me, we are going to bank about 15k.  Hardly worth it considering this was a stressful, dirty, risky, part-time job.  If we had to pay contractors to do all the things we know how to do and did ourselves, we'd be upside down on this.  If we had to borrow loan shark money instead of using personal savings, we'd have nothing to show for our work.  So what went wrong, well, as the saying goes, it's the little foxes 

 The appraiser knocked 7k off from the sales price.  The buyer needed thousands in closing cost to make the deal work.  We were frugal, but still went over budget by 10k.  How?  tons of little things that you would not think of unless you are a pro.  When you buy a trashed house like we did, we budged for the big things...demo, clean up, cabinets, bathrooms, carpet, furnace, etc.  

But what about the valves to the water heater that cost 15 bucks each, and the copper fittings, and the solder, and the gas replacement can for the torch, that's a 100 dollar trip to the store.  What about the stair banisters, and the special hardware to install it.  There's 50 bucks.  The cheap faucet on ebay that leaked, which cost 50 bucks and two hours of wasted time.  Closet rods and shelves.  50 bucks.  Electrical wire, the door to the electrical panel that was missing was 175 bucks on ebay because it's obsolete.   The bathroom floor was rotted and cost hundreds to fix.  Gutter pieces, fittings, hoses, knobs, valves, vent covers, trim pieces, paint brushes, screws,...on and on We spent 3k just on dumpsters and cleanup.  

It all adds up to big money that buyers don't notice, appraisers don't notice, realtors don't notice, nor appreciate.  Yet it has to be done.   Yes, we overpaid for the house considering all this, but it's hard to find anything out there to buy.  The banks underestimate the cost of these things, and they are very slow to drop the prices or negotiate.  Everybody thinks flipping is big easy money.   If it were so easy, the gurus would be doing it instead of trying to sell a program about how to do it.  I can hear the know-it-alls saying, you have to get your numbers right.  True.  We are handy, and after five flips I can tell you the price of just about everything at Lowes.  Yet we still went over.  There will be things you miss and don't anticipate.  I still don't know how people do this and have a full time job.    Bottom line, it's harder than it looks, and much less profitable.  

Pay off debt. That's what I would do. Even though it's "cheap" debt, it would just be a mental thing for me. With that kind of income, you should be able to rebuild that nesteg pretty quickly.

I would be surprised if we make it to the end of the year without a market correction.

That makes more sense to me, and I have a hard time believing what my realtor says. But, my question is, do you have appraisers who take the finishes into account? Every appraisal I have read just lists the finishes as average. Maybe we have a lazy appraisers here, but a finished basement that adds hundreds of square feet counts for zero if it does not have a walkout door. A brand-new furnace counts for nothing compared to an old one that works. Same with the roof or any other expensive mechanical. I guess my point is that appraisers have nothing to do with the real market value, and in fact they interfere with it. I wonder what Milton Friedman would have to say about that profession. But these realtors and appraisers seem to have the attitude that a house is a house. Hardwood floors are no different than carpeting, oak cabinets are no different then the new shaker, granite no better than laminate etc. so when you spend the extra money as I did, and the buyer is willing to pay more as mine were, in walks the so-called expert, and says none of that matters, then the buyer says, we were about to over pay for this house

I am a beginner who just "rehabbed" a house.  I followed the model you see on HGTv where an investor comes in and updates things.  I put in a new kitchen, new bathrooms, updated paint and floor coverings.  We finished the basement, updated the curb appeal, and took the house from 1972, to what looks like a new home.  

The house went under contract within a week, but failed to appraise.  In fact, the appraiser compared it to basic, unimproved houses.  Under finish quality, she just listed C3 or average for every house.  

My realtor says this is a mistake many investors make.  She says that updates are largely a waste since they don't add value to the house.  They make it sell faster, but you can't get more money.  I don't know if this is something unique to west Michigan or Kalamazoo.  But I see houses selling with green carpet, paneling, 1970s painted cabinets, and they fetch the same price as updated homes.  They may sit on the market 90 days longer.  But I think in this area, updates don't count for much.  Not sure if the buyer pool is uneducated about them, doesn't care about them, underestimates the value they add or what they cost or what.  

Basically, I am being told that every penny I spent on the basement was a waste, that I could have just freshened up the place with paint, clean low grade finishes, and it would have appraised for the same and even sold for the same.  As I look at the appraisal and recent sales data, I tend to agree.   Is this the experience of other West Michigan investors?  Fix and flip, yes because you make the property eligible for finance or fix some glaring cosmetics.  But rehab updating, is it worth it?  

Under contract on a flip for 128K.  Appraised at 120k using an incomprehensibly stupid comp (compared a 2 story to a tiny shack cape cod that was almost half the price, only gave a 3k adjustment).  REaltor says it's not worth the time to fight it and buyer will walk because he's in a hurry.  

My ARV when buying was estimated at 120k, but I'm about 7k over budget because we finished the basement, added a furnace, water heater, and nice finishes and things that I thought would put us toward the top of price bracket. At 128K, I am at 100 bucks per square foot. The house across the street just went for that though not improved. One behind me just went under contract at 130 bucks per square foot though not as nice and has no yard. One comp just sold for 131500, another for 126 900, some fixers are listed at 122000, and 119,000. If I may humbly say, my house has nicer finishes than all the above. Just about every house in my area goes for at least 100 bucks per foot, even some REOs are listed at that. We had a flurry of showings. Should I just stick to my guns and kill the deal over 6k (not a small amount of money to me), or just take the loss? Thanks

My two cents.  It looks great.  But...   I hate to be this guy, and I never thought I would be.  But I have a hard time reading the site now.  A few years ago I was diagnosed with Multiple Sclerosis and lost some eye sight, especially color.  You wouldn't know it to meet me, but it makes reading harder.  So now I'm on this one man crusade against a world that ignores the fact that over one million of us in the US aren't blind, but we don't quite see great either.  There is this new trend to make everything grey and small.  Walk into any trendy coffee shop, any nice sandwich place these days, and the menus are in 10 point font, grey on grey.  Who knows why.  I blame the Apple Corporation.  They made it cool to have screens the size of walls, then make the font microscopic and pale.  I think there is a special place in purgatory for the makers of Turbotax.  

  I don't blame people for not being aware of low vision.  I know it never crossed my mind before I experienced this.  I don't expect huge letters.  But just give us a thought before you shrink the font, go with a low impact typeface, and switch things to grey.   Society has done a great job accommodating wheelchairs.  For example, nobody would build a 28" entry door to a business anymore.  But people don't think twice about those who don't see well.   From the seat number on airplanes, to menus, to even the paperwork for the eye doctors.  The world is run by people who see well.   God bless Chipotle for making menus you can read!