All Forum Posts by: Roger Pokorny

Another book I would recommend is FLIP - How to find, fix and sell houses for profit by RIck Villani and Clay Davis.  It walks you through the whole process of how to fix an flip a house.

Nice excercise!   A couple of errors I see in your analysis.

1.  I would suggest that you understand local tax codes as I have seen many investors make this mistake.  Indiana law states that rental property is taxed at 2% of assessed value.  When looking at prior year tax records, you need to know if the property was a rental or a single family, with Homestead Exemption.  If the property is owner occupied, the taxes will only be 1% of assessed value and you will underestimate the taxes.

2. I didn't see any money set aside for CapEx. You need to be setting aside money for the things that will eventually be replaced (i.e. roof, paint, appliances, HVAC, etc.). In my calculations, I set aside 10% with a minimum of $100/month. There are many expenses that do not directly correlate to rent and that is why I put a minimum on my capex.

3.  As some of the other post has indicated, insurance is too low.  The rates I have seen usually run between $.60 and $.70 per square foot.  On a house this size I would guess the insurance to be around $75/month. 

Tony Reyes is right.  You need to have blue prints created for a number of reasons. 

1.  There are a lot of details that go into a construction project.  As you go out for bid with contractors you will be amazed at how many details may be clear in your mind, but contractors have a different opinion.  If you do not have the details on paper you will not be able to compare bids from different contractors.

2.  Because the details are not clear, the contractors will be calling you to clarify.  This will consume a large amount of your time.

3.  As the trades begin work, it is essential that all trades are on the same page.  The plumber needs to know where the rough-in electrical is going, the electrician needs to know where you want receptacles, switches and so on.  Without blue prints, every trade will have a different opinion and it will be your responsibility to inform them what to do.  Unless you plan on spending your entire time on the project, you will be re-doing completed work.  This miss-communication can cost you a lot of time an money.  It is best to make sure the entire project is clear to all trades from the beginning.  Making changes on paper is cheap.  Change orders will cost you big bucks in the long run.

4.  You will not get the proper permits from the city without them.  The city wants to know that you are meeting all the local building codes.  They use the blue prints to make sure this happens.  For example, they can see your wiring diagram and know you plan on using the right sized breakers and will not overload them, you have GFCI in the proper locations, smoke alarms will be installed in all the proper rooms, etc.

5.  If there are any problems later, you have explicit details of how you wanted the project completed and there should be no question.  There are a lot of shady contractors out there.  If you have to withhold payment for incomplete or poor workmanship, you want proof that you were clear in your explanation of what needed to be done.  I also believe there are a lot of good contractors that get a bad wrap because the homeowners and/or project managers were not clear with there project scope.  Because of this they had to fill in the blanks as best they could and this may be different than what you want.

The best run projects have all the details clearly defined on paper with as few changes, once construction starts as possible.  The blue prints will make this happen.

Good luck with your project! 

I just closed on a 30yr fixed rate loan at 4.875% for a single family rental.  I had the option to pay down the rate to 4.5% with 2 points.  I chose the higher rate so I could keep the cash to re-invest in my next deal.  In the long run, I will earn a higher return as I can use the same cash several times over as I turn over fix and flip property.

You've given me some things to think about.  I didn't think the fees associated with financing the deal would be considered part of closing costs.  I will do more investigating before I agree to anything.

Thanks for the advise. 

Thanks for the quick response.

Yes, the state of Indiana has a standard form to use.  I wanted to make sure that all the proper documents are filed (i.e. Disclosure Statement, Purchase Agreement, etc.).  The other concern is that I don't agree to something I didn't expect to.  For example, seller pays all closing costs.  I am OK with this and can negotiate the purchase price according to what I think is a fair price, as long as I know the value of closing costs.  I am thinking appraisal, title insurance, survey, attorney fees (to assist with purchase agreement).  Property taxes will be prorated to the time I owned the property.  Have I missed anything?  All total this would be somewhere around $2,000 plus taxes.

I am finishing the renovations on my first flip and have a potential buyer who has verbally made an offer on the house.  Since I have not listed the house with a realtor, what is the best way to handle the contract negotiations?  I know the purchase agreement will need to be in writing.  Is the best approach to have a real estate attorney draw up the documents?  Can a realtor write up the documents or will they charge a large commission?  Charging a 6-7% commission with little to no effort seems outrageous.  I have not accepted any offer and will likely counter.  Since this is my first house, i want to make sure I don't make any mistakes.