All Forum Posts by: Troy Sheets

Walk Through Pre-Rehab

A family friends parents inherited this place twenty years ago and since it was in such a bad neighborhood (at that time), they just shut the door and paid the taxes for 20 years. They started getting violations from the city for a broken window and some other odds and ends so they stopped by to check on the place. That’s when they discovered the roof was mostly in the basement. The roof had caved in years ago, which took out most of the second floor and part of the first. There was a huge tree growing out of the foundation that ultimately required taking down two of the four foundation walls and the first and second floor walls and roof along with those foundation walls. 

The friends parents called me to see if I wanted to buy it and I said “I can’t pay you what this house is worth (my niche is new construction multis, I don’t do many single family rehabs these days) but my wife will list it for you (she’s an agent) and you should get around $60k for it”. They said “no, it’s too dangerous to list and we want rid of it, either you buy it today or we’re giving it to the neighbor for $1”. So I said “I won’t take your house for $1, what do you want for it” and they said $10k, so I bought it. 

Between Covid delays for permitting, construction delays to keep bringing the inspector and engineer back in as we found more and more structural issues, then amending the plans and waiting on them to be approved by the city after each amendment, plus a GC I hired that lied about his level of experience and took forever to finish plus ignored every material selection I made and ran with his own finishes that were mostly bargain basement closeout garbage, it took a year and a half to get this from acquisition to stabilized. 

I got this email from the bank regarding the appraisal. When I bought the place ARV might have been $185k, then as time went on we crept up to $225k on a good day and that's what I was hoping for, so when the appraisal came back at $285k, I was pretty excited. I'm all in for around $160k with purchase, rehab, holding, financing, architecture, etc. and it's rented at $1500/month. Long journey on this one but well worth it in the end!

Here's a video walk through of a new construction duplex in the West Kensington neighborhood of Philadelphia I recently completed and got leased up. I sourced the lot on the MLS, took the project through architecture, zoning, and permitting, then GC'ed the build myself. The lower unit rented for $1800 and the upper unit for $1900. ARV is $550k on the low end and up to $600k in this crazy market. Depending on appraisal this project will come close to if not fully cash out. It has a 10 year tax abatement so in essence you only pay taxes on the land, not the improvements, for the next 10 years.

Video Walk Through of Upper Unit

Why would you want someone learning on your dime on what might be the largest investment of your life to date? Find someone with a solid track record of new construction builds. Even if this rehab GC works for free it could ultimately cost you more in time or problems that crop up after the build is completed. 

Additionally, you'll be making a lot of decisions on the plans today that will drastically affect the cost of your build later, so get a GC lined up now that you can run questions past like gas in the building or all electric, if it's a duplex how do I get away with no house meter for the electric so I only have two meters and not a house meter you have to pay for, etc. I respect architects but they often don't know and/or don't care about the cost of doing things one way vs. another or how a simple choice can have an outsized impact on your budget. I've seen architects spec the wrong sprinkler system more than once and you either have to spend nearly double on a larger system with a dedicated water line or amend the plans (and potentially lose months depending on when the mistake is caught) waiting on the amendment to go through so you can move the project forward. A good GC should catch that in the planning stages or at least right at the beginning of the build if you didn't bring them early enough. Without the sprinkler permit you can't pull an underground plumbing nor interior plumbing permit and if you're amending the plans that could hold up both of those permits, which could stop your build in its tracks, depending on when the mistake is caught. 

I would say so, just don't forget you've got costs to purchase, hold, and sell on a flip plus architecture and engineering. 

Unless you're a licensed GC in the city you won't be able to sub each trade out, you'll need a GC to pull permits, schedule inspections, etc. via Eclipse.  

 Architect (to draw stamped plans, no more EZ permits unless you owner occupy the property) and engineer (engineer will have to draw up the framing plan I believe to move the stairs) will both be needed. I generally budget $100/ft for full guts and if there's other work like digging down basement, underpinning, rebuilding exterior walls that are compromised/collapsed it can go up a bit from there. It's entirely possible to be a bit under the $100/ft mark if you can save any mechanicals, roof, etc. but something always seems to pop up and the prices of everything are through the roof right now. Also that wouldn't include new water or sewer lines ran in from the street underground if either of those are bad. 

 The overlay will not be voided and thrown out. My larger concern for Strawberry Mansion is many of the blocks feel very desolate and there is a decent amount of crime as best I can tell from my crime app and living in the next neighborhood over. Without new development it’s unlikely any of that will improve any time soon so any appreciation of property value or rents will be blunted at best as compared to other areas. Rehabs are great if existing properties are salvageable (some are not) but it won’t fill in the hundreds of empty lots and get eyes on the street, which can help deter crime. Without increasing density you won’t see bars, coffee shops, and restaurants start popping up along commercial corridors, which can help attract new residents and further drive development. The lack of new construction in SM with the hundreds of vacant lots there will achieve exactly what some in the neighborhood wanted, which is to deter development for many, many years. 

Regarding the building heights and road widths, I did a quick look on Atlas (not super accurate, so take it with a grain of salt) when this came out to measure road widths to gauge how many streets would at least allow 35' height buildings (3-stories) vs. the 25' (2-stories) and from what I can tell, many, many streets will only support the 25'/2-story building height. This is an arbitrary way of deciding what blocks get 2-story homes vs. 3-story as there are plenty of narrow blocks with three story houses on them, so the new houses will not fit in with the rest of the block. This entire thing is a thinly veiled attempt at deterring any sort of development. I feel bad for the land and homeowners who lost massive amounts of value on their properties overnight. It will be nearly impossible to build any projects in SM going forward and while I understand that development can push out long time residents for a variety of reasons, instead of addressing that issue head on and the other issues that go along with it like poverty, lack of jobs, poor school systems, etc., this overlay simply slapped a dirty used bandage on a gunshot wound. 

I know Salem well. Taxes are through the roof and there are no jobs around to speak of. The big warehouses/dist centers being built half hour away may help but several key employers left in recent years and it's only been downhill for Salem really since '08, it just never bounced back. I'd venture to say prices are still around half of what they were (for the most part, there are some exceptions) pre-'08. The taxes kill most deals there from what I can see. 

You're stating two different things here; permits and inspections. Getting plans/permits is painfully slow right now. Plumbing and mechanical inspections are scheduled via phone system and by entering info via keypad, and you can select an inspection as early as the next day. Someone almost always shows up and if they don't you magically pass the inspection the next day (this has only happened to me on lesser inspections like damp proofing, otherwise someone has always shown up). If someone is reporting to you they can't get an inspection done, I'd question this. Permit approval, that's still a crap shoot at best.