Restoring neighborhoods, one home at a time.

 

                 A detailed look into the world of House Flipping

 

                      The Story of a Flip    

                                                (narrative & pictures)          

 

                                               

     This flip property was purchased through the upset bid process at the Wake County Court house in Raleigh NC. The house itself was located in a good working class neighborhood that had an abundance of jobs, shopping, and transportation. When looking to purchase an investment property these three factors are just as important as the house itself.

     Regarding the house; every investment property has its stories that bring heartache while the project is in full swing, and this one was no different. Before I get into some of the details of the project let me give you some of the numbers. I ended up purchasing this property for $66,500 at the court. It was a two bedroom, 2 ½ bath 1200 square foot town house located in a middle class development in Raleigh NC. This purchase price was over $10,000 more then I had originally planned to spend. Why did I spend more then I wanted? Rules for buying foreclosure property in North Carolina are very frustrating to an investor like me. To make a long story short what happens is when a property goes to auction it transpires like you may have seen on TV. An auctioneer puts the property in play and a pre determined price that involves the amount due on the foreclosed loan, plus any late fees that may have accumulated. Persons bid on the property until there are no higher bids being offered, and then the property belongs to the highest bidder. Simple right? If only this were really the case.

     In North Carolina there is what is called a ten day right of revision. What this means is that for ten days after the auction anyone can upset this bid by 5%. Once the bid is upset it goes back to the front of the ten day line and can be upset by 5% over the new highest bid. Confusing right? This process sometimes goes on for months. So not only does this have the negative effect on a buyer of having to pay more for the property then they may have originally anticipated. It also has the added effect of the investor having to keep pushing back their plans for construction for ten days at a time. I won’t go through the grueling details of this property, but to buy it I had to upset bids twice after my original winning bid of $54,000. My original ceiling on the house was no more than $65,000, but I went with my gut and paid a little higher then I previously had set.

     Now the day was here. The ten days ticked ever so slowly with no new bidders. I waited at the court house as the time ticked away to see if there were any last minute stragglers who were gonna steal my baby, but thankfully none came. The clock strikes 4:00 pm on the 12^th floor of the Wake County Court, Special Proceedings Division, and I had been awarded the property. This part of the process always has the same feel. It’s mixed with a feeling of triumph and excitement, and then a stronger feeling of dread. Dread because now you own this mystery property without having ever been inside it. Regarding this property I could barely see through the filth on the windows in order to see what I was dealing with. What I could see is that the house was completely filled with furniture and junk.

     There is an element of excitement to this part of the process. What might I find? Is there a bag of money secretly stashed? Once you’re inside you know this won’t be the case and you need to put off those delusions of grandeur for another day. Logic will tell you why would they foreclose if they had a bag of money to begin with? But that doesn’t stop you from dreaming and keeping hope alive.

     Before I bought this home I had a budget in mind. You have to at least have a working knowledge of what is the worst case scenario a rehab may cost you. There are so many things to consider. First off there are the repair costs. These figures must be precise if you are to make a profit. When I say every door knob, light bulb, grade of nail, has to be considered, I am not making it up. When flipping properties every detail must be closely managed. Now I know from previous experience that a 1200 foot town house with 2 ½ baths can be completely remodeled in a moderate fashion for $10,000 if there are no hidden problems. I also know by running figures how long the project should take, including the time it should take to sell. This is important because you need to know the carrying costs involved. How much is the electric, water, gas, and homeowners’ dues to name a few? How much will the attorney cost? How much are you going to have to pay in Real Estate Commission and taxes? Not knowing these figures is what sinks over 90% of all projects when flipping houses, and sometimes will send amateur investors into financial ruin.

     The reason I mention budget at this point is because before I even got inside my newest acquisition, I found out my budget was probably busted. As I used former NYC Cop skills to break into the front door for which I had no key, a neighbor bravely walked over to see if I was a burglar. I explained to her that I was the new owner, and was glad to make her acquaintance. Not soon after we exchanged pleasantries she dropped the big bomb on me. I can still her words as if they were in slow motion. “You know about the water problem don’t you?” Right there all your excitement gets sucked right out of you, and your blood rushes to your feet. You also feel your wallet getting a lot lighter. Water problem I grudgingly asked? She began to tell me that the neighbors called the City of Raleigh in order for them to come out to shut down the water going to my new residence because an underground pipe had busted. She stated the whole court yard had turned into a lake, and she considered having to build an ark just to survive. She further explained that the employee who shut down the water told her that it was from an outdoor pipe that was not the cities responsibility, but that of the owner, which was now me. There is nothing that can sink a project faster than a water issue, and now I had what appeared to be a big one. Let the games begin.

     OK, I had to regroup and tell myself it will all work out. I do my magic with a credit card and prepare to enter my new castle. Before I do I slip into my white disposable jumpsuit, tape up my ankles and wrists with duct tape, and then enter the establishment. When I open the door I immediately see flees start jumping on me. They are clinging to my new white apparel as to say welcome home dad, or more like dinner is served. I am astonished at the mess. One of the first questions you find yourself asking always is how do people live like this? Foreclosures happen for a myriad of reasons. But lack of money shouldn’t translate into filth; or at least filth like this. I had been in many distressed properties in my life. I have seen it all working in a NYC ghetto as a cop. But even after all that prior experience this was unfortunately my new number 1. And just think, I owned it all for only $66,500; what a bargain. I gallantly went through the house laying the 6 bug bombs for my new found friends. I had smartly anticipated the critter problem and bought 3 for each floor. After setting my gifts I left as quickly as I came in. Outside I tore off my jump suit, and then made a mad dash home for my shower, itching the whole way. Day 1 was finally complete. Thank God lol.

     The next step in my journey was cleaning out this mess, and then finding and fixing my water issue. The City of Raleigh could not get out to the property to turn the water back on for 3 days, so I had to get started on what I could do. So my first quest was going to be finding a cleaning crew who would be willing to tackle this mess for $500.00 or less. Impossible you say? Well after getting 5 estimates, some even as high as $1,000, with one even as high as $2,200, I just happened to find a company willing to take on the task for the $500.00 I had slated. Part of how I got them to agree to this was by telling them whatever they found they could have. I did go through the property to see if there was anything of value. But it was so dirty and disgusting I really didn’t give it more than a quick once over. So with a chance of finding something valuable and for them to keep whatever they wanted, I had a deal. To be honest, I hope these guys did find something good. It was a tough clean up job which they performed admirably, and with no complaints. They now find themselves on my short list of contractors that I trust, and I will always give them first crack to bid on all of my projects. Nice job guys, its much appreciated. Victory number 1 achieved.

Below is the horror these poor guys took on.

Notice the hot dog next to the sink? Yummy lol.

 

     Once the property was cleaned out now the construction could start. Since I knew I had a water problem to deal with, my mind set was on seeing where I could cut corners without sacrifices quality. Looking over the property nothing was salvageable except maybe the kitchen cabinets. They were in fair shape, and still considered expectable for the subdivision in which the property was located. I would upgrade them with a good cleaning, some new hardware, and granite tile to the counter-top which was a major upgrade for this type of property. I would also install some ceramic tile on the floor which was also an upgrade from the usual vinyl. Home Depot or Lowe's always runs specials on remnant stock of ceramic and granite tile, and I was sure I would find something good there.      

      Regarding the 3 bathrooms, they were all a complete re-do with nothing salvageable; nothing except for the two tubs which needed a major cleanup. I considered bringing in a government HAS-MAT team for the job, but my darling wife bravely took on the task and gave it an expert cleaning. I was hard for me to believe that people actually bathed in both these hazardous waste dumps, but apparently they did.   

Notice the hair in the tub? Still want to flip houses?

 

Thank you babe. Ill never forget it. 

     The next step was the walls, flooring, and light fixtures. I decided on a neutral beige paint for the downstairs, with a more rich brown color for the second story. Every flip is a learning experience with this one being no different. My first error on this property was the paint color selection. In retrospect I should have switched the lighter and dark colors, putting the lighter upstairs in the bedrooms with the darker downstairs. I also went a shade or two darker then I had envisioned with the brown. It’s not that it didn’t look good, but it seemed to appeal more to men than women. At least thats some of the comments I received from my feedback requests after the house was shown by area Realtors. The finished product looked more suited for a bachelor then a couple, therefore turning away half of my potential buyers. This bachelor theory proved correct being that is exactly who ended up buying the property. 

      I’ll stay with the painting for a short time more because this is where I ran into my first contractor problem. The original painting crew I had hired canceled on me the last minute. When I say canceled, I mean they just didn’t show up and wouldn’t return phone calls. So later that day while in Home Depot putting together my material list I came across a nice family walking with their painting contractor picking out colors. I spoke to the gentleman and asked if his guy was any good. He said he was, so I took a chance and hired the painting crew on the spot. I was also in luck being that he was available the next day. Another victory achieved; or so I thought.

     The next day this fine chap and his crew (just one other guy) showed up and painted like they said. The problem was they just couldn’t paint a lick. It was as if these two had never held a paint brush before. The most unfortunate thing about this is I didn’t realize until almost a full day later. I was out and about organizing the job, buying materials, setting up delivery dates, and everything else in between. So by the time I got to the property later that night it was too dark to see the drips, over-spray, spills, and uneven covering these two Michael Angelo’s had so expertly laid down. The guy did wear a very professional looking painter’s hat though. Apparently this must have been why I trusted his ability without ever seeing his work. I mean, why would he have the hat right lol? When the next day came I paid him and we parted ways. I didn’t complain because it was obvious to me he couldn’t fix the mess. I made a business decision to just cut my losses and learned from the mistake. I graciously thanked him, and sent him on his way.

     So now if your keeping score I am into the job three days and have a water problem that I didn’t know how I was going to fix, and a paint job that needed re-doing. Was I mad, a little? But this is the world of house flipping, and is always to be expected.

     At his point Ill present some progression pictures. Flipping has its good moments also, and the change the property starts to take on is some of the best of those moments. 

 

New landscaping being installed.

The kitchen cleaned up.

Downstairs tiles being installed

Downstairs bath remodel

One of my Project Mangers Bill Upham looking things over.     

     I’ll get back to some of the contractor good and bad moments here. I’ll call this section “The good, the bad, and the ugly." Lets start with the good.

     The plumber I found to find and fix my water issue turned out to be great. He was a grizzled veteran who knew his trade well. After explaining to him what I needed he agreed to help me.

     There are no short cuts to be taken with a water issue. If you rig it up somehow and the problem resurfaces later it will sink your company’s reputation; not to mention the big problem the new homeowner now has on his hands. I flip these houses to make money, but I also do it to provide a home the purchaser can be proud of. My number one rule is "never cut corners."

     So how did I find this plumber you may be asking? Its funny how the universe works. After going through the yellow pages and calling on as many plumbers as I could find with no luck I got a call from my project manager. He said that he had found a refrigerator magnet lying on the floor in the kitchen with a plumber’s name and number on it. I said ill try anything and for him to give me the information. It turns out this guy had a ton of experience in the development, and knew right away what the problem had been. He told me that for some reason when the subdivision was built the water lines going into the houses where poorly placed. He said that they often cracked because of the tree and bush placement above the pipes. He explained that the roots often got entangled with the pipes causing breaks. After telling him my budget problems he gave me an option. He told me that if I removed the bushes and exposed the cracked pipe myself, he would come fix the leak for only $250.00. Now being the president of my little operation I don’t normally get that involved in the bull work that some jobs entail. But here I was, El Presidente, pulling out numerous sticker bushes, and digging a hole to China to find my cracked pipe. After a good 6 hours of hard manual labor I found the pipe just as he had said it would be; cracked with tree roots wrapped around it. 

     Now, my project manager could have fixed this problem easily. It was a simple splice repair job that would have cost me less than $50.00 in materials. That being said I still brought in the licensed plumber. The reason being is just as I had earlier stated, "never cut corners." You don’t want to fool around with a water issue. If something ever came up at a later date I could show that I hired a professional to fix the problem; plus while I had the plumber on site I had him change all my bathroom and appliance plumbing fixtures and fittings throughout the entire house at a reasonable cost. My new plumber understood the workings of a small business, and did the work for a reasonable price so my project could still be viable. I will never use anyone else again.

     Luck was also on my side with fixing my painting issue. I was scanning through my blackberry contact page when I saw I painting contractor listed. I didn't remember where I had got the number from, or who this company was. But I called the guy and explained the problem. He showed up the next day with a crew of 8, and repainted the whole place at a price less then the first (cough, cough) company had charged me. He also finished the job in half a day. Thats what I call a save. Now for whatever reason this guy who was my hero one day turned into a goat soon after. It was about a month later that he failed to show up at a scheduled estimate for me. He caused me to lose at least half a day of productivity with his no show. He also did the same thing to a client  that I had recommended him to that same week. In the end who really cares. He came up big when I really needed him. With my two major problems now behind me, I was back to focusing on profit.

   Now on to the bad and the ugly. Before this project even got started I was interviewing for a position of a future project manager so I could expand my business. My requirements were simple. I wanted a person willing to learn. I needed a guy not worried about getting his hands dirty, and who could keep costs down and contractors in line. I thought I had found my guy in a local heating and air conditioning technician looking for a change in careers. My new hopeful was eager and seemed to understand exactly where I was coming from. We went out to dinner to finalize the details of his new position, a dinner in which I gladly paid for. He said all the right things, and I thought I had my man. We negotiated a starting salary, and what his early responsibilities would be.

     Now the day of the job is here. I had given him a key because he was supposed to be the first one at the job site at 7:30 am to allow the contractors access to the property. At around 9:15 am I get a call from my waiting Home Depot delivery man. There were no persons there to let him in. I call my new project manager trainee and he says he is only a few minutes away and callously offered his apologies. Humm, first day and he’s already late. OK maybe it’s a fluke. Now its approximately 10:30 am that same morning and he has been at the job site a little over an hour and approaches me about his hourly wage, which we had agreed would be $15.00 per hour to start. He says in passing “Hey Mike, remember we agreed on $18.00 per hour”. Now right at this moment I know this is not my guy. It’s the first day and not only was he late, he was already asking for a raise. So after a mild protest I say fine "$18.00 per hour it is." He then tells me that he has to leave at 12:00 pm and will be back later that afternoon to complete his work. He says he needs to attend to something at home, and tells me “You know Mike, family comes first with me.” Now I don’t know about any of you, but the reason I work so hard is for my family, and that doesn't include making a poor impression my first day on the job. But again, I say OK. The guy leaves at 12: 00 pm and never returns. At least he didn’t ask for any money.

     My next contracting problem comes in the form of a carpenter I hired for $850.00 for the week. This was a price he had asked for, which I agreed. This guy was hired by me to speed up the job, and assist my project manager wherever he might need him. On the morning of this guys first day I get a call from him saying that he has a better offer, and wants to know if I am willing to go to $1200 for the week. Even if I would have gone higher, in my mind the time for negotiating is over. I can’t have unreliable people working for me, and politely give him the olé "no thank you."

     Dealing with contractors who for the most part are extremely unreliable is one of the major challenges with flipping properties. One day a guys a hero, the next day he is the goat. But you know this going in and try not to let your emotions get the best of you.

     The remainder of the job went very well. There were no major issues to report, except for some last minute running around. The total turnaround from purchase date to when the for sale sign was posted was 3 weeks to the day. It took an additional 6 weeks to sell the property mainly because I had overpriced it by about $5,000 to start. But after quickly adjusting my asking price the interest in the property grew strong, and I received multiple offers to purchase.

     In the end the project was a success, with me making a nice little profit for the Bullis clan. 

     If you have any questions or comments please send them to me by utilizing the contact boxes in the upper right hand corner of the page. I will post some of them in Flip Forum page. Thanks for reading, Mike

 

Remodeled Kitchen

Updated Family Room

Downstairs Bath with European Sink

Upstairs Hallway

Look at that tub. Nice job babe.

Remodeled Bath with Marble Tile

Remodeled Master Bedroom