A few fix and flip questions

Good morning everyone.

  1. Why do people say that it takes 3 months to rehab a house? I can be a slave driver if I need to be. A roof takes one day to reshingle, a new AC can be installed in one day, new electrical panels can be put in in one day, new floors might take 2 days tops. Why would this take any longer than 10 days to get done?

  2. How can I test the electrical components if the power isn’t on when I enter the house with the realtor? Same with plumbing.

  3. What about bank owned (sold at auction) or short sale? Are these viable options for me right now? I am using a hard money lender that finances 85% of purchase price plus 100% of rehab, up to 75% of ARV as determined by their appraiser. Their maximum term is 2 years and they are interest-only payments until it balloons after 2 years. There is an origination fee of 3.9% of the loan amount and $575 for their appraiser and inspector.

Do you think that is a good hard money lender or should I look elsewhere? I don’t really like the 3.9% origination fee.

  1. Also, do I provide them with a refrigerator? Microwave? Dishwasher? Washer? Dryer?

Hi,

You need to be careful that you don't make your first fix & flip rehab tougher on you than it needs to be. It should take between 2 and 6 weeks to do most rehabs, with that said you could have a very organized crew who can knock one out in a week or ten days and you may have a rehab that takes longer than 6 weeks where there is intensive structural repairs requiring engineering / architectural design and submission for permits which slows progress!

Being a slave driver does not help, generally speaking experience tells you how long the project should take and you reverse engineer that completion date! Reverse engineering the critical path means you know tile work has to for example be finished by the 26th day but you actually allow your tile contractor the time he needs by asking “Bob how long does your crew need to finish my tile work”? Bob say’s “Redstar we need 5 days to finish our work”! So you know Bob and his tile crew need to start there tile work on the 21st day in order to allow proper time for Bob and his crew to finish there work.

So Bob has to be scheduled so he has the time he needs and you get the work completed on schedule! You notice I included one (1) extra day in Bob’s schedule as a contingency day because of weather delays or something outside of yours or Bob’s control. Make sure materials including tile, thin set, grout, spacers, trim, border, etc. are ordered and delivered on or before the 20th day of your schedule!

You have to make observations of both plumbing, electrical and mechanical (HVAC) as you walk the property! Obviously a home built before 1978 could have asbestos, lead based paint, poly butylene, leaded joints, galvanized drain pipe, clay pipe, galvanized water pipe, ungrounded wire, knob & tube, etc. Your going to need to develop your intuition involving plumbing, electrical and mechanical items. Beware in some jurisdictions certain specific things have to happen involving lead based paint, asbestos and lead pipe joints which must have specific remediation / reclamation handled by a licensed contractor.

You can buy at bank auction if you want, short sales are an option but bear in mind a short sale is usually sold to a owner occupied buyer as their has been litigation involving the 1099 of short sale difference between amount owed and amount sold for and because of this most banks and lenders intend to find a owner occupied buyer who will pay close to the current FMV which is much better for the seller (Defaulting Party) and the difference in sale price versus debt!

That HML is pretty much in line with the market but what kind of interest will they charge and after putting 15% down for the purchase will you still have enough money to carry costs and overhead until you get your first (1st) draw? You are going to have other costs other than securing the property in the first 30 or 40 days.

3.9% is the cost of doing business but you have to calculate your numbers, make sure their is no prepay penalty, and that your interest rate and points factors into your plans. With that kind of points your interest rate should be much lower than 18%!

You will probable put a new appliance package into every home you rehab for resale to a owner occupied buyer! If you were rehabbing to specifically make a property a rental you can in a class C or class D property get by with cleaned up and refurbished appliances. To get the right returns in a property your selling retail as an owner occupied property you will need to provide a brand new appliance package.

We generally pay around $2100 to $2200 for a new appliance package in stainless steel! In the western US we use Pacific Sales which is a big provider of appliance packages to the home building industry.

                      GR

What exactly is included in an appliance package?

You told me previously in houses in my price range to use white or black appliances.

Hi,

you can use stainless for everything but black or white looks better with certain basic cabinet colors and Formica counter top colors! 

An appliance package includes dishwasher, stove / oven, mount over stove microwave and a side by side ice / water in door refrigerator / freezer!

               GR

Plus, black or white is a lot cheaper. I just bought a working dishwasher for $50 on Craigslist for my house.

Hi,

For a fix and flip rehab you intend to resell for retail to an owner occupied buyer:


      [b]BRAND NEW[/b]

Do you see any reason to wholesale a house when I can rehab it?

The only reason I could see is if I physically can’t be in two places at once or I don’t have the down payment for a hard money lender.

If I get a call from “We Buy Houses,” I can either rehab it or sub2 → owner finance and collect the down payment.

don’t forget that fix& flip has a ~45% tax load on the profit.

Federal income tax? Can you be more specific? I guess I will just find out when I file my taxes at the end of the year.

That kind of sucks.

Fix & flip is not capital gains. It’s ordinary income (Sch C). Ordinary income pays income tax PLUS self employment tax (both halves of FICA and Medicare).

Self employment tax is 15.2% (assuming that you are not over the FICA limit). Plus income tax. If you’re in the 30% bracket, that’s 45%. If you’re in the 15% bracket, that’s 30%

Good thing I’m already over the FICA limit.

Have you flipped houses before?

Can you suggest standard colors to use for the exterior?

Lol, you’re still hung up on this color deal.

Have you put your signs out and received responses?

Yes. My strategy is to put into my rental portfolio for a few years and then move it out. It’s capital gains that way, and a little more reliable income in the mean time. You don’t have to spend as much on a rental, just fix what is broke and put new paint and flooring in it. In a few years you can do the whole thing and the tax rate is lower.

Estrogen Hostage, what is with your screen name?

I have four daughters and my wife I live with. Sometimes it feels like I’m being held hostage by their emotions.

When I first saw your screen name, I was thinking a ‘man trapped in a woman’s body…’ You know, like this…

:shocked

http://jaypalmquist.com/images/man-boobs.jpg

No, I’d never get anything done with my rental property with a rack like that…

Hahahaha!

The saying is that executives don’t move while there is snow on the ground. Basically no matte where you are the selling season is the spring and summer. Try to time your property to go on the market no sooner than March. Real estate does sell all year long but everybody that I ever met that bought in October through January always talk about what a great deal they got.