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Some house flippers choose to use a general contractor to manage the entire job.  This is especially true when house flipping is not your primary source of income.  You will need someone there watching your contractors every other day at a minimum in this business.

The two types of bidding methods contractors typically use are “Total Cost” or “Time and Materials”.   The rehab or remodel process can be a tricky one.  You can never know just how much work needs to be done until you start the demolition process.  This is why many contractors choose a time and materials bid.  This type of contract requires you to pay them by the hour, plus materials, until the job is completed.  As you can imagine, this could get very expensive!  A total cost bid however contains a set price.  When combined with detailed plans, and a spec sheet, the total cost contract is the safest route to take for house flippers.  It limits the amount you will pay and typically only very experienced contractors will even give you this type of bid.  If the contractor under estimates the job, he or she will have to eat the extra costs.   The only down side is that you run the risk of the contractor quitting or attempting to get ahead of you on the payments and then leaving the job.  Once again this goes back to doing your due diligence on the contractors prior to hiring them. 

House Flipping Tip 

A spec sheet is a very effective tool that outlines exactly what it is you want in your property.  It also helps house flippers stay on top of the contractors.  The spec sheet can be used to make sure that everything in your project is exactly what you wanted.  Often times contractors bid low on a project but use low grade materials to make up the difference.   Other times they will say that they use top notch materials but catch a case of the “I forgots” or the “I never saids”, come payment time.   A spec sheet is a great way to make sure these issues do not occur.

What is a Spec Sheet?

The spec sheet is a list that details exactly what materials you want used on the project.  For example your spec sheet for your plumbing may include Moen Faucets with the exact model number, price, where it can be purchased, delivery issues, delivery time frame, special order, etc.  It does not need to include this many details but you get the idea.  The sheet should be submitted to your contractors prior to receiving a bid for your project.  This way there are no discrepancies later on and your contractors can include these costs in the original bid.

As some of you know I like to show my readers a project from start to finish.  I put a contract on another one today and should close within 45 days or so.  Hopefully if everything goes well, I will start the pictures and posts within a month or two.  As you know the Hopkins Project is on hold for now.  I was told I would have a letter within 2 months and there are only two weeks or so left.  At that point I am going to restart that project and just let the chips fall where they may.  Here are the details on the Old E. Baltimore project category.

• Purchase Price 37k
• COMPS 75K
• Approx Rehab Costs 20k (Conservative)
• 3 Bedroom 1 Bath Rowhouse

Current Condition:  New Drywall, New Plumbing, New Paint, New Carpet, New fixtures (some missing).  I found out that the previous investor took the furnace, refrigerator and stove out before the foreclosure auction.

This property was owned by another investor in the area.  We have crossed paths several times but I didn’t realize that it was hers until after the sale.  She owns hundreds of properties in the city but she was basically in over her head and her balloon payment was due on several of her properties.  They were all auctioned off today but I believe she managed to stop one of them.  This kind of thing happens to many investors and we must all fight through the failures in order to reap the rewards.   She actually didn’t do too badly because one of them sold for more than 60k over what she paid. 

Rent comps are between 800-1200 for a 3 bedroom 1 bath in the area.  The math looks good and the price was cheap so I’m pretty happy so far.  Now lets hope there aren’t any encumbrances in the way as I go through the due diligence process.  As always, stay tuned by clicking the Old E Baltimore Project category.     

Owning an apartment building or rental units can be less time consuming when you don’t have to deal with the daily property management yourself.  Hiring a company to manage your properties eases the responsibilities of the owner.   This means no longer dealing with collections, vacancies, maintenance, repairs, complaints, budgets and many other items by yourself.  This doesn’t mean you are hands off as the owner.  Your property manager should provide you with comprehensive monthly reports outlining the daily operations.  These monthly reports should include information pertaining to rent roll, disbursements, operating statements, vacancies, market surveys, and an annual budget.

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In another attempt to fend off a recession yesterday, the Feds once again cut short term interest rate 1/4 point to 2 percent.  While this may not affect mortgage rates it does however affect Home Equity Lines Of Credit (HELOC).  These lines of credit are normally tied to short term rates vs. the long term rates that affect a traditional mortgage.  These short term rates are also typically lower.  Many property owners have benefited from the recent rate cuts.  It’s a good time to pay down your lines if credit.  One way is to continue making the same payments from before and applying the extra directly to principal.  However, there may be a better way to take advantage of these rate cuts.

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