fliprent

I’ve decided to write a series of posts about house flipping on a small budget.  The purpose of this series is to discuss the use of materials that are lower in cost but without sacrificing aesthetics.  I typically use high end materials i.e. granite countertops, hard wood floors, all wood cabinets, ceramic tile, Kohler faucets and fixtures, etc.  Occasionally there are times when the budget is a bit tighter or the location allows for a little less flamboyance.  One material that has come a long way over the years is linoleum.

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Some big mistakes that new flippers make come at the very end.  Specifically items like appliances, flooring, trim, cabinetry, tile, countertops, and paint are all huge factors in how quickly your flip will sell.  All of these factors must play well in your final product.  When it comes to painting it’s usually best to go neutral and choose no more than two colors.  However there is more to painting than meets the eye…  House flippers must also pick the best finish. 

Flat Paint

Flat paint gives off a dull (flat) finish.  Although this may sound unappealing, it’s actually the best choice for the majority of the house.  Flat paint does a better job at hiding imperfections, especially on new drywall.  It’s frequently used for all interior walls and also on the exterior of the house.  Two exceptions may be the bathrooms and kitchen areas, where more dirt tends to collect.   Historically flat finishes are difficult to clean, however there are newer washable flats that tout easy to clean surfaces with minimal cleansers required.

Glossy Paint

Glossy paint comes in several varieties such as satin, semi-gloss, high-gloss etc.  These paint finishes have bright, shiny surfaces.  They also are easier to clean which is why they are commonly used in kitchens and bathrooms.  The problem with them is that they do not hide the imperfections as well as flat paint.  Glossy paints are also used on trim work such as moldings, door jams, window trim, etc. 

The main priority for every house flipper is to sell.  The best choice for paint may be to use a washable flat paint everywhere except on your trim work.  This way you can hide imperfections but still give the new homeowner a washable surface.  Another thing to keep in mind is that the new owner will want to paint and decorate their new house themselves.  Keeping things neutral will allow potential buyers to use their own imagination while evaluating your product. 

Getting good water pressure in your flip or rental is essential to happy home ownership.  I for one cannot stand it when I get in the shower only to get that soft sprinkle of water that takes ten minutes to get the soap out of my hair.  This typically occurs in older homes and in the inner city where the pipes are older and the water lines require upgrading.

 One way to begin diagnosing the problem is to use a water pressure gauge.  You can use these to check the water pressure outside of the home.  If the pressure falls between .40 to .70 it usually indicates normal water pressure coming to the house.  If it’s less, you may want to call your water company to see about increasing it.  If your pressure is within this range then the problem could be the flow inside the house itself. 

If you are flipping an older house then you probably have old corroded pipes which will restrict the flow of water to the fixtures.  Many of these older homes have galvanized pipes as well.  Have a plumber run a new copper main cold water line from outside the house where the pressure is normal.  In some cases you will need to call the water company to have this done.  You can also run a new line directly to the shower/tub that you are installing.  The plumber can also run a hot water line directly from the hot water heater.   Another cheaper option may be to use a shower head that actually boosts water pressure with volume controls.

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 you can probably tell the Hopkins Project house is still on hold.  I’m waiting to hear something from the city but my loan will not allow me to wait much longer.  Most rehab loans are for one year and mine is no exception.  Even if you are using hard money, there is normally a time frame of one year before you will need to refinance or pay in full.  This project has been a cluster from the beginning.  Each day costs me more money that I may not get back if the city does decide to take this property.  I have had some high ranking individuals paying close attention to my situation, so hopefully that will keep the city honest in their negotiations.  But that’s a story for another day…

Not only do I have to continue to make mortgage payments each month but my builders risk policy is set to expire soon and it does not come cheap.  Builders Risk insurance is required for rehabs and new construction.  Because it is not a habitable dwelling, insurance providers will not cover it with a typical home owner’s insurance policy.   Builders Risk insurance protects the homeowner against damage to the property.  Bank rehab loans also require that house flippers attain builders risk insurance.  You may be able to obtain typical home owners insurance on the property in cases where the home is livable or has an occupancy permit.  Just make sure it covers the type of damages that occur during a remodel.      

House flipping without a building inspection is like shooting pool in the dark.  If you cannot see what you are aiming for then you are relying on luck to make the shot.  Unless, of course you are knowledgeable enough to detect problems with HVAC, termites, mold, foundation, rotted out framing, environmental conditions, electrical, plumbing, water damage, and the list goes on.  After a few years in the house flipping business, you may well be able to detect these problems yourself, but why risk it?

Make sure that you use an inspector that is not also a contractor because of the potential conflict of interest.  If he/she is a contractor then be sure to explain up front that they will NOT be contracted to do any of the repair work.   Any inspection should include an inspection report.  This report should list all items that require repair or replacement and potential future problems.   Be sure to ask if the inspection report will include approximate costs and estimated time frame from start to finish.  This information is invaluable when estimating repair costs, negotiating the price (when done prior to contract ratification), and determining the total funding required for a bank rehab loan.  If you do not feel like the inspector was very knowledgeable about his work, you may want to get a second opinion from another inspector.

When investing in other states or jurisdictions, be sure to use a local inspector who is well versed in the local codes, conditions, costs, and policies. 

Real Estate Money Saving Tip

“If you run a small business of any kind, you can pay your child up to $4,400 per year without the child owing any taxes, and without you having to withhold. Use $2,000 of this every year to invest in a Roth IRA for your child - no taxes will be due on the funds when withdrawn, either. Use the other $2,400 to cover school clothing or other items your child needs anyway. Meanwhile, you take a $4,400 deduction for salary to your child”  by “The Simple Man’s Guide to Real Estate”

This thing with the house in the Hopkins area is driving me crazy.  I’ve had this project on hold for two weeks now and I’m loosing my mind.  Actually this property has been on and off for the entire time that I’ve owned it due to the organization/city attempts to derail it.  I’m not sure if I should proceed to finish it or if I should wait until I hear from the city.  The letter that was recently sent from “the organization” stated that I should receive something from the city within 2 months from the date of the letter.  There is a lot going on with this area and I am hearing rumors from different people about what they want to do with this block.  The latest rumor is that they want to rezone it to commercial, and sell the properties to doctors so that they can run their practices from them.  The property is directly across the street from the main hospital campus, so it is in a prime location.  A couple years from now, this block will be worth a mint. 

House flipping is a business but I would actually consider moving into this house if I can keep it.  The problem is that the city wants it.  They don’t care that I am rehabbing it or that I would make it my primary residence.   What they are doing seems unconstitutional, since I am not sitting on it like a lot of investors.  The ordinance clearly states that homeowners on ”preservation blocks” will remain and only properties that are not up to code or in vacant status will be acquired. This property was vacant when I bought it and needed a full rehab.  This is what I do, buy vacant properties and rehab them.  They can clearly see that I am raising the property and they are using every tactic to get me to stop.  Does this sound like a government that is interested in improving the quality of life in the city or one that is interested in making money?

 You can follow along with this project by clicking on the Hopkins Project category or clicking here.

The framing was completed about a week ago and the brick work is done on the rear.  For some reason I forgot to take pictures of the staircases inside.  Actually, I was meeting with other investors at the time and then followed them to see another property.  They are new to the house flipping business and wanted to see one in action.  I will snap some more shots this weekend and post them next week.  If you look up at the top, you can see where we added brick.  I plan to stucco the rear to give it a more modern look.  If my budget runs too tight I may decide to paint or install siding.

As some of you may have noticed on the first picture, we cut out and framed two windows on the rear addition.  They look very nice from the inside and bring in a lot of natural light.  They will show well come open house.  The natural light compliments the open floor plan and the windows as soon as you walk in the front door.  The area where the windows are located will be a sitting area behind the kitchen.  There is enough room inside for a table and chairs.  The block of abandoned shells behind the house may eventually be torn down to build Strip Mall.  At least that’s what I think I saw on the plans.  It seems that things are changing everyday here.

On a somber note, I stopped work this week while I sort through this mess that I am in the middle of with the city.  I received a letter from them pertaining to his property and the phrase “eminent domain” was contained in it.  Actually the letter did not come directly from the city, but instead from the organization overseeing this project area.  I’m keeping my fingers crossed on this situation because it has been a mess from the beginning.  We will see how this thing plays out soon… I hope.

Let’s get straight to the house flipping point…

 House flipping rule # 1 - Buy the smallest or ugliest house in the neighborhood. 

Being a house flipper means that you don’t mind the dirty work; or paying someone else to do it.  The main reason for this rule is based on future appraisal value.  The smallest house on the block has the biggest potential to be raised.  Once the rehab work is completed, it will appraise higher based on the new improvements, and the value of other houses on the block.  Conversely the largest house on the block is already carrying the weight of the market value.  Adding square footage for instance will not bring the same Return On Investment (ROI) as it would for smallest house.

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 Although this is techinically day 14 , these pictures are from day 10.  The first floor tray ceilings are in and they look really good.  We dropped the ceiling by 6 inches and created a 10 by 10 box in the middle.  The then cut a 2×6 and nailed it in each corner to create an octagon look in the ceiling.  I like to use this design in all of the houses that I rehab.  Flipping houses can be fun when rehabbing the property.  You can use all kinds of creativity that adds your own touch.  Most house flippers in the area seem to have their own trademark that they use in all of the properties.  This tray ceiling is one of mine.  

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