Last year, I bought a flip that one of my coaching students called the ugliest house he had ever seen. I will admit the house was ugly and needed a lot of work, but it was also cheap. Not only was the house ugly, but it also had a number of other features I had never dealt with before, like a flat roof and concrete walls. This flip was a challenge, but in the end it worked out much better than I thought. I hoped to make $30,000 to $40,000 on the deal but ended up making $60,000 thanks to a strong market and a conservatively calculated ARV.
Why was this flip so ugly?
This flip had concrete exterior and interior walls. Honestly, I thought it was a stucco house and was surprised when our inspector told us otherwise. The house had chipping concrete, a bad roof, no yard, and was very unsightly. You can see the video of it below:
Not only was the exterior ugly, but the interior had also been badly neglected. There was mold, an old bathroom, an old kitchen, moisture problems, and a nasty basement. The house was listed on the MLS for $135,000, but I was not very impressed with it, so I did not make an offer.
How did I end up buying this flip?
I did not make an offer on this house at first because it was really ugly. It went under contract with another buyer, and I forgot all about it. The contract with the first buyer fell apart, and I thought about buying it again. I figured it would be worth at least $200,000 after repairs and needed at least $40,000 in work. If I use the 70 percent rule, that means I would have had to pay $100,000 to make it a good deal. However, I am also a real estate agent and make a commission when I buy houses from the MLS, so I can pay a little more than the 70 percent rule states.
I sent pictures of the house to Nikki (my project manager on my flips), and she surprised me by saying she thought it had potential. Usually, she complains the houses I buy need too much work, and this one was worse than most. She thought it could be turned into a beautiful hacienda. I knew the seller may be willing to negotiate on price because the house was in such rough shape and they just had a contract fall through. I offered the seller $100,000, and they countered me at $110,000, which I accepted.
How much work did the house need?
I bought the house using a local bank for the financing. Luckily, my bank does not require an appraisal and does not care what shape the houses are in. Here is a list of the major work we had to do:
- Replace the roof on the house and garage
- Repair and repaint the exterior
- Replace windows throughout
- Install a new kitchen
- Install a new bath
- Repair and patch drywall/plaster
- Replace flooring
- Plumbing work
- Electrical work
- HVAC work
- Interior paint
One of the challenges was the concrete walls. Hanging cabinets was not easy because our contractor had to attach them to concrete. The concrete also made electrical and plumbing work difficult. The house had a flat roof, which is very rare in Colorado. We get a lot of snow, and flat roofs do not handle snow well.
For more information on how to flip houses, including financing, finding, buying, and selling them. Check out: Fix and Flip Your Way to Financial Freedom Finding, Financing, Repairing and Selling Investment Properties.
What contractor did we use?
A lot of people are surprised that I still have problems with contractors. After doing over 120 flips and rehabbing a bunch of rentals, you would think I have it down, but I don’t. I have some good contractors, some bad, and I am always trying out new people. I am also slowly building my own crew of workers. Here are the issues I have with contractors:
- I cannot pay top dollar and still make money. I have to find decent contractors at decent prices. I don’t want the cheapest contractors either because you get what you pay for.
- Our unemployment rate is extremely low, which means people can get jobs if they want them. Oil-field jobs pay great and are plentiful here.
- There is a lot of work for contractors. There are many homeowners with equity who can finish their basement or remodel their home. There are also new builds where contractors can get work.
- Contractors often over promise and under deliver. I can give people a lot of work, which is good and bad. Some contractors love having steady work, while others have trouble working a full week. I have pretty big jobs that many contractors may not be used to.
In the last two weeks, I fired two contractors. One had done four flips for us but was always way over the time he quoted and needed constant supervision. Anything that went wrong was always my fault somehow, and he bugged the crap out of me. Another contractor had done one flip for us and was starting his second. He was doing sub-par work, and it was taking him forever on the second flip. We found out he was doing another flip remodel for someone else, and that was why his work was suffering. This was after his first job for us took a month longer than it was supposed to, and he knew we had another job ready for him as soon as he finished. I was really happy to get rid of both of them.
We used a brand new contractor from an ad we placed on Craigslist. I actually knew the contractor, as he used to do preservation work for banks when I listed REO properties. He seemed normal, showed up on time, wrote things down when we went over the work, and his bid was reasonable. We hired him, and the work was done a couple of months later. It always takes contractors longer than they think it will take. I have come to expect it will take a couple weeks or even a month longer than it is supposed to because things come up that we did not know about on just about every house. Below is a video of the house after we finished it:
For our materials we get almost everything from Home Depot with our managed pro account. It saves us a ton of money and hassle.
How much money did I make?
The house sold for much more than I thought it would, and I spent much more on the repairs than I thought as well. It took the contractor much longer to fix it because of the concrete walls. It was also tougher to install windows, and the electrical work and plumbing work all took longer. The roof was also much more expensive than I planned, and we ended up having to replace the furnace. I spent about $55,000 on the repairs. Here are the numbers:
Selling costs: $8,500
Loan costs: $6,500
Carrying costs: $3,000
Total costs: $73,000
I sold it for $240,000 and bought it for $110,000, which means I made $57,000, but I also made over $3,000 in agent commissions when I bought it.
I made out very well, but I did get a little lucky with the selling price. Our market is extremely hot, and it sold for more than I anticipated when I first bought it. I also am very conservative when I value properties to make sure I have plenty of room for mistakes or other problems that come up. We listed this house for $229,900 and had five offers that exceeded the list price! Our contractor did a really good job and has since done a couple more rehabs for us. You can find information on my 16 other current flips here.