We’re looking for another house to flip.
Our business had the best income year ever in 2014 when we flipped 1228 Main St. in Avoca. If you want to know what it’s really like to flip a house, check out our experience here:
It was a trial by fire. But we came out the other side to success and a $30,000 paycheck! We want to do it again.
My husband, a newly minted real estate agent has armed himself with the Multiple Listing Service and his electronic pass key. He found a partner willing to fund the flip as long as we do all the legwork. Now we just have to find the right house. For the past couple of weeks he’s been driving around looking. Yesterday, I went with him.
He wanted me to see this house on Broad Street in Pittston. We used to live on Broad Street, so I know it’s a decent neighborhood. And this place had an actual driveway, which is a premium. The only thing I didn’t like about living on Broad Street was having to park in the street in front of my house (if I was lucky enough to get that space in front of my house!)
It’s a good thing he brought me along – the place was an absolute dog. Tiny little lot – barely any yard at all. It sure looked a lot bigger online! And the house would be a complete gut-job. Plus it didn’t look like the heating system was intact. Steve’s head skimmed the ceiling as we walked through – he’s a tall guy, but still, that shouldn’t happen. Not a lot to work with there!
We were in town anyway, so he took me to see a place another agent had told him about. It was actually in Pittston Township, which I thought would be a plus – same great school district, much lower taxes. We pulled up to a home with a driveway that had reverted to nature, but still, it was a driveway. And it had a nice big backyard with some semblance of privacy. I could live there with my little family. The neighbors next door called the police when they saw us poking around, and we had to tell them who we were. That’s a plus – people look out for one another there. So far, so good.
We got inside and my smile got brighter. It looked like your grandmother’s house, very well-kept. Nice hardwood floors and high ceilings. The kitchen would have to be remodeled, of course, but it was a good space, nice and big. There was a little full bath. We wouldn’t have to make any structural changes to the first floor.
Going upstairs – Steve bumped his head on an outcrop over the staircase where someone had added a closet to one of the bedrooms. That would have to go. The stairs were very narrow – there was a closet built into the upstairs hallway. I would take that out and widen the hallway, allow people to get furniture up there. Using part of that closet and part of the large adjacent bedroom, we could wall off another small full bath. We’d have to add a closet to one of the three bedrooms, but that was it for the second floor renovation. So far, not too bad!
We went down to check the basement, opened the door where the basement stairs would logically be, and found nothing but a closet floor. Uh-oh.
Steve found the only access to the basement – through an outside bulkhead. The steps were makeshift cinder block – dangerous and definitely not code! We’d have some work to do here.
The oil furnace would need to be replaced – we’d convert to gas. There was already gas to the house for the hot water tank. The electrical would need updating.
Exterior – we could see the windows were old and would need replacing. The asbestos siding would really have to go. And the roof looked a little suspect, so we’d have to factor that in – at least over the porch.
OK – we added it up. A full renovation of this property would run about $60,000. Which was about what we paid in Avoca. And about what we paid to flip the house we currently live in. $60k seems to be the going rate to bring a home that hasn’t been updated since the mid-20th century into the modern era. Sure it would be a lot less if you didn’t have to worry about things like an aging roof, bad windows, asbestos siding, rewiring or replacing the heating system. But we’re finding in NEPA, you do have to worry about those things. And sometimes you have to worry about crumbling plaster-lathe or missing copper pipes. Or like we ran into in Avoca – a steep, narrow, winding staircase that needs to be completely ripped out, replanned, and rebuilt.
Back in the car, Steve did a quick comparative market analysis of the sale prices of similar properties in the neighborhood. Houses in that neighborhood were selling around $70 to $80,000. We learned from Avoca that people generally won’t pay much more than the average price they’re used to seeing in the neighborhood, not matter how nice the house is. They’ll pay a little more, but not much. They can’t wrap their minds around a $100,000 house in an $80,000 neighborhood!
So if our minimum profit for flipping a house is $20k (which we’d need to split with our investment partner) and it needs $60,000 worth of work, we’d only be able to do this flip if the seller gave us the house for free. Actually, he’d have to write us a check for $3,500 when we factored in carrying costs, closing costs and brokers’ commissions.
Steve and I drove home in silence, depressed. We really like that house! It had so much potential! What a shame.
Well, it is what it is. Steve has an investment partner who wants a flip that will turn a profit, so we’re going to have to look in more expensive neighborhoods to find that flip.
A Neighborhood of Homeowners or Renters?
I liked that neighborhood in Pittston Township. There were kids playing outside. The houses were well kept. It was in a good school district. The neighbors look out for one another. If Steve told me tomorrow we were moving there with Savannah I’d be totally fine with raising my daughter there.
I started thinking – what’s going to happen to that house now that we’re not going to buy it? It’s not a good investment for a flip. The best case scenario would be some handyman-type will buy it to fix it up himself and live in it. He’d at least need to address the heating system before moving in – everything else could wait, provided the Township granted a certificate of occupancy. He might have to do the electrical before moving in, depending on how tough they are.
It might not sell at all and just sit, abandoned, decaying, until it’s even too far gone for the handyman-occupant. That would not bode well for the neighborhood.
It might work as a rental. At a low enough purchase price, it would probably cash-flow nicely. I wouldn’t do the siding then, or worry about updating the kitchen or bathroom. I wouldn’t add the second bathroom, or worry about adding basement stairs for access from inside the house. I would fix the bulkhead stairs, address the roof, and update the electrical to code - enough outlets per room, gfi’s in the kitchen & bath. Obviously I’d have to address the heating system. And I might do something about the overhang on the staircase so people could get their beds upstairs. The windows I would just seal up in the winter for the tenants, and put replacing them in the capital expense budget for future years.
OK, so it’s a rental. And as the old folks in the neighborhood pass on, leaving their outdated homes behind that are not good investments for flipping, the neighborhood becomes - best-case scenario - a renters’ neighborhood.
I think there might be a better way.
Here Comes My Rent-To-Own Idea Again
There is nothing wrong with rentals – I have several of them, and I believe in them. But I also believe that a municipality needs a good mix of renters and homeowners.
I’ve had this idea before, to play matchmaker. Here’s a town with low home values that needs more homeowners to take pride of ownership in said town. Here’s a nice family with a steady working class income who are renting because they lack the credit to qualify for a mortgage. That town needs that family and that family needs that town! But that family isn’t going to move into a house without a working heating system, outdated electrical and roof problems. If they’re renting, their landlord worries about those things. When they buy, they want a house at least as nice as their rental, and probably a lot nicer. Sigh, maybe someday…
That’s where I come in! I’ve blogged about rent-to-own before: http://thisgingerjustsnapped.weebly.com/blog/how-it-all-began-part-9-rent-to-own
Maybe it’s time to dust off this idea. Get some municipalities involved, if they’re ready to listen. I would love to work with the City of Wilkes-Barre on a project to get more homeowners on the tax rolls. With the new government in place, they may be receptive to the idea. I’ll have to bake this one awhile.
I will let you know of any progress in future Ginger Snapped blog posts. I’ll also update you on our next flip adventure as it unfolds!