I detailed the origins of this flip in my last blog post – you should go back and read it if you haven’t already. I’m up to the part where we had to fire our first contractor after he built a crappy staircase and refused to fix it.
I have a theory that the Zombie Apocolypse is already upon us. How else do you explain a perfectly good contractor with references and insurance who does construction for a living coming in with all these great ideas for flipping the house – and then building a staircase that’s 26-inches wide after the first landing? I’m a DJ by trade, and even I know that’s not right. And to argue with us and tell us that’s perfectly acceptable? Don’t piss on my head and tell me that it’s raining, buddy. What’s wrong with you? Oh yeah, you got bit by a Zombie and now you’re the Walking Dead. That explains everything.
So he’s fired, and the guys who were working on the wet basement issue told my husband they wanted the job.
Contractor crew #2
Steve ended up designing the stairs himself. The basement guys swung the hammers to build them, at Steve’s direction. An investor should never have to be this hands-on, but we were in a tight situation.
The basement guys brought two more guys in – one to create a dormer so Steve’s head wouldn’t hit the ceiling while climbing the stairs. He would double as a spackle guy, since our basement guys weren’t all that good at spackling. They also brought in a floor guy, who was wonderful. We would still be working with him if he wasn’t such a misogynist pig.
They got the windows in. But other than that, there were the same issues with speed and quality we had with the first contractor. We were so far behind Steve hired a few of his friends to paint the drywall. These friends reported lazy work habits on the part of the contractors – multiple smoke breaks, drinking on the job, constant cell phone use - no wonder there were so many delays!
It’s customary to pay contractors a deposit before work starts, releasing more money at certain milestones in the project, then a final payment at the end. These contractors weren’t reaching the milestones to get their next check, but they wanted to get paid now. When Steve told them that could not happen, they whined there wasn’t enough money to put gas in their vehicles to get to work! Well, their financial mismanagement was not our problem. So we fired them, too. This was not without drama. We had to get the police involved when vandalism was threatened. Luckily nothing came of it.
Again. Bitten by Zombies. It’s the only explanation!
Contractor crew #3 – the ragtag bunch
The flooring guy we kept. He brought in an assistant to finish the spackling work and everything else that needed to be cleaned up. By the end of the flip, the flooring guy and his assistant were not getting along, and we literally had to keep them in separate rooms! These are full-grown men we’re talking about here. (Zombies again.)
So we had these two, and our painter friends. This rag-tag motley crew finished our first flip. But not before another major episode of drama…
Roofing disaster! We hired a bonded and insured roofer – the rear of the house had to be roofed after we installed the dormer for the staircase. He finished the job and we got a big rain storm. You can probably guess what happened. The good news was our wet basement issue was abated. The bad news – our new roof was crap.
The roofer fixed his mistake - but refuse to fix the drywall that had been ruined when the rain came down inside. We actually had to make a claim against his insurance! Investors’ tip: ALWAYS make sure the contractor you hire for big jobs has insurance. And get the policy # and verify before you pay that first deposit!
Our Ragtag Bunch fixed the drywall. And finished the house. Finally! It was time to put it on the market. It’s now the end of August and we’re two months behind schedule.
We listed with the same real estate agent that found us the property, Jessica Skoloda with Classic Properties. List price was $125,000 based on comps in the area, and the fact that it was the nicest renovation within miles.
It didn’t exactly fly off the shelves.
Our conundrum was this: in Avoca, houses sell for around $60 - to $70k. But that’s with the old wiring, the old plumbing, the plaster walls, the old kitchens and the one bathroom downstairs. Maybe not in as rough shape as this one before renovation, but closer to the before pictures than the after pictures. People who shop for houses in Avoca cannot wrap their minds around the concept of all-new everything. Houses cost around $65k, why would they even look at one for $125?
So the price dropping began: September 12th down to $119,900. October 6th, down to $115,900. October 10th, down to $110,000. That’s when I started thinking about Plan B.
Simultaneous Flips – Flip #2: Ashley
During the process of Flipping Avoca, we started a second flip in Ashley. Another $15,000 purchase with a business partner in May. Smaller house, not as extensive of a renovation. Mostly the improvements in Ashley were exterior – it desperately needed a new porch and a new roof. I opened up the first floor with a widened doorway between the huge eat-in kitchen and a middle room that could serve as a TV room, and added French doors to the living room to allow the buyer to use it as a first floor bedroom if desired. We added a second floor laundry to the open space between the two upstairs bedrooms.
We had the same problem as Avoca – houses in Ashley go for around $50- to $55k, not $75k. But those houses are outdated and need lots of work! And there was another problem – a lot of would-be homebuyers in Northeast PA couldn’t buy a newly remodeled $75,000 house even if they wanted to – they couldn’t qualify for a loan. So.. I had an idea.
Home for the Holidays: Rent-to-Own. With the blessing of both our realtors (who probably thought I was a little nuts) Steve & I hosted two open houses in November showcasing first Avoca, then Ashley. We advertised in the House For Rent sections of the two local papers and Craig’s List.
A market in NEPA for high end rentals?
Lots of people came through our open house in Avoca, including the next door neighbors who wanted it for their daughter. There were two ways to buy the house: make an offer the conventional way on the $110,000 list price, or rent-to-own. We would take a $5,000 upfront cash deposit, let the buyer move in, and that buyer would pay a “rent” of $1,050/month including taxes and insurance. Within a year or two, that buyer’s on-time payments would have strengthened their credit enough to get traditional bank financing, and they could then buy the house from us, with a portion of the “rent” they paid in going to the purchase price.
A lot of people, including our neighbor, couldn’t even swing the $5,000. That’s why I believe education is important. It’s not as hard as you think it is to save $5k, especially for something as important as a home. Again, more on this next week!
One couple in their late twenties spent a long time looking around the house. They were very good looking hipster-types. Newly married, both working good, high paying jobs. Their combined student debt barred them from a mortgage – truly a problem for the millennial generation! They could have easily afforded the $5k down and the $1050 rent. But they didn’t want to be tied down to the region. Millennials are mobile. They’re renters. And they wouldn’t be happy in a standard NEPA rental. They wanted our stainless steel appliances and our tile work and our luxury second floor bath. The offered to rent Avoca for $1200/month.
I had to think about this for a minute or two. Ultimately, we were too far in cost-wise to do a rental. Plus there was a partner involved. We really needed to sell. But I may have stumbled upon a market. Developers are building these luxury loft apartments in the downtowns and supposedly these well-heeled millennials are lapping them up. Are there enough of them to warrant our jumping in the game? Might there be a niche for millennial hipsters who want houses and yards as opposed to downtown loft living?
On November 27th we dropped the price to $107,900.
We sold our first flip on Christmas Day, 2014, for list price. And we had to buy them the stainless steel appliances we had rented for staging purposes. But that wasn’t the end of it. God has a sense of humor!
Shortly after New Year’s we got a call that a plumbing problem in the second floor bathroom had flooded the first floor bedroom and ruined the drywall. Some kind of sealant had come loose or not taken or something. It wasn’t our fault – our plumbing passed the borough’s inspection, the buyers’ home inspection and their bank inspection (which is the toughest of all because the bank is looking for any reason not to write the deal.) But we wrote the buyers a refund check for $2,000. We did this for our reputation as flippers, for our realtors’ reputation and because it was the good Christian thing to do. We made a nice profit. It sucks they had a pipe break in their brand-new house a week after they moved in. But it was not our fault and we made them sign a piece of paper stating as much as a condition of cashing the check.
There you have it – all the stuff they don’t tell you about in those slick house-flipping reality shows! Below is the link to the Zillow listing, where you can see all the slick looking pictures of our first real flip. When I feel my confidence flagging, I like to pull these pictures and look at them. Yes, we did this!