Flip Thy House

The Less Than Glamorous Side of House Flipping

Today was fairly frustrating, but I managed to get a good bit done. The plan was to get the fallen tree that’s partially in the driveway at the 1002 S. Main St. house cut up and out of the way, but I ended up wrestling with the chainsaw for most of the day. Is there some unwritten law that chainsaws are the most finicky tools out there, as far as not running, for no apparent reason, then suddenly running fine, then suddenly deciding, again, to not run, for no apparent reason?

I managed to get about half of the tree chopped up and drug over to the existing brushpile in back, which I’ll deal with at some future point. Did some more destructive work inside, as far as ripping up more carpet and starting in on the cheap vinyl tile in the bathroom.

Most of this week is going to be devoted to working on the Austin house, but I’m planning on swinging by the stone place in the morning, as far as ordering the landscaping materials for 1002 S. Main. I’m going to bite the bullet and have it delivered, as it’d be far too many trips in my wee truck, plus the place is about a 30 minute drive away. I’m also hoping to get the ball rolling tomorrow as far as setting up estimates for a new roof, as the wait time can be kind of long, depending on how busy they are. I’m not sweating it too much, as I can just include in the listing that the roof is being replaced, but it’d look a lot nicer if it was done before I list the house, just as far as curb appeal. It should take the roofers all of 12.7 seconds to roof it, as it’s pretty much the simplest job in the world, but we shall see.

Is the Subprime Lending Implosion Going to Doom All Real Estate Investors?

The last few weeks have been pretty brutal ones for subprime lenders, with more than a few of them completely getting wiped off the map, and others seeing their stock price get absolutely decimated. For lenders with a lot of exposure to subprime loans, it’s a double whammy, with defaults rising dramatically and, simultaneously, their ability to raise new money severely hampered with everyone in the banking industry treating them like lepers.

It’s also a double whammy for real estate investors, as we have both falling home prices in much of the country as well as the possiblity of the pool of future buyers shrinking as well, as lenders tighten the screws and it becomes more difficult to get a loan to buy a new house. That could continue to drive down home prices, creating a vicious cycle that might send the overall economy toppling into a near-recession.

Does that means it’s a terrible time to invest in real estate? Honestly, who knows. That’s a pretty impossible question to ask, as the answer depends on the market you’re talking about, your own personal financial situation, the type of real estate investment you’re considering, your long-term investing goals, and any other number of mcomplicated moving parts that all influence the final answer.

Personally speaking, the next deal I do is probably going to be a rental property, quite possibly the foreclosure duplex I’ve mentioned before if it’s still on the market. Given the larger uncertainty, the idea of doing another SFR short-term flip makes me a bit nervous, and if I can eliminate even that bit of nervousness, well, that seems wise.

I’m definitely not in the doom-and-gloom, the-world-is-ending camp, as my best guess is that we continue to see a softly deflating housing bubble over the next six months, with things picking up slightly after that. But I like the added insurance of investing in a rental property next, as far as a slight hedge against the worst-case scenario, which still isn’t outside the realm of possibility at this point.

Total Expenses for 1002 S. Main St. Property

This page is designed to be a running total of all expenses related to the purchase and flip of the 1002 S. Main St. property. Again, this is both for educational value of anyone following along at home and thinking of flipping houses themselves, as well as a useful tool for myself to both track expenses and to keep myself honest, as far as exactly what my ultimate profit or loss is.

1/31/2007 - Option fee: $100

1/31/2007 - Earnest money: $500

2/07/2007 - House inspection: $185.00

3/09/2007 - Cashier’s check for total cash to close: $2,876.86

3/23/2007 - Connection fee for utilities: $25.00

3/20/2007 - Paint, slate tile for backsplash, and other related supplies at Home Depot: $202.67

4/25/07 - First mortgage payment: $609.37

4/29/07 - Tile and grout for tub surround: $62.05

4/30/07 - New roof: $2,000

Total expenses as of 3/23/2007: $6,560.95

Mortgage Details and Mortgage Fees for Flip House at 1002 S. Main St.

Now that the dust has settled a bit, I’m in the processing of posting some details and numbers from the transaction so far. One of my major goals with this site is to provide as much detail as possible into each deal I do, as that was something that I’d have appreciated myself when doing research before buying this first flip property. What few sites there are out there devoted to flipping (from a hands-on perspective of the person actually doing it) tend to be short on the nitty-gritty details, but that’s exactly what people looking to get into flipping are after.

So here are the mortgage details and fees for this first flip property. (As far as a bit of general background info, my wife and I jointly applied for the mortgage, we’ve both got credit scores of +800, zero personal/consumer debt, and about 1x our combined annual salaries in savings and liquid assets, and we did a full-doc loan.)

Total loan amount: $60,000

Loan type: Conventional 30 year fixed mortgage, 100% financing

Interest rate: 10.25%

Down payment: $0

Monthly mortgage payment (mortgage/insurance/taxes): $690.33, with first payment due on May 1, 2007

Mortgage application fee: $399

UW review: $300

Administration fee: $300

Committment fee: $300

Processing fee: $300

Additional appraisal fee: $125

Document fee: $125

Closing fee: $200

Delivery fee: $60

Title insurance: $178.55

Escrow fee: $150

Total mortgage/title fees: $2,437.55

Looking back on the two other loans we’ve received to purchase homes, none of the fees look too gaudy, especially for a 100% financed loan for an investment property. The interest rate on the loan is obviously a bit high, but given that it’s a flip property that’s sort of a moot point.

I was pretty happy with the loan, all in all. It’s kind of eye-opening to really sit down and look at all the assorted fees, especially through the lens of a short-term property that I plan on flipping. When applying for loans in the past for our principal residences it was much easier to shrug off the mortgage fees as simply the cost of doing business, which we’d hopefully recoup through property appreciation, etc., but they hit home much more directly for the flip property, as they definitely eat into any potential profit I might pull out of the place.

I didn’t really have much choice for this first one, as I wasn’t willing to drain our reserves to the point that paying cash would have, but it’s definitely something to keep in mind moving forward, especially if I can build up some profits from flipping and the sale of the Austin house. While I still may end up financing some more properties, there’s a lot to be said for getting into pay-cash-mode as soon as possible, even if it takes me a bit outside of my comfort zone.

May You Live in Hectic Times

Just a few days into House Flipping Experiment 1.0 and already I’m making tweaks to the initial plan of attack. I imagine I should likely get used to this, as you never really know what’s going to develop once you start ripping carpets up and knocking out sheetrock, not to mention the various other curveballs life throws at you.

I’d planned on getting started on Friday after closing but that all went out the window when our pet rat Sherman got mightily sick. We basically spent the whole weekend with him, trying to nurse him back from the brink, but we had to have him put down on Monday, when things took a turn for the worst. He was my best little rat buddy but he had a good, long life, and got himself a prime bit of real estate in the rose bed in front of our house where he can still keep an eye on us and take care of his big people.

I did sneak over to the 1002 S. Main St. house for a bit on Sunday, as I needed to get out and do something active, after much sitting and worrying and anxiety. I got all of the old ceiling tiles ripped down in the kitchen, and discovered that what I thought was the original wood ceiling was in fact just a section of the original wood around the hood vent for the stove. That happened to be the area that I pulled a tile down from earlier, to see what was underneath, but most of the ceiling is the old sheetrock, with 1×4s attached through it to the studs above to provide the backing that the ceiling tiles were previously attached to. So I won’t be able to restore what I thought was the old, original ceiling, but it should be a pretty easy job to put up some beadboard.

I also started ripping up the old carpet in the two back bedrooms, expecting to find the original hardwood floors underneath but discovering plywood instead. I wasn’t up for ripping into it, to see what was underneath, but I may simply take it as a sign and just replace the carpet in those two rooms, instead of refinishing the floors as I’d planned. They’re pretty small bedrooms so the cost won’t be that much more in the end, and it’ll definitely speed the project as a whole along if I’m not doing that work myself.

Another thing I was slightly worried about was the drainage on the lot, as the water table is pretty high where we live and a lot of houses in the area are prone to the yards becoming lake-like when we get a lot of rain. I was hoping to get a feel for that on the new place before doing a lot of the landscaping and patio planning, and, lo and behold, we got over 9 inches of rain on Sunday (seriously) . No issues at all with water pooling at the 1002 S. Main St. house, so that’s definitely a relief.

I was doing yardwork at our Austin rental house (which we rent to my brother-in-law) and we were discussing things in general and I mentioned that if he still felt like the rent was too high for just him to live there and he wanted to look for other places, we’re pretty eager to sell the place. He didn’t seem excited about the prospect of moving at the time, but went and looked at apartments the next day and signed a contract, and is moving out at the end of the month.

Normally I’d be a little frustrated and overwhelmed, just due to the timing of closing on the flip property, but it’s actually a relief in a lot of ways.  I don’t think the Austin market is going to implode anytime soon, but now’s a pretty good time to sell, as supply is really tight in our neighborhood, and we hopefully should show a nice profit on the sale. I don’t mind the landlord gig so much but I’d like for the rental property to be closer to our current house, just to make upkeep and maintenance easier. And, honestly, I think there’s more upside for property appreciation if I snap up something like the REO duplex I’ve been eyeing.

It throws a bit of a monkey wrench into my schedule for the 1002 Main St. house, as I’ll be focusing the next 2-3 weeks on getting the Austin house ready to sell, but I’ve got some time to play with on the Main St. house, as the first mortgage payment isn’t due until May 1, and I can still knock out a lot of projects here and there, as well as get the ball rolling on the roof and furnace replacment.