Flip Thy House

Things I’m Thankful for: Hidden Hardwood Floors

I got a little antsy this morning and snuck over to House #3, as I wanted to measure dimensions of various walls and windows, and investigate the possible salvageable hardwood floors in the existing bedroom.

That involved shifting all of the crap out of the bedroom, which turned into a bit of a treasure hunting expedition. Well, treasure in a very relative sense. There was some unused sheetrock leaning against one wall which I obviously knew about, but not the fifty pounds or so of brand new finish nails, or literally 50 new tubes of caulk in the closet. The old original wooden front door from the 1930s was also hidden back there, which I could get a couple hundred bucks for at a local architectural salvage place (although I’ll probably just keep it for future use somewhere).

I finally got everything out of the bedroom and prepared to do battle with the old linoleum on the floor, assuming it’d be difficult to remove. Umm, not so much, as it was basically just lying loose on the floor except at the edges, and even those spots pulled up easily. It took me all of ninety seconds to get the old linoleum up and uncover what was underneath.

So aye, the pine floors in the bedroom are more than salvageable, as they turned out to be in pretty good shape. (And yeah, hush, I know I’m not supposed to be over there pulling up flooring before I buy it but given the shape of the house and condition of the old linoleum, it was going to be pulled up by someone, at some point.)

Since those floors are only in the bedroom, I’m leaning towards keeping that room the same dimensions in my new floorplan, and working with what’s there. Here’s the current floorplan I’m leaning towards, courtesy of the cool free tool at floorplanner.com:

Pretty straightforward, as we’re talking about a shell of a 504 sq. ft. house, with only the bedroom currently framed in. I waffled on the addition on the back, as it obviously complicates things and bloats the budget, but the more I think about the more I think it’s a good idea. It’ll get the square footage up to about 625 sq. ft. and let me market it as a 2-1 (albeit a slightly odd second bedroom, as those are French doors leading to it, so not your standard bedroom).

Really simple and basic, though, all the way around. Some things definitely aren’t optimal (walking in the front door and immediately greeted by a wall and bedroom to your left, the wasted space in the corner right outside the bathroom, etc.) but it ain’t the Taj Mahal. And doesn’t have to be, as I’m just shooting for a basic little functional house.

Still working on numbers, but it’s looking feasible as far as repair costs of about $17,500, which would put me at about $28,000 as far as total costs in it (including closing costs and all that fun stuff). With the ridiculously low property taxes (the property is appraised at just under $5,000 by the county), it should cash flow about $250/month, if I can rent it for $450/month. That should be pretty much a slam dunk (even with the less than desirable neighborhood), as you can barely rent a 1 bedroom apartment here for that, much less a 2-1 house.

Which isn’t bad at all, and what’s got my interest more than a little piqued about this project and others like it. This isn’t the sort of rehab a lot of investors would touch as there’s not a huge amount of upside potential as far as resale value, but man, these things can cash flow nicely if you can find structurally decent run down or abandoned properties like this, appraised by the county for almost nothing. Property taxes (in Texas at least) can be a silent killer when it comes to rentals, especially with new construction, but you can dodge a lot of that if you’re working on a very old, unloved house like House #3.

Am I Really Buying Another House?

I’d be lying if I didn’t have a few moments yesterday morning while leisurely drinking my morning coffee, poking around on the Intrawebs, reading more terrible economic news, when I questioned why exactly I was buying a tiny little abandoned house in not the best neighborhood in town. I mean, I enjoy this real estate stuff, true, but I also enjoy playing Fallout 3 on my Xbox, and one of those two things is immensely less risky, expensive, and time-consuming.

But the moment passed, and I got busy working on floor plans and seeing if I could get our contractor out there. Met him later in the day and he and his helper kicked the tires with me, tossing around different ideas.

Some of the good news, in no particular order:

1) He didn’t think I was batshit crazy for buying the house. We’ll need to undo most of the “repairs” the guy living in it did while he was supposed to be fixing it up, but the bones of the house are solid are far as the foundation, beams, subfloor, etc.

2) He thinks we can salvage the old metal roof and just redo the flashing and some of the ridge caps, paint it, and call it good. It’s currently doing it’s job and water-tight, it’s just not much to look at.

3) Wonder of all wonders, there are fairly nice original hardwood floors underneath a couple of layers of old Masonite and linoleum floors. Some areas aren’t salvageable but I think I can save the hardwoods in what will be the main living area and the bedroom, and put tile down in the bathroom and kitchen where the floors are beyond saving.

And the bad news:

1) The biggest problem with this property isn’t going to be the house itself, but the abandoned house next door. This thing is a real piece of work, as it’s an original house built in 1910 with another structure tacked onto it (literally) as some point. The realtor selling my property said at one point 12 people were living next door, until some of them were arrested, kids hauled off by protective services, and the whole gypsy camp shut down.

Poking around yesterday, the abandoned house next door is obviously where the cool kids hang out. To smoke crack. The house itself seems to be securely boarded up, so there’s no one squatting in it, but there’s trash everywhere outside, including a ratty old couch beside the house with like nine million empty lighters and beer cans scattered around. One nice thing about my property is that it’s very close to downtown but kind of secluded, on a dead-end little street with a park next to it. But seclusion cuts both ways, as evidenced by the activities next door.

The real problem is that the property belongs to an estate, which only lists the property itself as a mailing address. Even better is the fact that they haven’t paid any taxes since 1983, so they owe nearly $7,000 in back taxes and fees. Complicating things is the house sits on the only irregular lot on the street, which extends down and then behind the other lots like mine, so it’s actually on a 1 acre lot. 50% of which is in a flood plain.

So yeah. Messy. Buying it from the estate would likely be problematic even if I could contact them, as dealing with estates are usually nightmares (especially given the nature of the family that had been living there previously), and they’d likely have unrealistic expectations about the property, given the lot size. And anything paid to them would be on top of the back taxes due.

The realtor selling our property thought that this one was going to the tax deed sale soon, which might be the only way to go. $7,000 would be a decent price for it, as one of the structures on it looks salvageable. The only problem would be the 6 month redemption period the previous owners would have, as I don’t believe I could legally demo anything during that period.

A completely illegal option (which I may do) would be to simply clean up all of the trash outside it, including the party-time couch and other similar crap. Technically speaking, I’d be trespassing and stealing, but I highly doubt the only neighbor in sight would mind. He’d probably pitch in and help, as he actually maintains his house and yard very nicely.

I’ll also probably bite the bullet and put up a privacy fence, to at least give my future tenants some relief from the eyesore next door. It’s something I’d do farther down the road, when trying to sell the property, so it’s not a waste, just an expense at this stage I’d rather avoid. It’d mean that I’d also have to pay for a survey, as it didn’t come with one and I have no clue where the actual property lines are (other than the general plat info) which again is useful down the road but not needed at this stage.

2) The sheetrock and electrical work already done needs to just be ripped out. Not a huge loss as only 1/3rd of the house had been sheetrocked, but I’d been hoping we could use it just to save some time, more than anything.

All in all, pretty excited to tackle this one and get to work. It’s a little frustrating to wait until closing on December 19th, but that gives me some time to get a floor plan squared away, and hopefully a
more set schedule with our contractor, as far as deadlines for various stages of completion, incentives to finish early, etc. Especially since I’ll be tackling some work myself, so being better organized will help me stay out of their way and not be stuck waiting for them to finish this or that before I can paint or tile.

House #3 Under Contract

That dumpy abandoned house I posted about yesterday? Well, as of today I’ve got it under contract for $8,500, as the lady selling it (who is apparently a realtor herself) suddenly decided overnight that my original offer wasn’t so crazy after all, and came down to $8,500.

I can’t say I’m exactly doing cartwheels (I mean, you’ve seen the house, right?) but I am pretty excited to have another project to work on. Closing isn’t until December 19th, for various reasons, so I’ll have plenty of time to put together a game plan to hit the ground running.

If nothing else it’ll be a good learning experience, as far as a total gut remodel, and it’s a reasonably risk-free investment. It won’t be the sexiest house in the world when it’s done but it should be a nice little rental to add to the collection.

He’s Lost His Mind (Or, You Know, Made an Offer on a House)

So after weighing all the assorted prospects I’ve looked at of late, I finally pulled the trigger and made an offer this afternoon. On which house, you ask? Well, err, none of the above.

Here’s the beaut of a property that I just made an offer on, as far as a photo dump and then text beneath:

Lest you think I’m nuts, there’s a bit of a method to my madness. First off, the property was just listed last Friday at $12,000, and I offered $7,250, so we’re talking pretty much bargain basement prices here. Someone bought it at a tax deed sale a few years back, sold it to someone else who bought it as a favor to an employee who was supposed to renovate it (but who gave up at some point) and is now trying to unload it.

It’s not in the most desirable part of town, but it’s actually not a terrible location, as it’s on a wooded dead-end street near a park and elementary. Other than the abandoned pink house that’s smack-dab beside it, there are no immediate neighbors at all, so while the lot is small you actually have some space and peace and quiet around it.

It’s only 525 sq. ft, so it’s pretty tiny. Needs all new electrical and plumbing, new roof, new windows, a new side door, new connections to electrical/water/sewer, all that. It’s basically a shell, although some of the sheetrock work done recently inside can be salvaged.

While it doesn’t look like much, it does have some pluses, as far as a project to rehab and rent. It’s within walking distance of one of the local elementary schools and is very close to downtown. It’s currently appraised by the county at just over $5,000, which means the annual property taxes are about $170. No, that’s not a typo. It takes the county years to catch up (if then) as far as accurately appraising rehabs and adjusting the taxes accordingly, so that tiny tax bill will realistically remain the same for at least 2-3 years.

The old asbestos siding is actually in pretty decent shape, despite its mismatched appearance, and just needs pressure washing and painting (other than the back of the house, where the siding needs to be replaced). Much of the demo work has been done and the foundation is in surprisingly good shape. The subfloor is a patchwork of different materials so some work will need be done to level everything out to put down taile or carpet, but structurally it’s pretty sound, and not at all what you’d expect in an abandoned, boarded-up house.

There’s also a fair amount of materials left in the house, including the oven which is actually very clean and the old stained cast-iron tub, which can be re-glazed. Someone also left a few new windows and a new door, which they never got around to installing, as well as two decent step ladders and other materials and tools. There’s probably $1,000 worth of stuff in the house, all of which conveys.

The city also has a program where if you’re rehabbing a previously abandoned property (and not scraping it and building new) they’ll waive the fees for re-establishing electrical and sewer service, saving you about $4,000 on average.

Another big plus for me is this will give me the chance to break out some of the old designs I came up with when tinkering with the idea of building some very simple, small homes, as the layout is basically just a big rectangle, which is what I was working with before, as far as an extremely simple 1-1 layout with an open floor plan.

There’s also the opportunity here to give another idea of mine a whirl, as far as basically rehabbing an entire area, buying stuff on the cheap originally and developing the entire street. There are five lots on the same side of the street as this property, with three very small houses on them, all of which are abandoned. I should be able to buy up the other lots pretty cheaply and, over time, either renovate the other two abandoned houses or scrape them and build similar small affordable homes. On the other side of the street there’s only one house built on the seven plots, and it’s actually a nice little house and well-maintained, so room to build there as well.

Crunching the numbers, I should be able to rehab this house for $15,000-$17,500 (doing a lot of the work myself), and rent it for $400-$450. I’d be in it for a total of $25,000-$27,500, and a conservative ARV would be $40,000, given the condition of the neighborhood as it now stands. Clean up the other abandoned houses around it, though, and that’d jump to $45,000-$50,000.

Not the most lucrative of potential deals, but it’s also pretty low-risk. We’ll see if they bite on my offer, as I can’t really go much higher than $8,000 and they did just list it, so they may not be willing to go that low. Or maybe they’ll be ecstatic to get any offer for a property like this and immediately agree. We shall see.

Edit: Heh, that didn’t take long. The lady selling the house seemed to think that an offer of $7,250 wasn’t even worth countering and claimed she has twice that in the house. Which is complete BS, as she got it at the tax deed sale and the past taxes due couldn’t have been more than a couple thousand dollars, and that’s only if they didn’t pay any taxes at all for like 15 years.

Basically wished her best of luck at getting anywhere near $12,000 for it and to give me a call if/when it sits there, unloved, and she’s more willing to negotiate. I know there’s not a ton of difference in my offer and what she wants, but there are too many properties out there at the moment to chase after one like this, which wasn’t the juiciest deal to begin with.

Still on the House Prowl

I’d been sitting on my hands about seriously considering making an offers on anything, waiting until we got House #1 rented again, but it’s looking like that’s a done deal as we’re scheduled to sign a lease on Monday, so I dragged our realtor out again on Friday to look at more prospects.

More and more I’m falling into the very pessimistic camp, as far as the overall economy, and think we may be looking at 10% unemployment well into 2010, but if anything I’m more bullish on the idea of grabbing some rental properties in our neck of the woods. I think home prices still have a ways to drop, even locally where we’ve been insulated from both the highs and lows, but the rental market is really strong here. I was a little nervous bumping up the rent on House #1 by $50 but we got a ton of interest and applications and basically got it rented within a week.

Granted, there’s a non-zero percent chance that we might be headed for a true Depression, capital D, at which point homes could become unrentable at any price, but hell, there’s a non-zero percent risk with just getting out of the bed in the morning. Part of me worries that the seemingly no-brainer decision of picking up rentals now that cash-flow immediately could turn into a stupid decision in a few years if things really deteriorate economically, but living in paralyzed fear of a future calamity is no way to live.

So, here’s what I looked at on Friday:

Willow St. house: $89,500

This was by far the nicest house. 3-2 with about 1,400 sq. ft., which had recently been renovated and is basically in prefect, move-in condition. Good neighborhood, new plumbing, electrical, carport, concrete walkways and patio at the back of the house, all appliances with it (including stackable washer/dryer), the whole works. Didn’t take a ton of photos of it but it’s a standard 3-2, everything is very new as far as flooring and paint, appliances, etc.

The only problem is that it’s a short sale, and was recently reduced to the current price. The owners bought it for $115,000 (before spending $20K or so in renovations), so getting the bank to agree to anything below the reduced price is probably very unlikely. It would rent for around $950/month, so there’s just not much cashflow, and negotiating the short sale process could tie up my line of credit for months as I sit there and twiddle my thumbs.

This one will very likely go quickly at this reduced price, as it’s a great deal for a home owner, as similar homes are selling for $110,000-$115,000.

Blanco St.: $69,500

This is the one with “modern unique features” that I poked fun at in a past post. Honestly, this was a weird one, as I was shaking my head and laughing when we first walked around, but the more I thought about it, the more I became intrigued.

One nice plus that doesn’t convey in the photos is the location, as it’s very close to the town square, and it’s just a few houses down from some $200,000+ Victorians and other historic older homes. It’s a 1 bedroom, 1 bath 1000 sq. ft. home that someone pretty obviously worked on themselves, as it’s a weird mixture of pieced-together elements. And the layout is, umm, unique, as there’s just one pretty small bedroom, but it leads into a huge cedar walk-in closet (which is more than half the size of the bedroom), which itself leads into a huge bathroom that’s largely taken up by the 8′x5′ monstrosity of the blue-tile walk-in shower.

The “laundry room” is actually, umm, outside, on the side of the house (in the bottom right photo above). To get to it you have to exit the kitchen to the attached deck on the back, walk off the deck around the side of the house.

About 250 sq. ft. of the total square footage is in the addition with all the windows, and the entrance are those double doors at the front, at the top of the ramp. They also left the old exterior windows when the addition was added, so there’s a window in the bedroom that looks out to the addition, and the old front door is still there in the room that separates the living room from the addition.

The flooring is also a hodge-podge, as much of it is old long-leaf pine (rough but could be refinished, although two sections were cut out at some point and patched badly) and cedar on the floor of the closet and bathroom. Lots of strange hand-crafted wooden thresholds in some places, built-ins, decorate woodwork above doors, etc.

But it does have some potential and charm, and a great location. It’s kind of an odd house, as I was originally plotting ways to turn it into a 2-2, moving walls, standardizing this, yada yada yada, but it actually might have more potential going in the other direction. You’d have to move some walls to make the bedroom bigger, open up the addition to the rest of the house, sheetrock all the walls, and basically gut the bath, but it could be a very cool artsy/rustic house without a ton of heavy lifting. I’d basically leave it a 1-1 (obviously risky and limiting when it’s time to sell it) but play up the rustic appeal, to either an older single person looking to live close to downtown or a young couple.

As a rental, though, it won’t quite work at the current price. I’d probably spend about $7,500 making the changes I’d want, and my plan with any of these is to hunker down for a few years before trying to re-sell them. It’d rent for $650-$700/month, so I’d realistically need to get it for somewhere close to $50,000 for it to work and have a bit of padding as far as cash-flow. It was just listed recently, so this is one to keep an eye on, as I doubt they’ll get offers at $69,000, as the house won’t appeal to everyone, so it might be a more serious possibility if they reduce the price and will consider low-ball offers from there.

Peach St.: $59,000

Horror show. This is a 3-2 with about 1600 sq. ft. and is on a huge lot, but it’s a nice example of some flipping gone wrong. When I was first thinking about getting into the house flipping fun, a guy in town bought various properties, including this one, and seemingly made a killing flipping them.

Something seemed odd from the get-go, as he seemingly did a decent amount of work on them, but it was very hit or miss, with some major stuff done but other major, glaring stuff completely undone. He’d install a new furnace but would leave an old, disintegrating work. Interiors were the same, as he’d leave an old gross stained tub but put in a new pedestal sink. Despite that, the two properties he bought and flipped looked to be successes on paper, as they sold for full price within a week of listing, both at basically twice what he paid for them. According to the county records, he bought this property for $59,000 and sold it for $135,000 about 30 days after purchasing it.

Fast-forward to the present and it seems that there was a good bit of shadiness going on, as far as having an appraiser in his pocket and a straw buyer. This property on Peach St. was just foreclosed on, and apparently the previous owner sold it at an inflated price, managed to somehow pocket the difference himself, then rented it out, but at some point stopped making the mortgage payments. Tenants were evicted, property foreclosed on, end of story.

This thing really just needs to be bulldozed, as all of the cosmetic repairs he did are half-assed and need to be pulled out. Worse than that, though, is the floor is failing throughout the house, as he apparently just carpeted over the failing subfloor. You can feel the floor give in various spots as you walk on it, to the point that it feels like it’s just carpet and no subfloor at all in some spots. (Which actually might be the case, based on the other repairs). There’s only about 12 inches from the ground to the subfloor, so I don’t even know how you’d go about fixing it, as it’s not a slab foundation but there’s no room at all underneath the house.

Some of his handiwork is in the collage above, as far as texturing and painting over an old electrical box instead of removing it, and the “midget” door (our realtor is only about 5′ 10″). The door in that photo extends down about 12 inches past the threshold of the door, as I guess someone at some point raised the floor 12″ or so, but didn’t bother re-framing the door. I also like the strange X cabinet in the living room, there for absolutely no ostensible reason, but something the lasy guy just left there and textured/painted, too.

I’m not even sure this would be worth buying at $20,000, as it’s basically a big pile of crap to begin with that was further crappified by a shady “flipper”.

Sunset Dr.: $65,000

This isn’t quite as bad as the last one, but pretty bad. It’s a 3-1, about 900 sq. ft. on kind of a dumpy street in not the best location. It’s not terrible but it’d basically need to be gutted, as everything in it is old, stained, or just crazy.

They converted the garage into an office (I think), but it’s good oddly painted ceiling tiles and a strange mixture of 12×12 mirrored glass on the walls, along with pieces of carpet cut out and glued to the wall. Lots of water damage and mold in the bathroom and laundry room in the garage, needs a new furnace, roof, kitchen, everything.

This might not be terrible at $30,000 but even that’s iffy, as the neighborhood isn’t good and has no real prospects of improving.