Flip Thy House

House #1: Pending

Well, that was fast. After a quick conference with the wife and thinking it over during lunch, we countered the offer we got this morining for House #1 at $86,000 (with the same $2,500 in closing costs that they included in their offer, so essentially we countered their offer of $81,500 with $83,500) and they accepted in about 10 minutes.

Signing the contract tonight and, fingers crossed, shooting for a pretty quick closing date of December 11th. That may not happen but I’m out of town on another poker reporting gig from December 12th-December 19th, so they’re going to push their lender to get it done by the 11th, but we’re all on the same page as far as it possibly slipping until the 20th or later.

Slightly mixed feelings as far as all the things I rambled about in the earlier post, but I think the happiness I felt when our realtor called back with news that they’d accepted our counter-offer is pretty indicative of this being the right choice, as opposed to renting it out and hanging on for larger profits later down the road.

I’m pretty bullish as far as the prospects of property appreciation five and ten years down the road, but the next few years might be less than pretty. Lots of good arguments to be made for getting my investment out of House #1, making a little bit of scratch, and putting it back into more flips as prices continue to correct, instead of those same investment dollars basically stagnating, waiting for the market to perk back up.

After I take a break, that is. Yep, definitely taking a break. Definitely. Not even looking at listings to see what might be available. Definitely not doing that. Well, maybe justa bit, but only for research purposes. Yep, definitely for research purposes only.  

But that’s obviously getting ahead of myself, as we have to get the deal done and closed first, which is far from a given these days, especially with a buyer looking to work closing costs into the deal. So, you know, fingers still crossed.

Lo and Behold, an Offer

We’d pretty much resigned ourselves to renting House #1 and had signed the paperwork for our realtor to list it for sale as well as for rent late last week, so when I saw our agent’s number on my cell phone, I assumed he had a potential tenant lined up. Surprise surprise, he was calling with an offer.

We’d originally listed the house for $94,000, left it there for about 60 days, and then bumped it down to $89,500 two or three weeks ago. The offer is for $84,000, but with $2,500 for closing costs, so essentially it’s an offer for $81,500.

According to the other agent, it’s a first time home buyer and she’s “pretty firm” on the offering price. Her main concern and rationale for coming in below the listing price is that the foundation needs leveling (which it does, so no huge surprise there). She also wants a fairly quick closing, December 14th, as well as a $400 home warranty plan.

If we accept the offer as is, I’m looking at a net profit of about $4,000-$5,000 after everyone gets their pound of flesh (agents, tax man, title company, etc.). That’s not really a number that makes me do ecstatic backflips of joy, considering the fact that I invested a lot of personal labor and time in the house, but it’s also not terrible, especially the more I think about it.

Lots of things changed dramatically after we bought the house back in February, most notably the ability for my target demographic (first time home buyers looking for an affordable 3-1 starter house who are willing to overlook some of the “charms” of a 70 year old house) to get loans. Central Texas has been fairly immune from the dizzying past highs of the real estate market as well as avoiding the current precipitous plunge in some areas, but there’s no denying that we’re feeling the same effects other areas are, especially as far as availability of subprime (and adjacent to subprime) loans.

I also have to keep in mind that my plans shifted pretty dramatically after buying House #1, when we decided to sell our house in Austin that we were renting. A smarter person than myself would have been more prepared for that possibility, but I felt like I had to move on buying House #1 or lose it, and while I knew that selling the Austin house was a real possibility, I didn’t cover all the bases as completely as I could, as far as feeling out our tenant (my brother-in-law) as to what his plans were, if he knew we were planning to sell the house in the near future. Turns out his plans were to go ahead and immediately find an apartment to rent, which escalated the decision to sell the Austin house, which meant I had to shift focus to getting that place ready to roll instead of working on House #1.

I think that was the right decision, as we managed to bumble our way into selling the Austin house at pretty much the exact top of the market in June, but it pushed everything back with House #1, reducing any profit due to carrying costs and getting it on the market much later in the year.

It’s also worth noting that House #1 was my first shot at the flipping thing, and I made a lot of rookie mistakes. I spent too much time dinking around myself doing all of the work, especially when I could have hired it out and been working on the Austin house simultaneously. It also was my first attempt at finding local contractors for roofing, furnace replacement, and flooring, so there was a lot of trial and error there, and some screw-ups on my part as far as the timing of getting people in and out. I also wasted an ungodly amount of time driving back and forth to Lowes, not yet adjusting to country life where the nearest Lowes is an hour and a half drive, round trip.

With all that babbling and rambling in mind, walking away with $4,000-$5,000 in my pocket isn’t terrible. There’s a very real chance that I could be leaving money on the table, and that I should rent it for 2-3 years, let it cash flow slightly, then sell it later for a much larger profit. That’s assuming the economy doesn’t tank, of course, and that lending practices at least slightly return to the days of yore, once a lot of the subprime losses by financial institutions gets flushed out of the system and everyone forgets the dangers of freely available credit for all.

I also was never looking at a real windfall here, even in the best scenarios. Yeah, $10,000-$15,000 in profit would have been much nicer, but even that wouldn’t be life-changing, break-out-the-champagne profits. A lot of the motivation with taking on the project was to stop talking about flipping houses and give it a whirl, putting my money where my mouth was, and even a profit of $0 (or hell, even a small loss)  would accomplish that, as far as the following through on my ambitions part of the equation.

Long story short, I’m leaning towards taking the money, chalking up lots of experience and learning losses, and booking at least a small profit on the first venture into flipping. It’ll help ease my mind substantially, too, as far as House #2, especially with the inevitable repair costs piling up. I’m thinking that we’ll counter at something like $85,500 or $86,000, and hopefully wring an extra thousand or two out of the deal.

So, in the end, good news. Like anything, it could have been better news, but such is life.

The Dreaded “R” Word: Renting

Fairly uneventful week in real estate land, as I continue to plug away at House #2, prepping kitchen countertops for granite tile, finalizing tile/paint colors, finishing out the framing for the two walls I opened up, getting the existing bathroom ready for tile, yada yada yada.

I did get our landscaping/trash haul-off guy out yesterday, who has been a life-saver on assorted projects. Not only does he work cheap, but he actually, you know, works.  Met him at 10 in the morning to outline what I wanted, paid him, and by six he and his crew were finished with the bulk of the work. Which shouldn’t be amazing or surprising, but is increasingly so, as I can’t get a freaking contractor of any sort to freaking return a phone call in this town.

Ahh, the bitterness. Mmm…

Which I suppose is part of the price you pay for living in a small town of approximately 10,000 souls, as far as occasionally having to get into line and wait when you want something done, and there’s a relatively small number of people who can do it. But I never thought it’d be this difficult to line a contractor up for what’s a relatively simple job. I’m honestly to the point where I may just tackle the framing for the bathroom addition myself, as the list is dwindling anyway as far as the work I was going to hire out, since I’ve knocked out a good bit of it myself already (and axed a few other things from the plan).

I’ve got good contacts for plumbing and electrical work, and the only thing really holding me back is the framing. I swore I would avoid trying to do all of the work myself, for the sake of speed, but I’m not sure what else to do, when I can’t get anyone out to do the work. I wanted all of this finalized and ready to roll before leaving for another business trip on October 24th, but that’s looking less and less likely. So, you know, boo.

Spoke to our realtor last week about possibly renting House #1, as his broker had a client who was interested in renting it and wanted to know what my thoughts were on the subject. While I feel like renting it out now would be an admission of “failure” of sorts, it’s probably the smartest thing to do, given the circumstances. It’s been on the market for nearly two months with no offers, and it’s getting late in the year, with more listings popping up in the last few weeks that I don’t like to see, as far as REO/HUD properties that are priced essentially the same as House #2 but are much newer 3/2s.

The rental market is pretty tight here, so I could very likely rent it pretty much immediately, and it should cash flow about $200/month if I hire someone to do the property management for me, and around $275/month if I do it myelf. Which isn’t bad for a SFR, and I’m not at all opposed to renting in theory, as I wanted to pick up some rental properties. I just kick myself as far as not renting it immediately after buying it, as I could have made the necessary repairs and gotten it rented in a few weeks, instead of going the route I did. Such is life, though, and this whole thing is a learning process for me, so chalk one up in the “know better next time” category.

Kitchen of House #1

More photos seem to have gone AWOL on me, as far as before, but here are a few before/after photos, focusing on the counter area of the kitchen, where the bulk of work went into:

Continuing the general theme of the rest of the house, I didn’t make any massive changes to the kitchen structurally, and basically worked with what was there. I wasn’t a big fan of the color of the countertop in place, but it was pretty new and in excellent shape, so I ultimately ditched any plans to replace it. The hardware on the cabinets was new and reasonably nice, so I simply re-painted the cabinets and left the hardware.As far as what I did do, here’s a quick list: installed tile backsplash and tile on one corner of the wall by the counter, re-painted the entire room, new vinyl flooring, replaced the old ceiling tiles, replaced the existing fluorescent light with a new light fixture, painted the cabinets, installed a new sink and faucet, replaced the grimy drip bowls in the stove.I wasn’t quite sure about the bright yellow color I picked at first for the top half of the walls, but it sort of grew on me, and I think it helps to brighten up (and open up) a galley style kitchen that only has one small window for natural light.

I don’t have a shot of the ceiling, but I ended up going with some 12×12 Armstrong ceiling tiles that have fancy patterns, sort of like a stamped tin ceiling look. It ended up taking me longer than I thought, as the tiles were fairly fragile and difficult to work with (they crumble and tear really easily), and I had to go back and caulk almost all of the seams. It looked good in the end, though, and saved me the hassle of hiring out the job if I’d had sheetrock put in, as you simply staple the tiles up, so while labor-intensive, the actual installation wasn’t that difficult. A bit pricy, as I ended up spending $250 on the tiles and materials, but not insanely so.

I was pretty happy with how the slate backsplash turned out, especially carrying it on down the corner wall there by the counter and pantry door. I’d originally planned to just do the backsplash area proper and paint that little piece of wall, but at my wife’s prompting I tiled the whole thing, and am glad I did, as it makes the backsplash pop a little more instead of just lurking back in the darkness beneath the cabinets.

Again, I’m a big fan of tile backsplashes, as they’re actually very easy to install (much easier than tiling floors or tub surrounds) and everyone thinks they look great. While the finished product looks as if it’d be very difficult to install, the reality is usually quite different, depending on the tile you use. The smaller pieces I use here come in 12×12 sheets, already spaced out due to the attached plastic backing, so you simply install them in 12×12 sections, and only have to worry about spacing and aligning each section. In many cases you don’t even have to trim them, as you can simply remove one row from a sheet, two rows, etc., to fit the space you have to fill in.

Pricing tile for backsplashes is kind of scary, as the 12×12 sheets I used here con the end sections and corner wall cost $10-$11 per sq. ft., so at first glance it seems prohibitively expensive. And it’s not dirt cheap, but you’re usually not talking about that much square footage when you get down to it, and kitchens are typically where you want to spend money on a rehab, so you get a lot of bang for your buck. You can also often use less expensive tile for certain areas, with some planning. In this one I used much cheaper 6×6 slate tiles for the back wall of the backsplash, and only used the more expensive smaller slate tile mosiac sheets (1×1 and 1/2×1/2) for the end sections.

As far as regrets, not a huge fan of the vinyl flooring I used. It looks decent enough but it’s way too fragile for my liking. The furnace installers were careful and put down protective material on the floor but the vinyl was still dented and dinged from where they set the new furnace on the floor, in the process of bringing it in. I also cheaped out on the new light fixture I put in, going with a lower-end halogen light. It doesn’t look terrible and it’s low-profile (the ceiling is fairly short as is so I didn’t want to use anything that protruded down too far), but it’s kind of cheap looking. I’d originally planned to put in some recessed lights and I bailed out at the last minute, as I’m still not really comfortable working with electrical stuff and the halogen light was simple and easy and I could be done with it in 15 minutes. The real regret there, though, is that I had the entire ceiling exposed to replace the tiles, so there really was no reason not to go ahead and installed recessed lighting as I’d planned, as it would have looked much nicer, provided more light, and wouldn’t have cost all that much extra.

Total renovation costs for kitchen:

Flooring: (will be included in total flooring costs listed later)

Tile backsplash (includes tile, mortar, grout, etc.): $250

New sink and faucet: $210

New ceiling (ceiling tiles and caulk): $250

Paint: $40

New light fixture: $20

Miscellaneous (wallplates and switchplates, screws, drip bowls, etc.): $30

Total cost: $800

Back in the Land of Barbeque

Got back into town last Friday after a week or so in LA doing another poker tournament reporting gig, and I have to say I’m pretty glad to be home. The trip was fun, though, and definitely not as stressful as the July trip to Las Vegas for the World Series of Poker. It was much easier to settle into the routine the second time around, and I didn’t have the spectre of an unfinished house hanging over my head. It also helped that I ran really well at the poker tables myself, making enough in poker profits + salary for the reporting gig to make enough to cover the down payment for House #2.

It wasn’t quite as smooth sailing getting a loan for House #2, but also not quite as doom and gloom as the general media would have you believe. We ended up getting a 95% financing package, with a 30 year mortgage with an interest rate just a smidge over 7%. I’d resigned myself to 90% financing at best (especially since House #1 is still on the books, isn’t rented, and sucked up some of our cash for renovations that’d otherwise be in the liquid assets column), but my wife and I have pretty spotless credit and a decent chunk of monkey stashed away, so in the end we did manage to secure 95% financing.

The closing date in the contract is on or before September 15th, but we may try to bump it up a bit, just to get everything funded and done. All the clamor and hoopla seems to be subsiding a bit in the mortgage lending industry, but with all the jumpiness and unease I don’t want to drag my feet too much, although it would be nice to have another week or two to catch up on stuff around the house, without another house to work on.

Drove by House #2 yesterday and poked around the outside. I’d be lying if I said I didn’t have one of those “What am I getting myself into moments?”, as it definitely needs a lot of work, but it was a fairly fleeting moment. This one is a bit more of a gamble than House #1, as it not only involves much more substantial renovations, but the finished product will be in the higher-end of homes in our area, both limiting the potential pool of buyers and more risky if we have a complete freak-out in the coming months in the lending arena. I also haven’t sold House #1 yet, so it’s still up in the air as to whether I’m completely crazy or not, as far as buying house, fixing them up, and making money.

Like House #1, though, I’ve got plenty of outs, if anything goes awry. House #2 would be just about break even if I rented it, and House #1 would be slightly cash-flow positive. Even after paying for renovations on House #2, we could carry the notes for all three properties (House #1, House #2, and our home) for 12-24 months if necessary, without any serious lifestyle adjustments. Since I’m doing much of the renovation work myself on both House #1 and House #2, we can discount them pretty severely if absolutely necessary, writing off my labor costs, and getting out from underneath them at break-even. The housing market here is still pretty strong, and I just don’t see it deteriorating that quickly, so I’m not too worried (and hopefully not too crazy) as far as taking on another fixer at this stage.

This is it, though, for this year, no matter what promising properties might appear in the future. Hopefully I’ll have both houses sold by the end of the year, and will have rolled osme of the profits over into a couple of rental houses, with enough cash in reserve to buy another fixer in late winter/early spring. 2-3 fixers a year is likely pretty much my limit, as long as I have the day job, as otherwise I’ll drive myself crazy by staying so busy all the time. I hadn’t really realized how stressed I was until the last week, when I could finally breathe and unwind after rushing to get House #1 finished and listed.

No nibbles on House #1 yet but it’s barely been on the market for a week, and things definitely move slower here where we live. I’d be pretty happy if it moved within a month, but anything within 60 days would be nice.