Author Topic: Buy Fixer-Upper?  (Read 6336 times)

GumbyPickles

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Buy Fixer-Upper?
« on: June 16, 2015, 11:40:09 PM »
Currently looking at buying a 1,400 sqft fixer-upper for $219k from an older family friend. 

Homes in a good condition with same specs sell for $320k+.

Kitchen needs a rennovation, bathroom needs rennovated, and various carpet/wall painting/etc needs to be completed.

Trying to find any tips/tricks on if I should pull the trigger.  Would be interested in living there (not just flipping).

Thanks for any ideas.  I will definitely have a home inspector come out and make the contract contingent on the inspection. 
« Last Edit: June 17, 2015, 12:45:17 AM by GumbyPickles »

ShoulderThingThatGoesUp

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Re: Buy Fixer-Upper?
« Reply #1 on: June 17, 2015, 04:59:35 AM »
The rule of thumb I've read for flipping a house is that you only want to spend 70% of the after-repair value. 70% of $320,000 is $224,000 - you've got a whole $5000 to work with there.

The problem with living in a fixer-upper is that you are going to put more in to it than you will get a return on, because you're going to want better than 'pretty good'. If you have more self-control than we did when we owned one, it can be a cheaper way to live. Expect to need to replace a lot more drywall and subfloor than you think.

Another Reader

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Re: Buy Fixer-Upper?
« Reply #2 on: June 17, 2015, 05:51:52 AM »
Rule of thumb for flips is 70 percent of the ARV less repair costs.  That means carefully estimated repair costs, and the 30 percent gives you a little wiggle room.

However, if you are looking for a house to live in, this could be an ok deal.  You can do a slow flip, do the work over time, and wait out the two years before selling and taking the profit as an exempt capital gain.

ShoulderThingThatGoesUp

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Re: Buy Fixer-Upper?
« Reply #3 on: June 17, 2015, 06:08:59 AM »
Rule of thumb for flips is 70 percent of the ARV less repair costs.  That means carefully estimated repair costs, and the 30 percent gives you a little wiggle room.

However, if you are looking for a house to live in, this could be an ok deal.  You can do a slow flip, do the work over time, and wait out the two years before selling and taking the profit as an exempt capital gain.

So you're saying the formula is 0.7*(ARV - [repair costs]) = correct purchase price? So for this to work, repair costs needs to equal ARV - [purchase price]/0.7 = 320000-219000/0.7 = $7,143.

Another Reader

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Re: Buy Fixer-Upper?
« Reply #4 on: June 17, 2015, 07:09:11 AM »
$320,000 x 0.7 = $224,000.  Subtract the estimated repair costs.  Closing costs are often included in what you are willing to pay, especially if they are significant.  If you have $5,000 in closing costs and $25,000 in estimated repairs, your target price is $194,000.

GumbyPickles

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Re: Buy Fixer-Upper?
« Reply #5 on: June 18, 2015, 06:41:22 AM »
Thanks guys.  The formula makes sense, but makes me feel like this is probably a bad idea.

I notice, however, there is no way that current flippers in the area are following this...

Home on same street sold for $225k last year in similar condition, although smaller, 1 bath, and no garage -  and this year just sold for $350k, but:

-New hardwood floors
-Completely new kitchen including tearing down wall
-New half bath on lower level
-Renovated full bath
-entire home painted exterior
-rear deck added
-rear sliding door added where no door was before

How is all that renovation following this rule?

ShoulderThingThatGoesUp

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Re: Buy Fixer-Upper?
« Reply #6 on: June 18, 2015, 06:46:44 AM »
-New hardwood floors $30,000
-Completely new kitchen including tearing down wall $30,000
-New half bath on lower level $10,000
-Renovated full bath $15,000
-entire home painted exterior $8,000
-rear deck added $5,000
-rear sliding door added where no door was before $2,000

They didn't, clearly. That doesn't mean it's a good idea. Sometimes it seems that contractors will do flips, so their overhead is lower and they might be able to use spare parts from other jobs to do it.

waltworks

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Re: Buy Fixer-Upper?
« Reply #7 on: June 18, 2015, 06:51:24 AM »
Lots of dumb people buy bad deals in RE. Including me (admittedly as a residence that I later ended up selling). But I bought at a time when appreciation bailed me out, like anyone from about 2008-2012. That doesn't mean it's a good idea to buy something that's dependent on appreciation to make sense.

-W

GumbyPickles

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Re: Buy Fixer-Upper?
« Reply #8 on: June 18, 2015, 07:10:30 AM »
-New hardwood floors $30,000
-Completely new kitchen including tearing down wall $30,000
-New half bath on lower level $10,000
-Renovated full bath $15,000
-entire home painted exterior $8,000
-rear deck added $5,000
-rear sliding door added where no door was before $2,000

They didn't, clearly. That doesn't mean it's a good idea. Sometimes it seems that contractors will do flips, so their overhead is lower and they might be able to use spare parts from other jobs to do it.

Yeah, and thanks for the breakdowns.  I'm just surprised as this guy (after stalking him on linkedin) is a real estate agent. 

I'm still considering going in with the original offer, then after a home inspection talking them down a bit.  Since this was meant to be a live-in residence, not a flipper, I'll also avoid paying rent in the same area over the next 3+ years. 
« Last Edit: June 18, 2015, 07:22:23 AM by GumbyPickles »

ShoulderThingThatGoesUp

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Re: Buy Fixer-Upper?
« Reply #9 on: June 18, 2015, 07:26:28 AM »
Those breakdowns aren't gospel, just my guess. YMMV significantly, of course.

As a realtor he also saved the 3% sale commission. Do you know how much he initially listed it for? That would tell you how happy he is with the result.

GumbyPickles

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Re: Buy Fixer-Upper?
« Reply #10 on: June 18, 2015, 07:30:40 AM »
Those breakdowns aren't gospel, just my guess. YMMV significantly, of course.

As a realtor he also saved the 3% sale commission. Do you know how much he initially listed it for? That would tell you how happy he is with the result.

Listed $350k sold $350k in 2 days.

Also, I'm not using a real estate agent either, so I'll be paying only closing costs.

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Re: Buy Fixer-Upper?
« Reply #11 on: June 18, 2015, 08:46:17 AM »
In my opinion. the flip costs are grossly overestimated.

For say 1200 square feet:

Engineered hardwood floors installed by flipper in living areas:  $2,000, or by contractor $3500.  Add for bedrooms.
Completely new kitchen for smaller house $6,000 to $7,000, including cheap imported granite.  Maybe $7-$8,000 if all work is subbed out
New half bath, assuming plumbing in place and permit obtained $2,000 to $3,000.  Max $5,000 if subbed out.
Renovated small full bath $4,000 to $6,000, depending on materials and how much work is subbed out, maybe more if extensive plumbing needed.
Exterior paint for 1,200 sf home: $2,000, $2,500 max.
Rear sliding door $1,500 to $2,000 depending on door.
Full interior two-tone paint: $2,000
Rear deck $3,000 to $4,000, depending on size, more for the structure if there is a walk out basement and this is the first floor.

These are low end prices based on the flipper doing some of the work and having trade crews on tap.  Also in LCOL area, not California or HCOL areas on the East Coast.


GumbyPickles

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Re: Buy Fixer-Upper?
« Reply #12 on: June 18, 2015, 09:52:48 AM »
In my opinion. the flip costs are grossly overestimated.

For say 1200 square feet:

Engineered hardwood floors installed by flipper in living areas:  $2,000, or by contractor $3500.  Add for bedrooms.
Completely new kitchen for smaller house $6,000 to $7,000, including cheap imported granite.  Maybe $7-$8,000 if all work is subbed out
New half bath, assuming plumbing in place and permit obtained $2,000 to $3,000.  Max $5,000 if subbed out.
Renovated small full bath $4,000 to $6,000, depending on materials and how much work is subbed out, maybe more if extensive plumbing needed.
Exterior paint for 1,200 sf home: $2,000, $2,500 max.
Rear sliding door $1,500 to $2,000 depending on door.
Full interior two-tone paint: $2,000
Rear deck $3,000 to $4,000, depending on size, more for the structure if there is a walk out basement and this is the first floor.

These are low end prices based on the flipper doing some of the work and having trade crews on tap.  Also in LCOL area, not California or HCOL areas on the East Coast.

These are closer to the amounts I had always thought; but then I started reading Zillow/Remodeling websites and all were astronomical.  But yes, this is a smaller home, so the kitchen is not what a normal 2,500 sqft home kitchen remodel would be, and I do not live in SOCAL/NYC/SANFRAN - Southern U.S. where stuff is fairly cheap. 

ShoulderThingThatGoesUp

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Re: Buy Fixer-Upper?
« Reply #13 on: June 18, 2015, 10:24:43 AM »
In my opinion. the flip costs are grossly overestimated.

For say 1200 square feet:

Engineered hardwood floors installed by flipper in living areas:  $2,000, or by contractor $3500.  Add for bedrooms.
Completely new kitchen for smaller house $6,000 to $7,000, including cheap imported granite.  Maybe $7-$8,000 if all work is subbed out
New half bath, assuming plumbing in place and permit obtained $2,000 to $3,000.  Max $5,000 if subbed out.
Renovated small full bath $4,000 to $6,000, depending on materials and how much work is subbed out, maybe more if extensive plumbing needed.
Exterior paint for 1,200 sf home: $2,000, $2,500 max.
Rear sliding door $1,500 to $2,000 depending on door.
Full interior two-tone paint: $2,000
Rear deck $3,000 to $4,000, depending on size, more for the structure if there is a walk out basement and this is the first floor.

These are low end prices based on the flipper doing some of the work and having trade crews on tap.  Also in LCOL area, not California or HCOL areas on the East Coast.

I was imagining pretty high-end stuff for $350k and didn't know engineer hardwood was that cheap.

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Re: Buy Fixer-Upper?
« Reply #14 on: June 18, 2015, 10:43:19 AM »
All those sites assume you are using a retail contractor and paying retail prices for high end stuff. 

I'm basing my prices on Phoenix, cheaper options at the big box stores or better small operators, RTA cabinets, a $300 to $500 door, and cheap painters.  Also cheap labor - yourself or a handyman for the easier stuff, licensed trades for the more difficult or permitted work.  That's what most small time flippers do.


pbkmaine

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Re: Buy Fixer-Upper?
« Reply #15 on: June 18, 2015, 10:46:10 AM »
So here's the thing about renovating houses, IMHO. In order to keep everyone happy, there are five important elements: 1)You need to be good at it, or at least willing to learn; 2)You need to enjoy it; 3)You need to be able to source supplies that are high quality and cost effective; 4)You need to be flexible, in case you come across the "deal of the century" that alters your plans; 5)You need to be able to complete projects in a timely manner. We have some very handy people in our family, but all of them lack one or more of the five elements, and it's NOT GOOD. In one example, the kitchen has been without finish work (molding, threshold, patching, soffits) for 12 YEARS. It would be a lovely kitchen if it were done, but it will not be done until the house is on the market, because that's the way they roll. In the meantime, there's a lot of marital stress over whose fault this is. Recognizing that we do not have all five of the elements ourselves, DH and I, both realists, buy houses that we can live with as is. For us, that means cosmetic issues only. Interestingly enough, we have found some great deals in houses whose only problems were terrible paint, curtains, and blinds.

GumbyPickles

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Re: Buy Fixer-Upper?
« Reply #16 on: July 06, 2015, 09:21:16 PM »
Welp, I'm doing it.  Ended up talking her down $10k because of outdated electrical. 

My first big financial risk...let's hope this works out!

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Re: Buy Fixer-Upper?
« Reply #17 on: July 08, 2015, 10:32:58 AM »
I wish you the best of experiences. We are in our third fixer home. We do 95% of the work ourselves. Yes we do get lazy and some projects sit unfinished until we decide to move, but magically when it comes time to sell, we button up those long in the tooth projects and move on. We've used this tactic for 20 years and now apply our professional and DIY skills to our rentals. Sometimes it sucks, like when the hot water heater goes belly up and you have water everywhere, but for the most part we are happy campers. I think I would be happy if I always had a house project in progress.

We are in a HCOL area and cannot aquire materials and labor at the low rates shown above. We do alot of research and have compiled a source list over the years for most of what we need. Our current rehab, which is that old unfinished eye sore, our large deck and hot tub. We are not hot tub people, yes we used the old one regularly and maintained everything about it ourselves, but we don't have a go to source for a replacement. More research for me:) I only know I want at least one bed in it but I need to shop for the buyers not for me. Yes this home needs a hot tub, its that sort of home...

But I digress, Again, the best of luck to you!

opnfld

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Re: Buy Fixer-Upper?
« Reply #18 on: December 03, 2015, 03:15:14 PM »
Welp, I'm doing it.  Ended up talking her down $10k because of outdated electrical. 

My first big financial risk...let's hope this works out!
How's it going so far?

thor800

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Re: Buy Fixer-Upper?
« Reply #19 on: December 07, 2015, 08:30:20 AM »
If you are looking to live in it, then you can get by with lower grade finishing work such as in kitchens and bathrooms depending on your timelines.  Flipping it much different story in that prospective buyers depending on the market most likely want move in ready and updated.

Are you handy at all ?  This could save you lots of money depending on what you can do, but dont assume that only finishing work needs to be done.  Older homes can have lots of surprises which cant be ignored like plumbing, sewers, electrical, structural.

Bearded Man

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Re: Buy Fixer-Upper?
« Reply #20 on: December 08, 2015, 07:59:23 AM »
-New hardwood floors $30,000
-Completely new kitchen including tearing down wall $30,000
-New half bath on lower level $10,000
-Renovated full bath $15,000
-entire home painted exterior $8,000
-rear deck added $5,000
-rear sliding door added where no door was before $2,000

They didn't, clearly. That doesn't mean it's a good idea. Sometimes it seems that contractors will do flips, so their overhead is lower and they might be able to use spare parts from other jobs to do it.

Yeah, and thanks for the breakdowns.  I'm just surprised as this guy (after stalking him on linkedin) is a real estate agent. 

I'm still considering going in with the original offer, then after a home inspection talking them down a bit.  Since this was meant to be a live-in residence, not a flipper, I'll also avoid paying rent in the same area over the next 3+ years.

Where are you getting these numbers from? 8K to paint a house exterior?? I got a quote to paint one of mine for $1,300 plus tax. Depending on the finishes and the area, I can see the bathroom and kitchen numbers, for hiring a contractor, but DIY? No way. That said, I've seen a lot of DIY flooring and kitchen jobs. In one case the kitchen cabinets and counters, none of them were even, they wobbled, and the doors were all hung crooked. Like a drunk monkey put it together.