Wednesday, April 13, 2016

Living the Dream: So You Want to Flip Houses

At least once a week someone tells me they can't wait for the day when they can have a job like mine.  It's a dream job they say - you're living the dream!  It always makes me smile, because I’m not sure they know what is really involved.  Sure, the people on the TV shows make it look fun and glamorous, but I can assure you, that’s not the day to day world.  I’d love to only show up on the job site once a week in high heels and designer clothes – but that’s just silly!  You need to be on the job site every single day and ready to pitch in on a moment’s notice. And yes it’s fun to pick out paint colors and tile and fabrics, but that’s a tiny portion of the job.

So I thought it might be fun to share a few things from my dream life, if you’re really thinking about giving this a try, it might help you to know what you're getting into:

Dirty Jobs – Yeah, typically you get to do the crummy stuff that no one else wants to do.  Toilet stopped up?  It’s your job to clear it.  Backbreaking work of heating up old vinyl tiles till the mastic softens and you can scrape them up with a putty knife?  Yup, that would be you again.  Shop vacuuming 2 inches of water out of a basement when a pipe breaks at 10 pm?  Or when your demo guys forget to turn the water off when they tear out the toilet and it sprays a geyser of water everywhere, before you can find the shutoff?  You again. And wallpaper removal?  I've been come an expert!!  As Richard is fond of saying, there are two types of people in the world - the ones that shower before going to work and the ones that shower after.  I've crossed to the other side with the dirty jobs!!
Never ending days – doing a dramatic renovation of an entire house is a big undertaking. For me, it’s a 7 day a week job.  You’ll find your days are taken up with managing sub contractors, solving challenges and juggling priorities (not to mention the dirty jobs outlined above).  Your nights and weekends are spent paying bills and sourcing products for the house. Oh yeah – and writing a few blog posts!
Stress – there are surprises almost every single day.  That wall that you thought was going to be easy to remove?   Well you discover that the joist above it is cracked and will need to be replaced - a big job.  The dumpster that was supposed to be delivered in the morning?  They took it to the neighbors house instead.  The BIG lumber delivery for the second floor, they tried to deliver it to a different neighbor at 6:45 am (yeah, this is not a way to make friends with the neighbors!).  The big contingency budget, that you thought was going to cover everything you found?  Guess again, it’s not nearly enough and your profit margin is dwindling.  I feel like I have a mental spreadsheet in my head at all times, adding up all the overruns.
Exhaustion – this is physically demanding work.  Even if you hire out all the technical aspects, you’ll still find yourself carrying heavy items, scrubbing up messes and running up and down the stairs (for what seems like a thousand times a day).  I’m glad I didn’t wait until I was a lot older to get started, because I’m not sure I’d have the stamina!

So why do it?  For me, it’s a way to do something really creative, a big change from my old corporate life. There is something so fulfilling about taking a tired old house and transforming it into a home for a new family to enjoy.  Some of these houses have been vacant for years and when they’re updated, they bring a new level of vibrancy to the neighborhood.  The new owners love their home and are
incredibly happy.  At the same time, it provides jobs for people and helps build the community that we live in.  

Is it worth the crazy challenges?  Of course I think absolutely yes!!  But before you make this your dream job, be sure and think about the less glamorous aspects of house flipping.  You'll be glad you did.

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  1. Long time reader first time poster. I could not resist this topic. What most people don't realize, and HGTV glosses over, is that the hardest part of RE development is getting a project and making money. It's not like Flip or Flop; see a house on MLS in the morning, phone in a bid, have it accepted, walk into the house to meet your builder (and cabinets), go to the tile store, get pricing of $10K to remodel an entire home (roll your eyes about costs any of us would kill for), hire a stager, run an OH and then make $60K. Time to find another house to flip! Not so much.

    This business involves endless hours scouring MLS, open houses, foreclosures, and weekends driving by properties and leads from wholesalers and other insiders. By the time a property gets to MLS the opportunity is often gone. Foreclosures are risky and ripe with red tape but can be the only way to find any financial head room. In the Boston area, fixer uppers and multi families go way above asking price. We were in a field of 43 offers for the last gut renovation we saw in a Boston suburb. Brokers were bribed by potential buyers during one bidding war. We've bid full price w no contingencies many times only to lose to offers $100k over asking. The market is slim pickings.

    When you put something under agreement, you have to quickly size-up your project and reno cost to get financing. While you are in escrow, you may be working like crazy to assemble your team. You will be hard pressed to find a Waterhouse House Builders you can afford. Contractors are busy and charging top dollar ...if you can get them to call you back. And all this estimating and budgeting is done without access to the house bc you don't own it yet!! Then you need to hope your $700K fixer upper with $200K of renovations appraises out. If not, you are using your own money to fund construction. In the meantime, because you have not closed yet, some of your subs have taken other jobs (it's busy out there) so you are constantly plugging holes and adjusting pricing. When you finally close you aren't sure you still want the project!

    If you are a good project manager, handle stress well, solve problems in your sleep and have cash reserves, you can assemble a great team and learn the rest. If you want to save money, and can't afford a GC, hire a CSL to consult on the project for a fixed fee and scope of work. I find most of the day-to-day "dirty" jobs are covered with subs and there are no toilets running once you cut and cap the site. It's key to know where the closest clean bathroom is unless you want to use the porta potty. No thanks! So yeah you also have to like being in cold, or hot and often dark and dusty homes with no running water. Sound fun? Most of days are spent keeping everything on schedule and making sure the job site is ready for the next trade. Nights and weekends are spent on spreadsheets, sourcing materials and looking at the next project. But weirdly it's fun! So long as you don't add up your hours and divide by the upside - ouch. You really have to love real estate and the thrill of the deal as well as the satisfaction of turning a forlorn property into a thing of beauty as Laurel does so well. This is not a good way to replace an income. The reason builders and realtors are in this space is because they can throw their profit margin or commission into the mix. Most investors joke that the only person making money is the broker who sells the project.

    Love the blog and would like to hear more about your experience with the business side of SoPoCottage. Cheers! Kim

    1. Thanks so much for your response Kim!!! And while yes, I still think it sounds like fun, it's clearly not for everyone and the TV shows make it look much too easy.

      And you forgot to mention it becomes so all consuming, that when you go on 'date night' with your spouse, he has to beg you not to talk about houses :-)

      And yet we continue to do it!! Crazy!!!

      All the best, Laurel


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