Top 10 Lessons Learned on House #1

If you have any of your own lessons to add (or have any questions about ours), leave me a comment. I have a feeling a lot of our readers will find this article to be very helpful…

So, I’m going to start with a great lesson that we learned today…the hard way…

Over the last few months, we just started buying properties in subdivisions with Homeowner Associations (HOAs) — including Houses #19 through #22. Other than paying our dues on time and not making any design changes to the exterior of our houses, I haven’t really given any consideration to the HOA rules and covenants in these neighborhoods. Well, that lack of consideration is going to cost us some money…

We received a notice in the mail today that the exterior painting we did on The Lake House doesn’t conform to HOA guidelines, and that we didn’t receive approval for the new paint colors. The covenants clearly state that all exterior painting must be approved by the HOA in writing and that only certain colors may be used.

The letter only pointed out that the trim color on the house (currently an off-white) must be white instead. This means that we’ll have to pay our painters a few hundred dollar to repaint the trim, gutters and garage doors on this house; and if it turns out that the main exterior color violates the rules as well, we may have to repaint the whole exterior, which would likely cost $1500-1800!

And we’ll have to go back to the buyers of this property and let them know that we’ll be changing some or all of the paint colors on their new house…

Luckily, we received this letter today. We were planning to start painting the exterior of The Trifecta House (which is in the same subdivision) tomorrow, but given this new information, we’re going to hold off until we can talk to an HOA representative and get official approval.

Hopefully we won’t have to repaint anything other than the trim on The Lake House, and hopefully the colors we’ve selected for The Trifecta House will get approved…I’d hate to waste more time and money because we forgot to check with the HOA before we started painting. We’ll also make sure to get the colors for The Leak House approved before we start working on that one as well…

After this, I’ll start being a lot more conscientious about our houses in HOA subdivisions…

Additionally, the credit has been expanded to including some current home-owners who are buying a new home, as well. Specifically, anyone who has owned his/her own home for at least 5 years and is purchasing a new home is eligible to receive up to $6500 in tax credits.

For those interested, more details are in this news release…

I’m very curious to see the impact this extension has on the market. Over the past two months, we’ve seen a huge surge in activity, both in terms of selling our houses and trying to buy new houses. We’ve sold all but one of the houses we have on the market, and we’ve had difficulty buying new houses due to all the competition from owner occupants looking to take advantage of the credit.

I assume that things will slow down over the winter, but given the extension expire in April, I have a feeling there will be another buying frenzy in Spring for those who missed the deadline this time around.

We’ll certainly be trying to stock up on properties between now and then, and hopefully we’ll be able to capitalize on next tax credit deadline when all the buyers are out looking to buy their new homes…

This realization came this morning when I figured out a way to get my carpet and vinyl flooring for about 20% cheaper — and a HIGHER quality — than I previously could!

For the past 10 projects or so, my carpet and vinyl installation has been done by the carpet warehouse that’s been supplying the materials. This local store was willing to give us great carpet/vinyl prices as long as we used their installers — who were also reasonably priced, but not overly skilled. While the prices were good, it seemed like each job came with its own set of frustrations — on one job, the trim work was horrible; on another, the floor wasn’t leveled beneath the vinyl; and on another, the carpet wasn’t well stretched. But, because the materials prices were so good, we continued to use those contractors.

It took another investor that I met with yesterday to remind me that I live — LITERALLY — an hour and a half from the place where much of the country’s carpet is made. Dalton, GA is carpet and textiles manufacturing town about 90 miles north of Atlanta; they have dozens upon dozens of carpet manufacturers, distributors, wholesalers, and retailers, all offering tremendous selection at ridiculously low prices.

The investor I was speaking with yesterday mentioned that he worked with a warehouse in Dalton that provided not only great selection and prices on carpet, but also great service (they would overnight samples, deliver any purchases for a small fee, etc). So, this morning, my wife and I drove up there. We were amazed!

We found the same carpet we had been using — a low- to mid-level plush — for $4.99 per square yard; we had been paying $6.99 per square yard for the same stuff! Additionally, for $4.99 per square yard, we were able to get top-quality vinyl sheeting; in fact, we likely would have been paying over $10 per square yard for that same vinyl from our previous supplier! While the prices I had been getting were very decent, these prices were just unbelievable.

The fact that this world of low-priced flooring was just 90 minutes from my house and I had completely overlooked it for the past year was just an indication that I had been getting lazy in my search for ever-better materials and contractors.

Now that I have a low-cost supplier of flooring material, I can go back to using the great installers I previously worked with. Given the cost of materials and their cost of labor, I expect to save about 20% on carpet/vinyl flooring moving forward. While this might only add up to about $300-500 per house, given that we’ll hopefully do 15 houses this year means we could end up saving more than $7000 a year on flooring…well worth not being lazy…

Cost Estimation Workshop

So far, we only have a couple of sign-ups for this one, so you’ll likely get a lot of time to ask 1:1 questions and discuss any upcoming projects you might be considering.

I have a question for you – how do you determine the finish level of the flooring for your houses? I have a pretty good handle of the finish level for most of the house I am offering on, but I’m really stuck on the flooring. Carpet would be most economical and would be in line with most of the neighborhood. New, neutral carpeting would be ahead of most comps, which either have older carpeting or new but very taste-specific carpeting (off white with a bright red border?) But there’s a house, same neighborhood and similiar size, type, etc., that is on the market for about $40k more than I plan on listing my (hopefully) house at. It’s a rehab and flip too. This house has new hardwoods. I’m really not at all certain that the extra $40k is realistic in the neighborhood, but obviously, the floors really look fantastic. What would you do in that type of situation?

Before you consider the answer to this question, take a look at my latest article in the Education section of the site:

Making the Right Rehab Choices

Hopefully this will give some insight into how I make rehab decisions such as this the one posed above. So, what do you think the right answer is?

I’m guessing many of you — after reading that article — will say that it’s a good idea to put in hardwoods in order to keep up with the competition of the other house listed for sale in the neighborhood. But, remember one thing: it’s quite possible that at $40K more, this other house is not actually competition. For example, if reader’s house is listed at $120K and the other house is listed at $160K, it’s very unlikely that the two listings will attract the same set of buyers.

With that in mind, I believe the question-asker answered her own question when she said:

“New, neutral carpeting would be ahead of most comps, which either have older carpeting or new but very taste-specific carpeting”

And that would be my suggestion…put in new, neutral plush carpeting, save a few thousand dollars by not putting in hardwoods, and still have a house that’s nicer than the competition.

Btw, if you have any questions that you think I might be able to help with, don’t hesitate to send them along, either in a comment or an email…

6 Rules For Managing Your Contractors

Have any other great rules for managing your contractors that I didn’t capture here? Feel free to leave a comment to help out our readers…

I will be holding Rehab Estimation Workshops at one of our actual flip houses the first two weekends of June. For more information, check out:

Rehab Estimation Workshop

Feel free to email me with any questions!

Today, I want to give something away…here is a copy of one of the spreadsheets I use to analyze the profitability of a rehab/flip project (modified to remove a lot of the crap that’s specific to my projects).

It’s a pretty straight-forward spreadsheet, and anyone who has completed a couple flips probably has their own; but I remember when I was first starting out in this business, and I had no idea where to start. Just being able to see in one place all the costs, expenses, commissions, and fees associated with a typical rehab makes the whole analysis a lot less daunting. Not to mention, the rundown of typical labor and materials costs on the worksheet should help new investors get a handle on the list of rehab costs associated with a rehab project.

The spreadsheet is currently populated with an estimate from a recent flip, just to give an idea of how it’s used. Hopefully, you’ll find this useful…and if you do, please feel free to leave me a comment with your feedback…

Tonight, she managed to pull herself away from American Idol long enough to help me write more about staging. Thanks honey!

In true Idol spirit, here are her Top 7 tips for today:

1. Use Windows Wisely. Make rooms taller and windows larger than they actually are with clever curtain positioning. Notice in our staging pictures how the curtain rods are hung well above the windows. This draws buyers’ eyes further upward, emphasizing the height of the room and leaving them with the illusion that the room is taller than it really is.

2. Light Sells Houses. It’s quite simple to bring more natural light into your rooms while visually increasing the size and prominence of your windows by positioning curtains on the right and left sides of the window trim, rather than covering the windows themselves. This frames the windows and makes them appear significantly larger and more substantial than they actually are, which is really appealing to buyers.

3. Even More Light. While we’re on the topic of light, keep your eyes open in stores like Home Depot, Lowe’s and Target for 3-sets of lamps on the clearance shelves—and use them wherever you can in the house you’re staging. (We’ve picked up a few sets of three—including a floor lamp and two table lamps—for around $20 a set!) Even better, if you or your agent has time to get to the house before your buyers arrive for a showing, brighten up your rooms by turning on every single light on in that house, even if it’s super sunny outside. This little trick, combined with all the sunlight shining in through your properly-staged windows, inspires buyers and leaves them with a cheerful and happy (instead of doomy and gloomy) feeling. Cheerful and happy translates to a heck-of-a-lot-more-willing to write up a contract!

4. Two words: GLASS TABLES. It’s no secret that larger spaces generate higher sales prices. So to show off all that space that exists (or doesn’t really exist) in great rooms, living rooms, and dining rooms, use glass top tables. Items like these that you can “see through” that don’t visually take up as much space as wood or other traditional materials.

5. Smoke and Mirrors. Okay, I’m not saying to use smoke and mirrors…but mirrors by themselves are a very good thing. Talk about buyers seeing themselves living in that house, literally! Don’t go overboard though, or you risk dangerous cheesy “Big 80’s” design disaster-style flashbacks reminiscent of mauve carpet and black lacquer accents. Stick with simple and classy and you won’t go wrong.

6. Protect Your Carpet. If you’ve installed new carpet in the house, put down plastic carpet protector. Not only does it keep the carpet from getting stained, but multiple buyers have noted that the fact that we made an effort to protect the carpet indicated that we probably took extra care when renovating. We’re not sure there’s truly a correlation, but if that says “higher quality” to potential buyers, that’s all that matters. Another advantage to protective carpet plastic is that you can use it to strategically define the “flow” and walk-ways through the house, which establishes a clear path for buyers to follow.

7. Use Rugs. While we’re talking about the floor, remember that area rugs are an awesome way to add visual interest with splashes of color, define and anchor your furniture to create specific spaces in large rooms, add a sense of warmth to tile and vinyl floors, and draw attention to your newly finished hardwoods or newly installed carpeting. Area rugs don’t have to be expensive to be effective—in fact, most of our area rugs come from seasonal clearance sections at home improvement and big box stores. When used in the right context, area rugs are like artwork accents for your floor!

Well, that wraps up our Top 7 for tonight.

Oh, and my wife would like everyone to know her Idol predictions are that Lil and Matt are going home tomorrow night. Scary obsession, I know.