House #36: The WI-1 House

June 27, 2012 · 9 comments

We just finalized the contract on our first project in Milwaukee, Wisconsin (hence the name)…

I’ve mentioned a couple times that we’ve been working with an investment team from Arizona to scout out other markets, and we’ve decided to take a closer look at Milwaukee, starting with this first house. It’s been quite the debacle trying to get this one to a finalized and accepted contract — we spent weeks in negotiation, weeks in due diligence after verbal acceptance without getting the seller to sign the contract and now finally we were able to get the seller to sign the contract and agree to our due diligence requests (de-winterizing the property was the big one).

Luckily, we have a couple folks up in Milwaukee who may be looking to work with us, and have so-far helped us tremendously with due diligence, finding contractors, getting a couple bids and navigating the market. Hopefully we’ll have an opportunity to work more closely with them and build a strong team — and perhaps some partnerships — up there.

This is going to be a big project, and I’m not convinced that the profit potential is huge, but it will give us an opportunity to get our foot in the door in a new market and start getting accustomed to a different type of rehab and new contractors. We have the house under contract for $151,000 and my preliminary budget is looking to be around $75,000 — this will include a full interior remodel, some foundation repair in the basement (very common in that area), finishing the basement, and doing a decent amount of exterior work.

We expect a resale value in the $260-300K range — while that’s a large range, finding comps has been difficult and we’re basing all of our numbers off a worst-case ARV ($260,000), which will still make us (barely) profitable. If we can get something on the higher side of that ARV, it should be a reasonably profitable project.

There are still a lot of unknowns, but we’re excited about taking a risk on this one and seeing what happens. Based on how long it’s taken to get to a ratified contract with this bank, I imagine we’re probably still several weeks from closing, but I’ll post more as we continue to jump into the project…

9 responses to “House #36: The WI-1 House”

  1. T Pope says:

    Hey J Scott. Thank you for sharing your knowledge..I have closed on my first house last week. It is a 3/2 forclosure, in a good neighborhood. It really just needs some painting, yard work, and small punch list items. My question is should I invest in staging this first house and if so, should I rent or buy the furniture? Thank you

  2. J Scott says:

    Hi T Pope,

    Congrats on the first house! I’m a HUGE proponent of staging, and we’d never try to sell a house with it. I believe that in many cases it will help you generate a higher sales price, but more importantly, in most cases, it will generate a quicker sale.

    As for whether to rent or buy, you might consider just hiring a staging company on your first project, as it would likely be cheaper than renting and — if you don’t some place to store the furniture between projects — more efficient than buying. While we prefer to buy all our furniture, we generally have the ability to move it between projects, so we don’t have to pay for storage space — this saves us money.

    Call around to some companies in your area and see how much they charge. You’ll likely find that it’s more inexpensive than you think, and again, it’s definitely worth it (in my opinion). Once you start doing more projects, buy a set of furniture — it will pay for itself after one or two projects.

  3. T Pope says:

    Thanks J Scott….I will let you know how my first project ends up….i am a little nervous but excited….

  4. cliff says:

    hey J
    do u have to disclose to your new buyers that the house did have foundation issues even though you have fixed them? same with your last house u sold. was wondering about that because it could scare some new buyers away.

  5. J Scott says:

    Hi Cliff,

    On the standard Georgia State contract, there is a Seller’s Disclosure document that asks lots of questions about the property, the condition, any repairs that were made, etc. One of the questions is about foundation/structural repairs, so that fact that we did repairs in this area, they needed to be disclosed. We disclosed that we did repairs, and also offered to provide a letter from our structural engineer indicating exactly what work was completed and that it was verified to be completed correctly and within all building codes. We didn’t have any buyers — in this case — that had any issues with the repairs, as they were confident everything was done correctly.

    But, the short answer is yes, we generally disclose all work we do on a house.

  6. cliff says:

    hey j. a couple quick questions for you if you have time to answer them. 1) you ever flipped a meth house? pro’s/cons? 2) if a property owner contacts you as a motivated seller and you discover the house is crap and needs bulldozed but the property is zoned commercial “general business”. how do you determine the commercial value of the land? 3) how far back are you looking at comparables now that the market seems to have stabilized somewhat… thanks j. your awesome man. i wanna be like you…

  7. J Scott says:

    Hey Cliff…here you go:

    1. Not yet. And I’d probably pass on it, as the costs of doing all the environmental tests and then having to disclose the situation to the end-buyer would likely make the deal not worthwhile. It would have to be a ridiculously profitable deal to even consider it.

    2. Commercial around here is completely depressed, so I likely wouldn’t buy anything that could only be resold as commercial. That said, if I were to consider it, I’d determine the value of the land based on an income analysis of whatever would be built there. Assuming the analysis indicated a large profit potential as a commercial investment, I might develop it myself and then resell after development.

    3. Most appraisers these days are finding comps within the past 6 months. I’ll see them occasionally going back 9 months, but not too often these days. Last year, they were going back 1+ years in some cases.

  8. cliff says:

    thanks j! just what i needed to hear

  9. Mark L. says:

    J Scott,

    Stage,stage,stage!!, J convinced me that staging was one component he always did. I followed his advise and sold my rental property quick and for a higher price!!!

    Mark from Arlington,Texas

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