House #46: Final Analysis

January 12, 2014 · 5 comments

We closed on The WI-4 House about 10 days ago…

I’ve written about 50 of these final analysis posts in the past 5 years, and this is the first time I’ve had to write one about losing money on a house. While you’d think I might be upset about that, I’m actually thrilled that I’ve gone this long without having to write one! 🙂

The reason it’s taken me so long to write this post is that the sale of the house didn’t mark the end of our dealing with it. Unfortunately, the day of closing, the buyers had some water issues due to icing on the roof and poor attic circulation (called “ice damming”). We, as always, were prepared to do the right thing…and in this case, the right thing was to spend several thousand dollars to remove the ice/snow from the roof/gutters, add additional ventilation in the attic to deter future damming, tear out all the wet sheetrock and then put everything back together. We’re actually still waiting to put back the new sheetrock and paint, as the homeowners want to allow everything to dry out and verify that the issue is fixed.

While we were going to lose money on this house even before these issues, this turn of events just adds to the loss. We had several surprises on this project: the roof needed to be replaced (our inspector didn’t catch that), there was water coming into the basement foundation walls and we needed to do a lot of foundation work (our inspector didn’t catch that either), we decided to finish the basement to get top dollar for the project (we hadn’t budgeted for that), we didn’t end up getting the house on the market until winter, which cut the resale value by about $20,000 and then the house didn’t appraise for the contract price, so we had to drop the sale price. Lots of things conspired against us, but ultimately, it’s our fault for not catching the issues upfront, getting the house done faster, and being better prepared for the appraisal.

While we don’t have final numbers yet, it looks like the total loss will be just under $10,000. Here’s how the numbers break down:

House #46 Financials

We don’t have final insurance or utility numbers yet, so that will be another expense to add, but the lawn care/snow removal number is actually somewhat inflated (this was lawn care and snow removal for several houses), so it probably about evens out.

Also, this was a cash deal, so we didn’t have to break the news to any financial partners about the loss. Though, had we been dealing with a financial partner, we would have covered the loss anyway, as we don’t like to allow our financial partners to ever lose money.

5 responses to “House #46: Final Analysis”

  1. Chris says:

    I love your posts and you continue to inspire me in my real estate efforts. I wish you woukd have stayed in Atlanta. I would love to intern with you and help manage some of your projects for the experience.

  2. J, what was your original rehab estimate before the attic and foundation issues came up? Just wondering how the estimate compares to the actuals. Alison

  3. J Scott says:

    Hey Alison,

    Our original estimate was $50K, I believe. The unexpected roof work ended up being another $7000, the unexpected foundation work was $7000, and the unexpected finishing the basement was another $6000 or so. So, $50K ended up being $70K with the unexpected work, and in addition to that, we were about $10K over budget on the original estimates, taking us to about $80K for the entire project.

    Had we known about the roof and the foundation issues, we either would have renegotiated the contract or never purchased the property to being with — just a great reminder about why it’s so important to have a good property inspector when you can’t inspect yourself.

  4. J,

    You have been such an inspiration to me as I have decided to start flipping. Your books are amazing and I have learned so much from your blog and contributions to bigger pockets.

    This post makes me feel relieved that even you can underestimate a project (however rarely) and that even when it’s not great, things are still okay.

    I am excited to keep learning from all you do as I put my first flip on the market later this month.

    You are the best!


  5. J Scott says:

    Thanks Martha — That was very kind, and I sincerely appreciate the words of encouragement!

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