House #5: SOW/Budget

January 16, 2009 · 8 comments

The DIY House was supposed to close this week, but the title company just got clean title back today, and the seller is requesting 5 days to review the entire closing package before they will be ready to sign the closing papers. So, it looks like we’ll be well into next week before we close on this one and get the rehab underway.

I spent the day with my brother putting together a final Scope of Work (see here) and budget for this project, and things are going to be super tight. We originally planned to do some/much of the work on this one ourselves (hence the name of the house), but with other projects likely to come along very soon, we’re not going to have enough time to devote to doing this ourselves.

In order to sell the house at our desired price-point and still make our desired profit, we’ll need to cap our budget on this project at $35K. Normally, I wouldn’t be concerned about hitting that budget for a house in this condition, but a couple things are contributing to what may make this difficult to achieve in this case:

  • First, we had a roof inspection today, and it turns out that replacing the roof is really the only reasonable option at this point; while we could do some patching (my original plan), it’s likely that the next buyer won’t have more than a year or two of life left in the roof, and I refuse to sell a house like that. So, we’re going to have to eat the extra $4-5K needed to replace the roof;
  • There are a number of double-pane windows in the house (eleven!) that have broken seals, and where moisture has seeped between the panes and clouded the glass. I believe my only option is to replace these windows, and while I don’t yet have a quote, I’m fearing they could be $300+ a piece for replacement windows if these aren’t standard sizes;
  • I haven’t yet had a termite inspection on this house, and I have a feeling there is or was a termite infestation. If so, hopefully there isn’t much damage (my inspector didn’t find much), and worst case, it will be an extra $1000 or so for treatment;
  • I severely underestimated the cost of replacing gutters. I thought I had previously been told it’s on the order of $1-2 per linear foot, but haven’t had any gutter work done before, so I didn’t know for certain. In reality, I think it’s closer to $4-6 per linear foot, adding an extra $1000 to the budget that I hadn’t previously planned;
  • I haven’t yet figured in any “surprise” budget into my numbers, and I’ve yet to have a project that didn’t eat into the 10% extra I always allocate for surprises.

Doing a rough estimate of the budget based on the Scope of Work, I have a feeling this project could easily reach $40-43K (not including any surprises that come up). Given that I want to hit $35K max for the rehab, we’re going to have to negotiate my contractors very hard, do some of the work ourselves and/or cut the scope of the rehab when and where possible. It’s going to be a challenge to shave $5-8K off initial estimate, but that’s an important part of this business.

So, in summary, my budget on this one is $35K (wish me luck!) and I’m going to plan on 8 weeks for the rehab, putting us somewhere around mid- to late-March to have the project complete…

8 responses to “House #5: SOW/Budget”

  1. Shae says:

    Hey Scott, how much do you typically look to make on your flips? What’s the minimum to make it worth the effort for you? We’re working on our first one now and the minimum we look for is $20K. Hopefully we hit our goal on this first one but I’ll tell you that we’re learning a lot in this process!

  2. J Scott says:

    I don’t take on the project unless I realistically think I can make $20K (on a standard flip). That said, I like to see worst-case projections at $15K minimum.

    Of the four projects I’ve completed in the past three months, two have already been sold — one for a $24K profit and one for a $21K profit. One just went on the market last week, and I’m expecting a $20-25K profit. And the fourth one (the very first flip I ever did) has been on the market for about 3 months now; I’m only expecting to make about $5-10K on that one (I’ve learned a lot since then!).

    Also, my wife has recently gotten her real estate license, so we have the opportunity to save about 2-3% on our purchases and 3% on our sales, giving us a great cushion on our margins.

    Good luck with the first project — at times it will be frustrating, at times terrifying, and at time exhilarating…but in the end, it will be well worth it!

  3. Pistolpete says:

    Scott: I’m looking thru the SOW on this job. What are the big line item numbers that are driving this budget north of $40k?


  4. J Scott says:

    I’ll go into more detail in a follow-up post, but the big line-items are (keep in mind that this is a big house for the price range we’ll be selling it):

    – New Roof: $5K
    – Siding, Carpenty: $3K
    – Painting: $2-3K
    – Deck Work: $2-3K

    – Painting: $2-3K
    – Windows: $3-4K
    – Carpet: $3K (2200 sq ft)
    – Appliances: $2K
    – A/C, HVAC: $2K
    – Cabinets/Counters: $1K (kitchen)
    – Cabinets/Counters: $1K (baths)
    – Doors: $2K

    So, that could easily be $32K right there. Add on labor and materials for things like new light/fan fixtures, new plumbing fixtures, the remaining flooring, new garage doors, hefty landscaping in the back yard to clear dead trees and debris, potential termite treatments, etc, and things add up quickly…

  5. Hakrjak says:

    I just replaced gutters for the first time on a project and I got 3 bids… Prices ranged from $422-850… The $422 was from a family operation, to whom I explained that I was a general contractor, and that if they would give me a subcontractor type bid with a nice low price I’d be happy to continue using them in the future.

    Good call on replacing the roof! If you have an old roof now adays, 9 times out of 10 the home inspector will spot it and the buyer will ask you to replace the roof regardless once they get to the inspection phase. Also new roofs help sell houses.

    – Hakrjak

  6. J Scott says:

    Hak –

    About how many linear feet of gutter was that?

  7. Hakrjak says:

    I never measured, I just got bids — but it is a large house… If I was to guess, I’d guess we’re talking 200-220 feet? So it’s about $2 per foot?

    – Hakrjak

  8. LSpencer says:

    I just finish building a house a little while back and I think I paid around 2.25-2.50 a linear foot, but also got quotes as high as $5 a linear foot.

    BTW…Great site!

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