We nicknamed this house Dirty Diane because it’s on Diane Street in Sapulpa, Oklahoma (just outside Tulsa) and let’s just say that this house was nowhere near move-in-ready when we purchased it! The daughter of the owner lived in the home, and she did not take care of the place – there was trash everywhere, old food containers and drinks, and the smell was awful (according to our real estate agent). These are the kind of homes that can make you money though!
We made a small profit on this house, and we learned a LOT during the process. Make sure you check out the article we published last week titled Our First Flip: By the Numbers so you can see how it turned out on paper!
Here are a few of our biggest takeaways, along with lots of before and after pictures!
If you buy a “hoarder house”, treat it for pests at the beginning of the project.
We completed the entire rehab, had the property listed on the MLS (multiple listing service), and one of the first potential buyers to look at the house noticed roaches in the home! We scrambled to get pest control over to the house ASAP to handle the problem since we had agents taking buyers over daily to look at the house.
We considered removing the listing until the problem was handled, but decided against that because it was a relatively small roach problem. We should have had pest control come out to the property to treat for pests right after the demo and clean out, instead of at the very end. This seems obvious in hindsight, but our agent never saw any pests and if the contractors saw any, they never mentioned it.
The rehab will go over time and over budget!
This flip is the second rehab project Honor & Equity has done in Oklahoma, and it’s the second one to go over the estimated time and budget! To be fair, we only went over budget by about $1500 (which isn’t terrible) and the project took about 6 weeks longer to complete than anticipated due to contractor issues.
Our first project took more than twice as long to complete as I thought it would.
I like to keep my time and budget estimates ambitious, because I want to continually challenge our team to hit these deadlines and budget goals, however, I know that as long as the rehab stays within 10% of the original, conservative budget, I still consider it a win.
Always have a backup plan (Flip vs. BRRRR)
Our primary goal in Oklahoma is acquiring BRRRR’s (buy, rehab, rent, refinance, repeat) to hold for the long-term. So you may be wondering why we sold this property as a flip. Fair question. We saw a lot of opportunity in this property based on the purchase price, rehab, and after repair value (ARV), but we predicted it would only rent for about $900 per month. If we held the property and rented it out, we would have had negative cash flow or barely broken even each month. This did not fit our criteria for a BRRRR!
So we decided to flip it and use the profits to fund our deal funnel – which isn’t cheap (roughly $2000-2500/month). The downside to BRRRR-ing is that despite providing long-term wealth, it doesn’t help very much in the short term. We have a business to run that is cash-hungry, and the flip profits would help us pay the bills.
We also knew that if we weren’t able to sell the house for a price that made sense as a flip, we could always just hold the property and rent it out. Sure, we would have been a little cash-flow negative each month, but it would have worked out in the long term with gradually rising rents and tenant pay-down of the mortgage.
My point is, we had at least one solid backup plan from the beginning! And you should too.
“The Contractor Triangle”: Why you should always have backup contractors.
The lack of reliable, affordable contractors is the most frustrating part of our business right now. I like to call this the “Contractor Triangle” where you have Price, Quality, and Reliability at each point of the triangle. You can pick two of the three – but never all three! Our Tulsa contractor for this job did quality work at a reasonable price, but was not reliable! He would not complete work when he said he would, sometimes he wouldn’t show up, and he would blame others for why he couldn’t complete the work. He was also disrespectful to our real estate agent.
If you find a quality contractor that is also reliable, he’s probably going to be very expensive and in high demand! And if you can find that unicorn that fits all three, it may be fleeting because he will quickly realize his strengths and could choose to raise his prices.
Don’t forget about holding costs and realtor commissions!
This one is super important, and it’s something they never talk about on the flipping TV shows. Realtors provide a valuable service and get appropriately compensated in the form of a 3% commission for the listing agent and buyer agent. Generally, the seller is responsible for paying this 6% at closing. This is not insignificant, and if you plan to flip, you MUST account for this cost in your deal analysis.
Holding costs include utility payments, insurance, taxes, lending costs, and more depending on the project. The longer the rehab takes, the more your holding costs will be.
Make sure you have a plan for turning on/off utilities
This is another one they don’t tell you about on the flipping shows! The first day my contractor showed up to start working on the property, he said the water wasn’t on. I never even thought about that! Thankfully, we were able to get the water turned on that day, but I wish we had thought about it in advance. After learning this lesson, we have a checklist for things that need to be done whenever a property is bought or sold. Turning utilities on or off or transferring to the next person is an important step.
We hope you enjoyed this article and gained value by reading it. Please send us a message on Instagram @honorandequity and let us know what you think!