Today I’m going to share an embarrassing fixer upper house story from 2005 (you might already be able to guess where this is going just based on the year it happened in).
Me and my partner at the time (also my brother-in-law) had bought 3 or 4 fixer upper houses from banks…..and had reasonable success at getting bank appraisal values that showed we had created 20%-30% equity. We were doing just fine eyeballing repair costs and basically winging it!
We found a two family house that was literally torn apart (the previous owner had completely gutted the upstairs before he lost the house) that was priced right about 50% of the market value. A no brainer we thought! But just to be on the safe side, we got out the legal pad and wrote down the costs of all the major repairs we saw. Still good – no problem, we were going to mint some money again! Let’s tie this thing up before anyone else sees it!
Fast forward 3 months. We had completely underestimated the cost of not only the repairs we hadn’t done before, but also the scale of the ones we had. Baseboards and painting are relatively inexpensive repairs and something we didn’t really worry about upfront – but add up to a lot when you are doing almost 2,000 sq ft worth. We also ran into some unexpected issues (like a 6 foot crack in the main plumbing stack) that of course we hadn’t allowed any contingency for.
And since there was a 3 page list of code violations on the house that we assumed as the buyer, the city was watching us like a dog watching a mailman crossing the street….and as a result we really couldn’t even do much of the work ourselves.
When we were done, the house looked great (the city actually ended up giving us some kind of renovation award) but there was no way we were selling it. We had invested so much money in it, we wouldn’t have made only a few thousand dollars on a sale….no way worth it after all the work we did putting it back together.
So we went for a refinance. The house appraised at the value we expected….but even using the maximum Loan to Value at the time we were still $18,000 short of what we had invested. We had to just consider that an investment, we weren’t getting the money we put into it back like we had with all the other houses. But neither of us really had that kind of cash….we’d financed this purchase like all the others – on our equity lines – with the expectation that we’d eventually refinance and “pay ourselves back.” But not this time. We wound up with $18,000 on our equity lines that we’d have to repay over time (a lot of time). Needless to say, our wives werent really anxious for us to get into another project after that one.
But something really positive did come out of that experience. I got fed up rolling the dice on every house and spent the time to build the first version of the Rehab Offer Calculator spreadsheet. Over the past 8 years or so, I’ve added to it and changed things based on my experiences and a lot of Customer feedback – all told about 100 hours of work by my last count.
And I’m offering you the latest version of this exact tool to use for free. Check this out: Use My House Flipping Spreadsheet Template for Free. There’s also a tablet (IPad or Android) version.