Our First Flip: What I Learned Flipping Instead of Renting -Action Economics

In August of 2022 it looked like there would be no more great deals on houses in our area. The housing market had been tightening for the last year and homes that sold for $30,000 2 years ago were now selling for $80,000. The numbers just didn’t work. I still consistently looked though. Then on a random day a house was listed for $29,000 in one of our target investment areas. (I’m WAY late on this post, we sold this house 5 months ago)

The Listing:

I typically check the MLS multiple times per day. When this house was listed we immediately called our Realtor to take a look at it. This was a bank repo and there had been no bank repos for YEARS thanks to Covid. Why did I want this house?

This house showed a lot of potential to me and it was priced very well. We already owned a house on the same block and it fit our goal of owning large rental houses. As a bonus it had a massive garage and I had hopes that one day it would be a potential home for own of our kids. One of my big goals is to make home ownership more attainable for all of our kids and if I can buy houses now, rent them out for 10 years, and then sell at a discount with great terms to our kids, then that is a win.

The house details:

Large 1,600 sq ft home on a double lot with a fenced yard
massive 30 X 40 attached garage with finished walls and high 12′ ceilings
full basement
enclosed back porch with main floor laundry area
3 bedrooms with potential for more.
On the main level there was 1 official bedroom, and a front room that could also be a bedroom. so 2 bedrooms on the main floor.
On the 2nd floor there were 3 rooms, 1 room counted as an obvious bedroom, 1 room was iffy based on size (it was just barely large enough, but had no closet), and 1 bedroom that you can walk through to another large bedroom.
The main level also had a large living room, a dining room, and a kitchen.

Here’s a layout of the house:

This house also needed a ton of work. Most people who saw this house advocated to burn it to the ground. The house was thankfully empty, with the exception of the appliances that came with it. But was in terrible disrepair.

What was wrong:

The siding was rotting away on the outside
The front porch was sagging and the main supports were rotted. only a small part of 3 2X4s were holding the entire porch up.
There were 3 broken windows
The house smelled horrible
The carpet was beyond disgusting
The house had been heavily smoked in and there was a heavy layer of nicotine on everything
The house had a well and it was a gamble if it worked
The basement was wet
The back bedroom that required walking through a front bedroom to get to upstairs was not finished, they started on some drywall, but most of it was exposed.
The yard was overgrown with tons of tree work to do.
The kitchen cabinets were really gross.
The bathroom toilet and sink were gross, and the bathroom looked terrible.

“Before” Picture Gallery

Soooo overgrown! Just getting the trees and bushes cut away from the house was a big chore.

This desk weighed 1,000 pounds. This thing nearly killed me getting it out of the house. They don’t make them like they used to!

Why? Sponge paint AND stickers! Those carpets were so gross!

OK, this carpet was worse. Also wasn’t it nice of the last people who were going to rehab this house to mark an X in perm. marker on EVERYTHING!

Glass half full or half empty? This room is terrible and looks like it is falling in….But it exists! It was originally attic space. Bonus 12 X 12 room!

This black stuff on the window was a really sticky film, very difficult to remove.

I really wish they had given this bathroom at least 10 more square feet.

This is a fairly large room off the living room. I think it was part of the porch a long time ago.

Lots of electrical work in here. Removed the plywood and installed drywall. The washer and dryer worked! score!

Talk about a transformation. The ceiling was painted with semi-gloss so the nicotine cleaned right off. The pink trim was awful in here.

I was able to keep the little shelves around the old fireplace blocks. The door on the left goes to the laundry room, on the right to the living room.

Video Walkthrough

@jcrab1986 our next project part 1 #rentalproperty #rehab #realestate ♬ original sound – John Crabtree

@jcrab1986 rental house part 2 #realestate #rehab ♬ original sound – John Crabtree

Note that most people in the comments recommend bulldozing this house to the ground!

Buying The House:

We saw the house on the first day of the listing and got a bid in within a few hours. We offered $35,000 against the list price of $29,000. Our offer was for all cash, no contingencies, no inspections, close immediately. It still took about a month to close, but we did close right before the end of a quarter which is typically a reporting deadline for banks. There were multiple bids and I was ecstatic that we won.

When we bought the house the plan was to let is sit for a while. We bought this 6 months after buying our apartment building and did not have the life energy to rehab a house right then. We needed to focus our efforts on getting the apartment ready to go. I was also working the fall outage season and my work scheduled was 6 days a week 13 hours a day.

Carrying costs were a minimal concern: We bought the house with our home equity line of credit, and the interest rate in the fall of 2022 was 3%, resulting in a monthly payment of $87. Our heloc jumped to 5.75% in December, but still this was only $167. We didn’t have it insured, property taxes were around $100 a month, and the utilities were negligible. We could afford to let it sit.

It looked like I might be able to free up some time to work on the house, but then we had a tenant move out of one of our houses who destroyed the place. She was behind on rent and decided to give us the keys instead of go through an eviction process. I was still working 6 12s and we did not have time for a significant rehab. We had not been in the house in a year, but at our last inspection about a year after they moved in everything had looked fine. We pulled up to the house and the yard was full of scattered debris. You could SMELL the house before we even opened our car doors to get out of the drive way. They had 3 dogs and the dogs had not been cleaned up after. There were broken windows, EVERY floor surface was destroyed, they left over 40 yards worth of trash, the cabinets and countertops were destroyed, every door was broken, and every room needed deep cleaned and repainted. Our focus from September to December was on fixing this house. With us doing all the work, this rehab cost around $6,000 before we were able to get it rented out, and pushed us further out from working on this house. Here’s a video of that house when we got it back:

@jcrab1986 ♬ original sound – John Crabtree

Starting Work:

In January of 2023 I started work on this house to get the utilities working. I tried to save the old well pump and failed, so I bought a new pump and pressure tank. Turns out the well was bad. 🙁 so now getting attached to city water was on the agenda. Thankfully the furnace was able to be saved and we paid $695 for a repair. I cut out all the carpets to allow the house to breathe. Everything I removed from the house I staged in the massive garage until it was time to get a dumpster. I had a pile for scrap wood to burn, a pile for trash, and a pile for scrap metal. I also removed the fridge and stove from this house which were disgusting. I set them outside for scrap and they were gone.

We pressed pause again on this house until April. We had another tenant move out and needed to focus on getting that unit turned around. We were also still working on the apartment building and wanted to ensure it was ready for the 2023 summer season. It also didn’t make sense to do too much work without water available. My mindset is typically to work on the item that will bring a unit online the quickest. This house needed so much work so often fell to the back of the to do list.

In early April we had the city install the tap, goodbye $1,835. Then we hired another real estate investor we know to run the line to the house at a cost of $4,000. This is the 3rd house with a well we have bought that has turned out to be bad. I believe that the winterization process that is used causes damage to these old wells. I’ve been told that the $4,000 price is really high by some and low by others. Here’s the deal. We wanted it done quickly and right. I have never done this work or seen it done, so I wanted someone else to do it. I price checked the supplies and just the 100′ of 1″ copper tubing costs $1,000. It’s another $250 to rent a mini excavator for the day. I don’t feel like I was ripped off by these guys. Now having to pay the township $1,835 to install the tap off their water main? That made me feel ripped off. They gained a customer who will be paying a water bill for the next 50 to 100 years this house exists. They should heavily subsidize the cost, or at least not make it a profit center, of getting houses hooked up to city water.

My first big project was to tackle the upstairs bedroom that needed to be finished. I had to do some wiring, add in insulation, and then get to drywalling. This room represents some terrible drywall work. Yes I turned it into a room, but it was ROUGH. I was installing drywall myself, and ceiling drywall at that. I also was trying to patch in to what they had installed. The finished product isn’t that pretty, but it is a clean, safe, functional room now. There was also some carpentry work to make the transition between the 2 rooms work.

Next up was replacing the water heater and the toilet. Combined this was around $900 and made life a lot easier while working on this project. I deep cleaned all the walls and ceilings to get the nicotine scum layer out. This made it much easier to breathe in the house as deep cleaning was completed. The water heater was HELL getting out of that basement. The 90 degree turn on the stairs made using my appliance dolly impossible.

We pressed pause again in May when we bought the brick house. This house needed a quick turnaround. We rehabbed this house in about 3 weeks and moved a tenant who is like a sister to my wife from one of our houses into this one. Then we had to get that house move in ready for her sister who was homeless and had just had a baby.

Motivation:

In June we hit this rehab into high gear and I pretty much lived at this house. We had switched gears and decided that it would be best to sell this house instead of to keep it. Our Heloc interest rate had increased to 8% and it was maxed out. Between the down payment and rehab on the Apartment building, this property, and the brick house, the Heloc was maxed at $200,000 and paying 8% interest and rising on it was not a good spot to be in. Our Heloc being maxed was a big problem and made it difficult to help our son buy his first home last summer.

Houses were selling at unprecedented amounts, while rents had only marginally increased. Interest rates were skyrocketing. As a rental we would only be able to cash flow around $300 a month on this house when it was finished or we could sell it and get a check for $100,000. Gee, let me think.

The goal was to get the house listed before the summer season was over. We painted everything. We replaced the windows, including a large special order picture window. I fixed the front porch. We did a thousand random odds and ends tasks. There was just too much to do.

Painting: Everything needed painting. Most rooms needed primer as well. I painted 2 coats of ceiling paint in each room, and all the rooms required 2 coats of paint as well. I also painted all the trim with at least 2 coats.

Dining Room: The dining room had a popcorn ceiling with 2 Faux Beams. The popcorn ceiling couldn’t be cleaned like a flat ceiling so I had to repeatedly spray cleaner on it to get the nicotine to come off. The faux beams were barely attached to the walls and came down very easily. I think this room required 3 coats of ceiling paint. The window needed replaced and I had to repurpose the trim underneath that had been water damaged because I couldn’t match it.

The Kitchen: All of the cabinets needed deep cleaning inside and out. I also removed all the hardware, soaked it in toilet bowl cleaner and scrubbed them. This took off decades of nasty sticky grime. I scrubbed the floor on my hands and knees. Mrs. C. refinished the countertop allowing us to use the existing counter. We replaced the sink and the plumbing underneath. This whole room needed trim.

Windows: We needed to replace 3 windows in the house. The most difficult was the front picture window. We had to have this specially made, and then I had to remove and replace the siding around it when it came to installation. This window was super heavy which also complicated the installation. Getting this double paned window installed changed the feel of the house. Having a boarded up window on the main level you see every day is disheartening.

We also had to replace the bathroom window and the dining room window.

Ceiling Fans: I installed new ceiling fans in the living room, dining room, and kitchen.

The Basement: I deep cleaned the basement and added tons of lighting to it. I painted the back room that was black white, which made it feel much more open. I cleaned all the basement windows, letting in more natural lighting. I removed the toilet in the basement and caped it off. I did not remove the shower.

The front porch: I installed a pressure treated 2X4 as the base into the concrete all the way around the porch and Tapconned into place. Then I added in 6 4X4 posts to support the weight of the roof. This thing is solid now!

Tree work: removing branches/debris: Nature had been taking over this property for over a decade. I took probably a dozen full van loads of branches out of here, then 3 loads with my father in laws truck. This was a ton of work. Our burn pit is also 300′ back from my driveway so there was a ton of hauling on the back end. There was lots of chainsawing, pole sawing, and pruning with lopping shears. Note the before picture below is from 2019, the overgrowth was much worse when we bought it in 2022.

Setting up laundry area: We removed the spot for a back door coming off the laundry room and drywalled the room in. We had to rerun the supply lines, paint the floor, and install paneling on the ceiling. The laundry room looks much better now and having main floor laundry is so much better than having to haul laundry to and from the basement.

New kitchen appliances: My favorite place to get appliances is Bill’s Used Appliances in Niles MI. The stove we got was super clean and we bought a massive new scratch and dent side by side fridge for only $650! It was tough to get in the house and I needed to go through the front door and take the door off the hinges to get it in.

Bedrooms: All the bedrooms needed new doors installed. They all needed new paint, and had wall patching in spots to do. In one of the rooms several wall patches had been made with paperboard boxes so I had to fix those. The main floor bedroom was the most difficult. That room was place plaster and had several wall spots and ceiling spots with the top layers falling off. The light fixtures in all the rooms needed replaced.

Yard Trash: Even though the house wasn’t filled with trash, the yard had a bunch of trash. We got a dumpster for the siding and used that to dispose of most of the yard trash.

Hiring out work:

By July we were beyond exhausted. We decided to hire out the flooring and have Lowes install carpet. We had carpet installed in the entire house for just over $3,100. This was a massive value. This covered around 1,200 square feet of flooring, plus the stairs. If we were to install flooring ourselves, we would have done some LVT and some carpet squared and it would have cost us around the same amount, but took a couple weeks and not looked as nice.

We hired a family friend to remove the old siding and scrape and paint the original wood siding. The price was great, but it was on his timeline, which took forever. There were consistent delays and the siding wasn’t complete until the end of September. We spent around $3,500 on this.

This House Was Finished!

We paid $35,000 for the house and spent $20,725 on the rehab. We also had roughly $4,700 in interest carrying costs and $2,724 in other carrying costs. Our all in cost was $63,149

Image Gallery:

Selling The House:

We were too late with listing the house and missed the summer season. Had we listed it in July, or even August we would have sold it for the $145,000 that we listed it at. A comparable house in the same neighborhood that was listed in July sold immediately when it was listed at $125,000 and it was 500 sq. ft smaller, in rougher shape, and didn’t have the large garage. Our Realtor took AMAZING pictures, but still not getting it listed until the 2nd week of October really hurt.

The house sat on the market with 2 low ball bids. We accepted a verbal offer for around $125,000 and then the buyer ghosted us. We dropped the price a month in to $125,000 with $3,000 back at closing. Ultimately the house sat on the market for about 4 months and sold in February for the asking price of $120,000.

Here’s a fun story: We had a major winter storm right before a showing was scheduled. I was already exhausted from all the other shoveling I have to do and I went and shoveled this house in the morning. I was there for about 2 hours shoveling. I left and about an hour later we had the showing scheduled. Mrs. C. got a call from the Realtor that there was water pouring everywhere in the house. We live about 10 minutes away and I raced to the house. One of the washer supply lines had burst from the cold temperatures in the laundry room. I turned off the water to the line and cleaned up the water in the laundry room. All of the water drained down to the basement and I then worked on moping up the water and getting it to the drain. Of course the people scheduled to see the house show up while I am cleaning. They did not buy the house. At least the basement drain works well! I ended up with roughly $100 extra on the water bill.

After realtor fees and closing costs we ended up with a profit of around $40,000. We ended up paying an additional $1,500 for termite treatment as the inspection showed previous termite activity. We put all of the proceeds on the Heloc, paying it down by around $100,000.

What I Learned:

List in May: In retrospect I think it possibly would have been worth it to hold the house through the season and relist it in May. Selling a house in the winter doesn’t work well.
I would list with a sense of urgency. Banks often put up houses with a low price and state all bids are due in 4 days and will be reviewed on the 5th day. This sense of urgency not only gets people to put in bids, but to put in higher bids. I should have listed it in May at 120K with these terms. It likely would have sold for 150K+.
Higher attention to detail: My home repair skills are pretty darn good, but I am rough around the edges on things like trim and doors. I should have hired out this work and the house would have popped more. Some of this rough craftsmanship was seen as an issue by potential buyers.
Add a 2nd bathroom: This house has 1 bathroom and it is tiny. The basement had plumbing for a bathroom, but we did not install a bathroom down there. I could have installed a bathroom down there for $2,500 with roughly a month of my on again / off again work. This would have likely increased the price and decreased the time it took to sell.
Getting a large cash infusion from selling a house can be very much worth while. It also showed that a flip can be a decent income source for us in addition to our rentals in the event that I lost my W2 employment.
Hire out more work: Hiring out the work that is unpleasant, and the work that requires skill sets that I am lacking in will bring value. Typically I try to do everything myself. A great example was the flooring. I would have worked for 2 weeks to install flooring in the entire house and it would have been really stressful and the materials would have cost me 75% of what I paid to have the carpet installed. If I would have paid $2,400 for materials, then I would have effectively been earning $700 for 2 weeks of work, while delaying the project by 13 days. Not a good plan. Hiring more work will also give us more life energy and flipping a house won’t feel as daunting as this one did.

Overall I am happy that we were able to take this house that nobody wanted and bring it back to life. This house will provide a great home for decades to come. What do you think of this house flip? Have you flipped a house recently?