I was flipping around the TV the other day when I came across an episode of Flip or Flop on HGTV. It follows two real estate agents in California who buy houses at auctions, fix them up, and sell them retail. They showed a few of their previous projects. On one condo they made $20k in 20 days! They wake up in the morning and find that there are over 80 auctions in their county.
While it sounds easy, there are a few catches. First, they don’t get to see inside the properties before they bid. Second, they have to buy the houses fast for cash. At the auction they get the property for $275k but had to pay a little more than they wanted. When they get into the property they won it turned out to be in good condition. What surprised me was how much the husband wife differed on their estimated renovation costs. It felt as though they were just winging with project.
Soon the contractor arrived. Going through the property the husband and contractor were quite adversarial. The contractor would throw out a price for specific work and the husband would immediate cut it in half. The contractor wanted to bid out the project as a whole but the husband wanted to sub-contract out everything piecemeal. I don’t feel like this is the correct way to build a relationship with a contractor, but who am I to say, I’m not a professional.
The bid from the contractor came in at $42k. This was more than the husband estimated but less than the wife. They need to sell the house around $330k just to break even. The husband decided to save money by filling in the pool himself. The contractor saved the day by stopping the husband since the pool would have to be removed, not filled in, per code. This pool removal added an additional $5k to the budget.
The wife is the designer of the operation. She picked out some great tile that cost a little more than the husband wanted.They decided to paint the fireplace to blend in with the color scheme. The biggest risk they took was not having a door in the master bathroom. It passed the inspection but the inspector found a window that needed to be replaced with something larger for egress access. Not only that but the contractor found asbestos that had to be remediated. This added $5k to the budget! They were going way over but at least it was being done right.
Once the house came together it was beautiful. They held an open house and had a ton of interest. They got multiple offers and sold the house for $405k with a profit of $55k!
Looking around Arbutus I could see myself flipping one of these houses. Yes, I know, I had sworn off real estate investing in my previous posts, put this show has got me thinking. Why wouldn’t I be able to pull something like this off?