March 16, 2007
ROI
I was going to continue telling the story of finding buyers for my flip and closing on the sale, but that chronology is getting a little boring so I thought I’d break it up with an overview of the project from an investment perspective. Or, in short, an answer to the question: Did I make any money flipping this house?
If I benchmark everything against the budget and timeline I established at the outset of the flip, I would say I did very well. I set three different budget levels for labor and materials at the start of the project (an aggressive low-ball number, an expected middle-of-the-road number and a worst-case scenario number) and my final renovation expenses came in just below the middle estimate. I would say this is due to luck and conservative estimating more than any tremendous foresight on my part. I say this because, although the total renovation costs were inline with my expectations, the distribution of the costs were nowhere near what I had planned for. Some things ended up costing a lot less than planned (landscaping and garage repairs, for example) while other areas (like the floor and the plumbing) ended up way over-budget. Fortunately the net result was still right in the middle of my total renovation budget for the flip, but it’s frightening to consider how only a few other unexpected problems could have totally destroyed this part of the profit equation.
I think the timeline could be considered my greatest success. I started full-scale renovations on July 1, 2006 with an extremely aggressive eight-week renovation schedule and still managed to hold an open house on October 1, 2006 in spite of all the setbacks I faced at various stages of the project. I know 12 weeks sounds a lot longer than eight weeks, but the original compressed timeframe was totally unrealistic and, even in retrospect, finishing all the renovations in three months was nothing short of astounding considering that almost every single surface in the entire house was ripped out and replaced. With the exception of the exterior siding and the basement (and the garage, of course), you would be hard pressed to find anything on the renovated property that looks anything like it did when I first bought it. This wouldn’t necessarily be anything to be too proud of if you were a seasoned flipper, but I think it’s a decent performance for a first-timer who started out with no good contractor leads and no practical renovation experience.
Of course, success with the budget and timeline is of little practical value if you don’t end up making any money on the deal and unfortunately that was the case here. While I didn’t lose money, it looks like the actual profit is fairly negligible and I’m considering it pretty much a break-even deal. While I did take a bit of a hit on the holding costs (I had budgeted for six months of carry and it ended up taking almost eight months), the biggest failure of this flip was clearly the resale value — which ended up coming in roughly 20% below the original target. I’ll cover how I ended up taking an offer at this level and the reasons I think the resale fell short of expectations in another post.
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Don’t beat yourself up that individual line items in your estimate came in higher or lower than planned. An estimate is just a series of compensating errors. Even people estimating $100 million industrial plants for a living don’t get it right. What matters is where you came out at the bottom line. Was your total estimate right? Learn from the errors, but don’t beat yourself up over a successful estimate.
The Real Estate Market Starts Climing Again
During the past couple of years we’ve all seen a tremendous change in real estate in the country.
This change actually has spread all over, businesses loosing money while gas prices are extremely high.
The real estate market has become a big issue for all of us out there, we’ve seen many homeowners loosing their homes and struggling to find a home to rent because of their credit.
What happen to us?
Remember the bubble 4 years ago?
That’s exactly the answer, from years of prosperity and times of spending, traveling and investing in stocks and real estate, we are now experiencing another bubble but this time the bubble is going in a different direction and we are wondering what to do.
So real estate was going down and it’s still going down, some economists say that it will get stable in 2 years from now.
The sellers market became a buyers market, and today we all know it by now.
Investors and renters that saved their money for better days to buy to make money are in the market today, that’s making the real estate market busy.
Real estate agents that learn how to change with the market also learned how to make money from the changes, these real estate professionals are making lots of money and while we are all struggling for business they’re making the business.
Today you can get a home directly from the banks for almost half the price.
I’ve seen homeowners that are so desperate that they’re willing to give their homes for free, just come and take their loan and continue their payments.
On the other hand, investors are looking to buy homes in bulk, they can get homes $.50 on the dollar.
Some banks like bank of america and countrywide are selling hundreds of homes in bulk to investors at a discount prices.
So real estate agents are busy getting hundreds of listings and reo’s from banks, then they’re selling these homes at a low price to future homeowners and investors.
It’s definitely a buyer’s market like we had in the early 90’s, so if you’re an investor or a homeowner.
This is your time!
About real estate in Europe: prices change so fast that you just can’t keep the track of all the changes. New members of European Union still have quite cheap property for sale. Example: you can buy a land and a house near the sea for 10.000 Euro in Bulgaria.. At the same time prices for houses in Ukraine, Kiev are higher than luxury villas’ cost in California. What can I say? Now it seems to be expensive to invest into property at some moment, but later it becomes reasonable action.
HometownRenter.com has the questions to ask yourself if it is better to rent or buy in your situation. Do you need the flexibility of renting? or can you afford to stay in your home for at least 5 years or longer?
* Can you afford a 20% down payment?
* Can you afford a monthly payment on a 30-year fixed mortgage?
* ask your CPA … Does the tax benefit of home ownership offset a potential decline in home value?
* Have you reduced other real estate debt before you add more on this home purchase?
* Does a fixed monthly mortgage payment for the next 15 years outweigh the likely inflation of rents during that same time (called an inflation hedge)
These are broad questions that can have many variations for each individual situation. However, it is a good foundation from which to start your home buying process.
If you are in the market for a rental, visit http://www.HometownRenter.com to find your next rental home!
Drop The Rent!!!
At HometownRenter.com we understand that you want to get the highest rent for your property. Our advice to owners is to make sure to stay competative in the market. A property not rented in most cases is another mortgage payment paid. If the property is worth $1,000 a month but everyone in the community is at $1,000 a month, the chances of you renting your place are very slim. If you drop it to $950 you will be able to rent your place fast and not miss another month.
Well qualified applicants are aware they are a hot commodity in this era of tarnished credit and lost jobs. They are shopping their well qualified applications out to the large inventory of investment property on the market. How do you attract them? Drop the rent! Gimmicks do not work–these people have worked hard to keep their credit scores up, their incomes stable and their rental history in tact. Drop the rent…it really is that simple! Prompt placement of a qualified applicant immediately stops the bleeding of lost rents, continued advertisemement expenses and the real possibility of a break in or vandalism. You may not receive top market rent–but you will see regular income that you can count on. Find your best tenants and rental properties for FREE at HometownRenter.com. Your local and national rental site.