The Science of Flipping - Episode 156: Are You Rehab Flipping Houses? Where to Spend Your Money?

Starting point is 00:00:00 Welcome to the Science of Flipping podcast. I'm your host, Justin Colby. Yo, yo, what is up? What is up? Welcome back to the Science of Flipping. And if you are live on Facebook, welcome. This is going live right now in the Science of Flipping Academy as it does every single episode of the Science of Flipping podcast. If you're listening to this on iTunes, Spotify, it's all over. Google Play, it's all over all platforms. If you're listening to it there and you're dead serious about real estate investing, wholesaling, flipping, buying and holding, make sure to go to Facebook, join the group, the Science of Flipping Academy. These will be live. I can engage with you. I can answer your

Starting point is 00:00:55 questions. And a lot of times we will have guests that are special guests that we can bring on and you get to know them and what they're about. And so this is very cool. Again, go back to Facebook, go into the Science of Flipping Academy, join me live, engage as I'm doing these podcasts live. But this is all about giving you the proper systems, tools, organization, so that you can run a business versus having the business run you so that you can get yourself out of the business and continue to remain profitable all along those ways. I myself, obviously, am part of several masterminds. I also continue to invest in myself in business coaching and beyond. So everything that I learn, everything that I digest after doing this business for 12 years, I give on to you guys, even the bad stuff, the things that I got caught up in and hurt me. I don't want that to happen to you. So this is a

Starting point is 00:01:53 place that you can learn from myself. And again, I will bring on others to help educate you and give you a shortcut to success. And so this episode, I wanted to talk about flipping and who here is rehab flipping. But if you are, this episode is for you. And if you're not, you still want to pay attention to this because if you're a wholesaler, you actually need to think like a flipper also. You don't want to just not understand what your end buyer is likely going to do to the home. So pay attention if you're a wholesaler. And if you are a flipper, I want to give you some advice on what we just did this week. I went and bought four properties here in Phoenix two weeks ago. And we officially closed last week. And so this week we went and walked all the properties with

Starting point is 00:02:47 my project manager. Not only did we have my project manager, but we had another project manager who's going to be our general contractor, run all the jobs. So my project manager, and then the general contractor and myself. And so we walked all four properties and I wanted to give you some bullet points of things that we pointed out that we are looking for. And I wrote notes here, obviously, before this, so I can make sure to give you exactly what we were looking for. And we bought the properties because, you know, I was able to see them and walk them and had a pretty good comfort level. But then when it comes to how do we want to rehab the homes, that is different. That is not just saying, you know, I think it's going to be a $30,000 rehab. Now,

Starting point is 00:03:30 what makes it a $30,000 rehab? Where are we putting the money into? And this is again, if you're a wholesaler watching this or listening to this, this is how you have to think right now. Phoenix is different than San Diego, which is different than New York, which is different than Tampa, which is different than Houston, which they're all different. So what I'm going to say now may have, you might have to adjust slightly for your market and that's going to be natural, right? And so, you know, in Phoenix, you pretty much can guarantee, excuse me, if you're buying a home for, let's say under $300,000, call it 200,000, maybe even 150, you're buying a home for, let's say, under $300,000, call it $200,000, maybe even $150,000,

Starting point is 00:04:08 you're going to be spending roughly $20 to $25 a square foot to rehab the entire home. So if it's a 1,500 square foot home and it's a $150,000 buy, I'm likely going to immediately put a $20 a square foot price point on that rehab, which means roughly $30,000. Now that may get adjusted as I walk the property that may get adjusted as I see the pictures, but that is immediately where I go. The second I see that property from an agent or wholesaler, um, or even if I'm buying the property direct to the homeowner. So that's the first thing. Now, again, that might adjust from where you're at, but immediately that's how I know what's happening. Now, in San Diego, when I was buying homes in San Diego earlier this year, I think I told you guys this on another podcast, I actually adjusted for roughly $40 a square foot

Starting point is 00:05:03 for San Diego. And so again, you really need to know kind of your pockets, your market, the cost of materials, the cost of labor. The best way to do that is to be able to walk some properties with general contractors, get them to bid out their services and get that as a price per square foot for the rehab. So with that said, as we walked the properties, I already had a budget in mind for each property. So I budgeted most of them. I think most of them are in to get to where 30 and $37,000. Now, when we walk the property, some things that we started doing is looking at the neighbors. You first want to look at the neighbors to see a couple different things. What are their yards look like? If they have any fences, what do they look like?

Starting point is 00:05:50 What are their windows look like? The key for us here in Arizona, and this could be nationwide, is windows are expensive. And if you don't adjust for windows and you leave your windows, the original 1970 windows when the home was built, but all of the neighbors have the new double paned windows, you will not get top dollar. I promise you that. And if you don't adjust for those windows, it can really, really hurt you. Now, windows in every market is going to be different. So I'm not going to tell you what they cost and the size of the window, et cetera. You will have to do that research yourself, but you can adjust for that. And if you have five windows and they're all $750, but you don't account for it, what's five times 750, right? Two is 1500, four is three grand. So you're talking about, you know, 3750 that if you don't account for that, we'll then go above and beyond your original budget. So the first thing we're

Starting point is 00:06:53 looking at is yard, what type of maintenance, because again, if you're, you know, in Arizona, there's a lot of rock, there's a lot of dirt, very little amount of grass. And there's a lot of like cacti with kind of rock around it. And if you're in a neighborhood that might have grass primarily, and you try to rock the property to try to save some money, you might get hurt on the exit. You might, it's not guaranteed. But understanding the neighborhood is very important. The reason why I bring that up is one of the properties we walked was in a 55 plus community called Sun City out in Phoenix. Well, that had an actual cement front yard. They literally cemented over the front yard and they painted it green. That is not normal. That was not normal for the rest of the community.

Starting point is 00:07:47 So we had to spend some time looking at all the neighbors and assessing what actually material is going to fit best for this neighborhood and be the most cost effective. Because you're in a 55 plus community, we don't want to have to have lawn where they have to mow it every day. As a matter of fact, none of the neighbors have lawn for that exact reason. Most people don't want to mow them or take care of them. So do we rock it over? Do we maybe just spray paint it more of a gray cement color and keep it as is? You know, what did we need to do? Now, ultimately, the answer was we were going to build a little barrier and we are going to rock the entire area. Right. And so that way the rock can stay in.

Starting point is 00:08:32 That is our ultimate answer for price and largely the neighbors around. Now, the next thing was the windows in this specific property. In this property that had window shades, like original window shades, we obviously are going to remove those. They're very, very dated. No one else in the neighborhood had them. But then it came down to what do we want to do with the actual windows? Well, that neighborhood was part original, parts new.

Starting point is 00:09:00 So we made the decision to keep them original. They're very good condition. Nothing is wrong with them. Other neighbors have original. We're going to keep them, right? But this is how you need to be looking at the properties. Paint on the home is something I forgot to mention. We needed to figure out how to paint homes when we're looking around, right?

Starting point is 00:09:20 So we're, you know, you know how it is if you're buying homes. If we're a yellow home and everything else has that beige color, then we need to make sure we're painting the home. And paint is roughly a dollar a square foot exterior wise, right? And so if you're going to do that, and it's a 1500 square foot home, that's a $1,500 charge. So these are things before you even walked in the home that you need to be looking at windows paint. Obviously you're going to look at the roof, but the roof is either going to need to be replaced or not. It doesn't matter what your neighbors look like, right? It's in good condition

Starting point is 00:09:54 or it's not in good condition, but you want to look at the yard windows paint of, of the home. Now, when you go into the home, one of the things that we had to make decisions on is like the 55 plus community versus a, you know, what we call central corridor Phoenix home that we're likely going to resell for $205,000 after we remodel it. the question becomes, do we actually move walls and expand the kitchen and have this big great room for a home that likely will be some sort of rental, most likely? So then you have to adjust for materials. Do we use more expensive tile? Do we use laminate, right? Plank laminate. By the way, almost any home that's under $300,000, I'm a fan of plank laminate. It looks great. It's durable. If something does happen, it gets all scratched. You really almost have to just almost like tape over

Starting point is 00:11:01 it, meaning like you just take that same laminate and you lay it back down. It's really a great option for you guys. Um, under 300,000, I just, I prefer it. I'm tired of the tile look kind of my own preference, but it can't always be about my preference. You actually have to do the home to what will sell. What are the buyers going to want? Right? And so those are the decisions you, you have to make. Do you do you keep um a built-in oven or stove or do you not right so some cabinets for example we are going to keep we are just going to simply reface them that means usually just repaint them white others we aren't because they had a built-in stove they had a built-in oven, things that really made it inconvenient for us to keep them there. And because we were going to have to take out the built-in stove because it's

Starting point is 00:11:49 original yellow, you know, 1970s stove, because we were going to have to take out the built-in stove top, because it was that old black one level stove top, it looked like it was cracking. We were going to have to take those out anyways. And to replace them was going to cost a decent amount of money that to just get all new brand new white shaker cabinets, Home Depot Lowe's grade, right? Was going to be maybe a thousand dollars more. Well, what sells better? Brand new white shaker cabinets or refacing dated cabinets, which will look okay, but they're not brand new. And by the way, we can fit in the stove in the proper place. We can build in and buy an actual stove with a stove top with an oven versus having a built-in oven in the cabinet

Starting point is 00:12:46 space, right? And so we make it the whole thing more modern. Now you have to adjust for cost. You have to adjust for the market that you're going to be selling this home for. And so those are some things that we had to immediately look at. Where are you making your money in a flip? The kitchen and the bathrooms, right? That is where you really make your money. So we decided on one very specifically, we're going to replace them all. The other, we're going to reface. And a third of them, we're going to replace. And a fourth of them. So we're going to replace three out of four. And primarily because we're going to be able to open it up, right? There were very choppy floor plans. So if we're going to open it up, move walls,

Starting point is 00:13:27 which means we're going to have to take out the cabinets anyways, we might as well get the white, classic white shaker cabinets. Now, that is just the first thing that we want to look at, but other things you need to be looking at while you're walking inside the home is going to be making sure your foundation is okay. One of the homes had a crack, but because that was just a settlement crack. And then you need to be able to look at the backyard. And the backyard can make or break a property, especially if you have no plants or I'm blanking on the word, but you don't have mature plants, right? So now what do you do

Starting point is 00:14:08 in the backyard? And so one of the decisions that we made here in Phoenix, again, this is a little different than every market, but like a lot of people do have dirt, but is that always the right answer to just leave it dirt? Or do you rock over it? But is that the right answer? Because families with little kids probably don't want their kids walking on rocks and falling and cutting themselves up. So where is the medium? So what we decided to do is we actually decided to rock part of it and then put fake grass down on part of it. That way the parents can have an area where their kids can kind of play and not be in risk of hurting themselves. And as well, it looks clean and is very affordable. You know, out in Arizona specifically, the weather, right? Like you don't

Starting point is 00:14:51 have much rain, it gets hot in the summer. So having big lawns is very hard. It's a lot of work. That's not usually the best play. However, again, for those in California, lawns probably would be the best play. Do plants really work in Arizona? Yes and no. There are some good desert plants and then there aren't, right? So again, these are the things that you have to assess. What would your, if you're a wholesaler, I'm trying to help you think as a wholesaler because I've wholesaled over a thousand properties.

Starting point is 00:15:19 What would your end buyer do, right? Are they likely going to go spend money in this backyard? What does the neighbors have? And I will go and look at the neighbors. I'll walk the neighborhoods. If there's an alleyway, I'll peek over the fence to see what their backyards look like. A home that I'm hoping to buy today. We went, I went and brought my project manager by, we peeked over the backyard to look at that one and the other ones. You have to think like the flipper. And if you're a flipper, you need to think like the end buyer. What would you want? There are a lot of flippers in our market that go way over and above, way over and above. And it works, but it works because there's not a lot of competition, meaning there's not a lot

Starting point is 00:16:03 of listings. There's not a lot of product on the market. It's simple supply and demand. If they really pimp a home out, they'll likely get it because A, it's likely the only home on the block. B, it's beautiful. And the people that want to be in that neighborhood, maybe for school systems or other reasons, they'll want to have a beautiful home. So those are some things that we looked at. Hopefully, this really helps you as a wholesaler think like a rehabber. I think one of the main questions immediately is going to be like, how do I know the price of all these things? You need to do some of your own due diligence. There's nothing that can save you from that. Because if I gave you a material sheet with pricing, it's going to be different per city. San Diego is not the same as Phoenix, et cetera. So go out to Home Depot, Lowe's, start to understand what is a typical

Starting point is 00:16:51 square footage of cabinetry? How much does that usually cost per material? Start writing these things down so you have a game plan. I can tell you in Phoenix, it's roughly $6,000 to get cabinets and countertops on a home that we're going to sell in the mid twos, roughly six. Sometimes it's closer to five. Sometimes it might be six and a quarter, six and a half, but that's roughly the cost that I could walk into a home and say, I'm going to spend roughly $6,000. Re-plastering your pool. I know here in Arizona, it's roughly $7,500 give or take of the pool, right? So these are things I know because I've done this 12 years. You need to do your own due diligence and come up with a sheet that I do believe I actually have. If you want it, I will try to find it, which is a blank sheet of just materials. And then you can write in your costs. I will look for that somewhere. Send me a message so I can look for it and see if I can find something for you.

Starting point is 00:17:52 But again, hopefully this has helped as a wholesaler and a rehab flipper. Ask your questions. I'm going to dive right in. I'm going to get engaged. Again, if this is your first time listening to the Science of Flipping podcast, please, please get over to the Facebook group, jump in, ask questions. This is really where you need to be. I give you guys, like I just said, I'm going to go try to find the sheet I have for you guys. I'm going to give it to you guys in the group. It's a great place. And as a matter of fact, if you know people that really could take advantage of being live, having kind of this group coaching feel, tag them into the group, suggest them to get into the group. Because I think, you know,

Starting point is 00:18:35 the more engaged this group gets, the better off we're going to be. So see you guys later. I'll see you on the next episode of the Science of Flipping podcast. Peace.

The Science of Flipping - Episode 156: Are You Rehab Flipping Houses? Where to Spend Your Money?

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