Very few people realize what that really means. Many home buyers and investors underestimate the costs of a “simple” home facelift. And, as usual, I ran into the unexpected hurdles and the project took longer than I’d hoped but from start to finish this was a great project.
Here’s a breakdown of what it took to reconstruct the house and how we made out in the end:
What the house looked like initially:
The house had hardwood throughout the main level but it had not been redone in many years, if ever. The kitchen was small, dated and really worn out. The bathrooms were dark, dank and damp with the original tile and the fixtures were either original or replaced sort of haphazardly. All the interior doors and trim were original and were looking very used and worn.
The electrical system was dangerously outdated with an old 150 amp fuse box instead of a circuit breaker panel box.
All the windows were original. The house had a massive bowed picture window and the others had beautiful diamond-shaped divider. I don’t like to replace windows but many of these were not operational so I had little choice.
The basement was partially finished with a great room, a room/office with no closet, a tiny, grimy half bath and utility area in disarray and an unfinished space that was full of junk and only accessible from the utility and bathroom area. The basement bearing wall was solid cinderblock running the length of the basement right down the center with only one doorway allowing access from one side to the other.
The furnace and water heater in the basement looked pretty good. The outside air conditioning unit was clearly in need of retirement.
The yard was overgrown and neglected. The big bushes in the front were covering most of the house. The back yard sloped badly with many big trees towering over the roof, some of which were dead or near dead. Beneath those trees was an unruly thicket of underbrush and ivy, as well as garbage. There was a side door to the main level of the house but no path to that door. There was a little dirt path from that side door to the edge of a rock wall and a five-foot drop to the back yard that was bridged by a dangerous and slippery wood ramp. The deck itself was not in the best shape. It was poorly supported and the bottom was enclosed with ugly, rotting screen and wood walls.
The rock retaining wall that I’d mentioned ran from the back corner of the house straight out to the neighbor’s property line and back to the street. It was a dangerous drop of as much as 8 to 10 feet high at some points with no safety railing or fence.
The roof looked like it was in pretty good shape and the seller informed me that it was only about eight years old. She didn’t have any receipts but that looked about right to my contractors and me.
The home sales activity in the neighborhood seemed very solid. In that subdivision, there were three similar houses of similar size and amenities that had sold in the past six to eight months. Those houses had sold for between $480,000 and $500,000.
I could safely assume that this house would sell in that range as well but I was afraid that the yard with the large retaining wall and the slope in the back would scare off families. I was afraid there might be a little bit of a discount required to overcome that factor.
The plan and execution:
Mike Tyson once said: “Everyone has a plan until they get hit.” Well, this project gave me a couple good shots. From finding a hidden fireplace to avoiding conflict with local civic association, this flip project did not have a dull moment.
I started with a very simple plan and for the most part I stuck to it. The kitchen, living and dining rooms were drastically modified to accommodate a more open and modern layout featuring a two-sided gas fireplace as a focal point. As I discussed in a previous blogpost, I originally planned to keep the layout and do a simple facelift.
Changing the layout of half of the main floor was the biggest deviation from the plan which did increase the budget but it was worth every penny and it really added to the end value.
The bathrooms were gutted basically down to the studs in some places. All the fixtures, hardware and tile would be removed and replaced.
The hardwood floors on the main level were completely sanded and re-stained. There were a couple of burn marks in the wood and several badly stained areas so we had to do some patching and we went with a darker stain to hide the imperfections — or, personality as I like to call it.
All the doors and windows were replaced. The interior door replacements were six-panel doors and the front door was a nice Craftsman style with a dark rich color. The two big sliding glass doors were replaced with new energy efficient doors.
The electrician looked at the house and determined that the wiring was okay but everything else needed replacing. We replaced the main panel and increased the service from 150 amps to 200 amps. We replaced all the outlets, switches and light fixtures. To make the house safe, we wired fire alarms where modern code required and ground fault interrupters in the bathroom and kitchen. We also ran Cat 5 cable to several rooms for Internet.
We finished the basement and gave it a larger full bathroom, a bedroom, a nice storage area, a huge family room/game room and a wonderful spacious laundry room. We also busted though the cinder block retaining wall, installed a header and a door to give the basement better flow.
For the HVAC I budgeted to replace the outside AC unit but I’d hoped the furnace and water heater would just need a checkup and cleaning. By the time the house was nearing completion, we realized that the furnace did not have enough life left in it. So I had the HVAC contractor replace the entire HVAC system.
I had hoped that the landscaping would not be too expensive. I’d simply planned to clean and trim the yard. I also wanted to add some safety features to the stone retaining wall. In the end, I opted to spend significantly more on the landscaping to add a stone path and install new sod. My plan to build a fence on the top of the retaining wall was modified because of a conflict with the local civic association as I described in this blogpost.
Based on this scope of work, I had budgeted approximately $72,000 for the remodel and anticipated selling the house for about $500,000.
I ended up spending closer to $100,000 and after only about three days on the market the house went under contract and sold for $535,000. Here’s how the project’s numbers broke down:
• $335,000, contract purchase price
• $6,000, closing
• $341,000, total for acquisition
• $100,000, repair
• $18,000, interest or capital costs (I borrowed $300,000 from a private party.)
• $459,000, total project costs
Home sale and income:
• $535,000, contract sales price
• -$21,400 real estate agent expense
• -7,300 closing costs and taxes on the HUD-1
• $506,300, net at closing
• -$459,000, total project costs
I made approximately $47,300 on this project that took me about six months to complete. My investor/lender who provided $300,000 in capital for the project made about a 12 percent annualized return on her money. Financially, this was a good project and my investor was pleased.
Personally, this was a great project. My team and I took what was the ugliest house on the street and left one of the nicest houses in the neighborhood. It was a lot of fun to redesign the house’s three major public spaces with some high-end features. It’s not often I get to indulge a little in the design and décor and really show what my team can do. I’m pleased with this project at every level.
Read Justin Pierce’s previous columns: