I’d like to say that after the Affinity REI Club closed on its first investment property in February, we dove right into renovations while sporting plaid shirts, overalls and big, cheesy grins, then promptly unveiled the gorgeous Tudor to sparkly-eyed buyers after 21 minutes of action and nine minutes of commercial breaks.
“Is that ours?” gushed Mrs. Buyer while she jumped up and down, hugging her husband. “Is that really ours?”
“It’s,” said Mr. Buyer, wiping a lone tear, “It’s beautiful. Honey just look at that gleaming brick!”
“And the landscaping. Oh, look, sweetie, there are rose bushes. I’ve always wanted roses!”
Oh, but well now, we know that’s not real life.
So, here’s the real deal: property flipping requires time, patience and attention to detail. Before heading in with a hammer and tearing things apart, it’s important to have a thorough plan. The more detailed the plan, the less likely slow-downs will happen during the renovation process. I’ll share with you how we laid the groundwork for the project. (If you missed the story of how my company’s Investment Club purchased our first renovation property, read more about the start of our journey here)
The very first thing we did was to get our investment property insured. Property and casualty insurance is crucial. Should the unimaginable happen: it catches fire, is vandalized, a neighborhood child gets hurt on the premises, etc., investors need to be protected. We insured the property through National Real Estate Insurance Group (NREIG), an Affinity company that offers custom insurance products for real estate investors in all 50 states.
We also secured the property with an alarm system that was recommended to us by Affinity Loss Prevention Services, a company that educates investors, property managers and tenants on best practices to prevent avoidable losses. The Tattletale Alarm system is portable and doesn’t come with a long contract like more traditional alarm companies, so it was a good option for this project.
Prior to closing on the Tudor, we had a rough idea of what the total renovations could cost, but we needed a much more detailed, room-by-room estimate once we closed on the house. Our project management company, Radius Renovation Group, coordinated contractor access to the property for their submission of bids. The bidding process took two or three weeks, since this was a top-to-bottom renovation (We’re calling this the #TotalGutJobTudor for a reason!). During this time, our REI club received an unsolicited offer on the house. We had to call a special, mandatory club meeting to discuss the offer and vote on whether we wanted to go ahead and sell the property as-is, pocket a cool $5,000 and find a new property to flip, or move forward with our current plan to renovate. We voted, almost unanimously, to move forward with the flip.
Once all the bids were in, Radius made the final recommendation on which contractor to hire. The club’s board and investment committee agreed on which contractors to choose, and then, Radius created a comprehensive estimate that outlined the repair work necessary in each room.
In addition to the detailed estimate, we needed plans for the contractors to follow. Soon after closing, we brought in well-known designer, Paul Helmer from Touch of Distinction, to do the honors. Paul lives in Kansas City but has been nationally recognized for his work on historic homes. We knew we were in good hands with Paul, and he put together the plans for the contractors. Having drawn-out plans are important so there is no confusion about what the contractors need to do. They can also save the investor from unnecessary slow-downs and expenses. If the contractor mis-reads or doesn’t follow the plan, they will be responsible for making it right, not the investor. Early into the renovation, we saw how important this was. More on this in my next article.
Once we had everything in place: the property, the itemized estimate, and the renovation plan, we broke ground on the project in early May. This was three months after we had purchased the property. Though it’s been slow-moving, our bottom line hasn’t been affected because, as a club, we were able to buy this property with cash instead of a traditional mortgage. Members make monthly contributions to the fund, and one member is acting as a private lender for the project—loaning some of the renovation costs and distributing additional funds as needed. We have seen the power of our group effort in affording us time to make well-informed, well-planned decisions without impacting our bottom line.
My next article will include more information about the numbers and how the early renovations are going. I will also show the room-by-room estimate. Until next time!