FLIP AND GROW RICH VERSION 1.0 FIX

Transcription

1 FLIP AND GROW RICH VERSION 1.0 FIX The contents of this program have been prepared for use in a broad-based educational and instructional program. Because real estate laws and regulations vary from state to state, all course participants should first consult with his/her own local legal, financial, real-estate, and other professional advisors before implementing any specific strategy and/or technique. Neither the author nor his agents make any warranties or guarantees, express or implied, about results. Individual results may and will vary. All rights reserved. No part of the manual may be reproduced in any form, by any means, photocopying, electronic or otherwise, without written permission from the publisher. Armando Montelongo, President - Armando Montelongo World Wide, Inc. 1 ı FIX

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3 FIX How to Build a Fixing Machine Everything you need to repair and refurbish houses, so you can control costs. Preview You will learn: Concepts: The need for speed Cookie-cutter formula Focus on productivity Methods: How to assess repairs How to manage subcontractors How to manage inspections Tools: What to pay for with repairs How to pay subcontractors You will be able to: Assess the cost of repairs Manage others to get it done Stay within budget and deadlines Produce sellable houses 3 ı FIX

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5 CONTENTS Contents Chapter 1 Overview...7 Chapter 2 Cookie-Cutter System...8 Speed, speed, speed...8 Tracking repairs Walk three times Middle-income range...9 Three areas that sell a house...10 Chapter 3 Assess Repairs Outside...11 Foundations...11 Roofs...12 Soffits and fascias...13 Siding...13 Landscaping...15 Chapter 4 Assess Repairs Inside...17 Walls...17 Ceilings...18 Paint...18 Floors...19 Kitchens...20 Electrical boxes...22 Light fixtures...23 Master bedrooms...23 Bathrooms...24 Water heaters...26 Plumbing...26 Doors...26 Doorknobs...27 Chapter 5 Adding Up Repair Costs...28 Fixed...28 Variable...28 Chapter 6 How to Use Subcontractors...30 Longer shelf-life...30 Why subcontractors...30 How to find subcontractors ı FIX

6 Chapter 7 Subcontractor Agreements...33 Protection...33 Less than 500 upfront...33 Other contract points...34 Subcontractor status Forms...35 Insurance...35 One-year warranties...35 Change orders...36 Deadline penalties...36 Subcontractor buys materials...38 Chapter 8 How to Pay Subcontractors...39 Hard money draws...39 Work schedule...40 Invoices...40 Irregular schedules...42 Checking up...42 Final walkthrough...43 Chapter 9 How to Keep Subcontractors Happy...45 Treat people like people...45 Pay weekly and on time...45 Let people know upfront...46 Chapter 10 Permits and Inspections...47 Permits...47 Inspections...48 Chapter 11 Streamlining the System...49 Cost checklist...49 Kitchen product shopping list...50 Bathroom product shopping list...54 Paint and carpet color list...58 Forms and documents...59 Summary Review ı FIX

7 OVERVIEW Chapter 1 Overview Fixing the property is the part that will make or break you. This is where your money is spent. This is the part where your contractors will be your partners or your competitors. Are you going to be able run the contractors, or are the contractors going to run you? This is where you keep your profit. If you make your money when you buy, then you keep your money when you repair. But it s not about counting pennies. It s about controlling your costs by being in control of your contractors. If you spend your time counting pennies, you re going to miss out on dollars. If you learn how to control contractors, you can control a project. When you control a project, you maximize your profits. My system will teach you the best way to assess repairs quickly, get it done efficiently, and manage subcontractors effectively, so you can maximize your profits. That s how you get rich. 7 ı FIX

8 COOKIE-CUTTER SYSTEM Speed, speed, speed Tr acking repairs Chapter 2 Cookie-Cutter System Speed, speed, speed Tracking repairs Walk three times Middle-income range Three areas that sell a house Speed, speed, speed Once you ve learned how to bid on a house, finance the house and then close on the house, the key to getting the work done is speed, speed, speed. You don t want to be involved in the activity of fixing up the house. Your money is made at the purchase of the property. By having a cookie-cutter system, you can learn to quickly repair properties, while staying focused on buying. The repairs are the activity. The system will keep the fixing activity under control. Flipping Machine Tip: Walk the House Only Three Times At most, you should walk the job only three times. 1. When you buy it 2. When you walk through it with the contractor 3. When you do the final walkthrough with the contractor. You re not making money when you repair the project. You make money when you make deals. The best way to make money in any business is by streamlining. The reason I am able to flip 25 to 30 houses a month and make maximum profits with minimal headaches is because of my cookie-cutter system. You need to fix houses the way Henry Ford built cars. In my system, you re putting the same ceiling fans; the same antique white walls, the same pure white ceilings, the same kitchen cabinets, the same countertops, the same tile, the same color and quality of carpet in every house. Are there variations to that? Of course. You ll have situations where your common sense comes into play. Am I cutting into your creativity? No. Am I teaching you how to make money? Yes. Save your decorating creativity for when you build your 10,000-sq.-ft. home. As your coach, my job is not to teach you decorating taste. It s to teach you how to build an efficient, money-making Flipping Machine. Tracking repairs The cookie-cutter system starts from the beginning. Your process starts the moment you first walk through the property and write the repairs down on the Budget Repair Sheet. 8 ı FIX

9 Walk three times Middle-income r ange COOKIE-CUTTER SYSTEM This allows you to plan your budget and manage the contractor. It also helps you figure out how much to offer to buy the property. Once you close on the property, you will be able to fax the Budget Repair Sheet over to the contractor. The contractor will be able to just look at the Budget Repair Sheet and know the type of work it needs, as well as his final budget. Once you have a contractor who understands your system, you may not even have to walk the property with them. They can just work off your budget sheet. BUDGET REPAIR SHEET (see Chapter11 - section Forms and Documents, p.84) Walk three times The great thing about the Fix part of your Flipping Machine is that you can walk the job as few as three times: 1) when you buy it, 2) when you walk it with the contractor before work starts, and 3) when you do a final punch list with the contractor. Will there be times when you need to look at the property a few more times than that? Sure. The important thing to remember is that you won t have to be on the job constantly running contractors. You will be running the job from your computer. It s important to not waste time by doing a daily drive-by. Don t add unnecessary work. Follow the system so your contractor can do what he is best at fixing the house and you can focus on building your Flipping Machine by finding more deals. You want to monitor the progress of the house the same way each time. Take pictures when you first look at the property to analyze it, to see if it s a deal. Then, file those pictures under the name of the property. Your subcontractor will take more pictures as work progresses, and you will pay him under a system the same way every week. I will explain all this in more detail later in this book. Middle-income range Peg the approximate mid-point for middle-income homes in your area. Below the middle-income line, you want to buy less-expensive carpet, paint, light fixtures, etc. Above the middle-income line, you want to buy higher-grade items. 9 ı FIX

10 COOKIE-CUT TER SYSTEM Thr ee ar e as th at sell the house Flipping Machine Tip: This system is created to repair houses as quickly and generically as possible Each region and each city has different income levels and ranges of home prices that fit lower, middle, and higher incomes. A 250,000 home may be upper middle-income in your area. In other areas, that much would barely get you into an 800-sq.-ft. condo. You need to identify what the ranges are for low, middle, and high-income homes in your area and judge accordingly. It doesn t matter where the middle-income line is. Whether it s 125,000 for a house or 650,000 for a house, the same system and rules apply. There is no be-all, end-all, one-size-fits-all solution to repairing houses. The most important point is to go with the least expensive route that gives you the best look and return on your dollar. Do not customize every house. This system is created to repair houses as quickly and generically as possible. Your buyers will want to customize their new home themselves. It s not your job to tell them what they want. You are providing a clean and open canvas for them. Three areas that sell the house The three areas you need to pay particular attention to rehab are the ones that potential buyers pay the most attention to; Front yard Kitchen Master bedroom & bathroom You won t get anyone in the door, unless it looks good from the front. You won t sell to the woman of the house, if the kitchen doesn t look good. And neither the man nor the woman will stay, if the master bedroom and bathroom don t look fresh and new. There is a lot more to repairing a house and restoring it to mint condition than just these areas, but these are the three most important areas that influence your buyers. When you assess a house, you will want to pay attention to these three areas. After you look at these areas, then you look at the outside and the inside from an overall point of view. 10 ı FIX

11 Foundations ASSESSING REPAIRS OUTSIDE Chapter 3 Assessing Repairs Outside Foundations Roofs Soffits and fascias Siding Landscaping Flipping Machine Tip: Foundation-damaged houses are great buys. In order to budget for foundation repairs, you must know how to tell if the foundation is damaged. Foundations Clues to whether a foundation is solid or not: square angles on siding lines square door frames & windows cracks in the foundation or walls When you look at the foundation, the first thing you will look to see is whether the house is square. When I say square, I mean: are the vertical and horizontal lines at 90-degree angles? You ll begin to assess this before you even walk into the house. Look at the siding lines. Whether it is brick or wood siding, do the horizontal and vertical lines run at 90 degrees? If it s stucco, the stucco will be cracked if there are foundation problems. These cracks will be wider than ¼ inch. Hairline cracks only mean soil movement, not necessarily foundation failure. If the horizontal and vertical lines are not at 90-degree angles, this is your first hint that there are foundation problems. It s absolutely essential that these lines be square for the foundation to be in good condition. Doors and windows are another good indicator. If there are foundation problems, the doors and windows won t be at a 90-degree angle with the floor. Also, if doors or windows stick or are hard to open, this is also an indicator of possible foundation problems. You can also look at the foundation itself. If you look at the outside walls at the bottom of the house, you will see gray cement. This is the foundation. Do you see cracks? I m not talking about varicose veins; I mean arteries. Are you seeing 11 ı FIX

12 ASSESSING REPAIRS OUTSIDE ROOFS cracks of more than ¼-inch wide? If so, you may have a damaged foundation. When you go inside, there will also be clues about the foundation. If doorways inside the house are slanted, you may need foundation repairs. If the doorway has cracks leading away from the upper corners of the doorframe, and these cracks are larger than 1/4 inch, the foundation needs repairs. If it feels like you re walking into a fun-house at your favorite theme park, the house needs foundation repair. Roofs Condition Missing shingles Flat roofs Condition The other important item you need to assess from the exterior is the condition of the roof. If the roof is extremely faded in color, that is not necessarily a sign of a bad roof, just an aging roof. You can bring it back to its original luster by having a handyman climb on the roof with detergent, water and a push broom. Scrubbing it down will make it look five years younger. Missing shingles If there are shingles flapping up or missing, plan on doing repairs or possibly replacing the entire roof. How do you know if you have to replace an entire roof? When you are looking at the property from the outside, if you see shingles flipping up in several areas, or missing in more than one area, you have a bad roof. If the roof is swaying or sagging, you most likely need to replace the roof. You can also see possible signs of a bad roof from the inside of the house. Check out the ceiling. If drywall is hanging down, you have a roof leak. Yellow stain marks also indicate leaks, but judge them by age. If the stain marks look old and you have had a recent rain, most likely the roof has already been fixed. For most houses, you will not have to replace the roof. I would say I only need to put a new roof on about one out of 15 houses I buy. You don t have to get on top of a house to check the roof. You can check the roof from the ground outside, as well as inside, by using the techniques above. 12 ı FIX

13 Soffits and fascias Siding ASSESSING REPAIRS OUTSIDE Flat roofs I ve never bought a house with a flat roof. I do not find them visually appealing and there are just too many problems with them. Flat roofs typically don t have good run off systems for rain to drain from the roof. This allows the water to puddle and find ways inside the property. I find that most people who have houses with flat roofs have a harder time selling them, because they are not visually appealing. If you want to buy a house with a flat roof, I recommend taking a roofing specialist out to see if the flat roof has at least five years of life left. If it does, you can sell it. If it doesn t, it ll be a tougher sell, with possibly expensive repairs. Soffits and fascias The soffits and fascias are the wood part of the house, just underneath the roof. It is not always wood, sometimes it is made of aluminum or vinyl siding. However, 95% of the time, this part of the house is wood. If your soffits and fascias are broken or torn, or the wood is warped or rotted, you need to replace and paint them. This is important, because the outside of your property is what a prospective buyer will see first. A damaged soffit or fascia can turn a buyer off. It is like having a beautiful car with a bad bumper; it makes the whole thing look like a junker. Soffits and fascias are not essential parts of the roof. Any damage to them is simple to fix. When you have a rotten soffit or fascia board, you don t need to replace the whole soffit or fascia. You can simply cut out the rotten part and paint. It s the same way a plumber doesn t rip out the entire network of pipes to fix a small leak. He just cuts out the problem area and welds in a new piece. This is still a quality repair job and it makes the house look newer. Siding Brick Wood Aluminum and vinyl Brick Depending on where they occur, cracks in the brick siding of a house can be a problem. If the bricks themselves are cracked, it may mean that the house has foundation problems. 13 ı FIX

14 ASSESSING REPAIRS OUTSIDE SIDING Cracks in the mortar, however, mean settlement, not foundation problems. These can be touched up it s called pointing the mortar. Have a mason come by and re-point the mortar. He will match it as closely as possible. It won t be an exact match, because you are putting new mortar next to old. However, it looks much better than having cracks run up the sides of your wall. Just power wash the brick outside once the mortar dries and this will help the old mortar more closely match the new. Wood Wood siding often has problems in the areas where it hangs near the ground. It is usually rotted by water and damaged with gnaw marks, where dogs like to chew. Rather than replace the entire siding, you can buy 2 x 6 boards, have your carpenter attach it, and paint it to match. It looks like nice trim work, and costs a few hundred dollars, rather than a few thousand. Flipping Machine Tip: Don t customize your houses. Customize your business so that it can operate on cruise control. Aluminum and vinyl Aluminum and vinyl siding can be expensive to put up, because you ll often have to go through a big contracting company to get it installed. A great way around this is to go to a local aluminum or vinyl siding distributor and ask for the names of direct installers. The distributor will give you a list of reputable installers who can get the material and do the job for half the price of a larger company listed in the phone book. But you ll actually have to drive to the distributor s shop. That s worth the trip, though, because it saves a lot of money in the end. In some cases, because vinyl siding can be so expensive, you may do better just replacing the whole things with wood siding. Do not power-wash aluminum or vinyl siding. This will dent the material or fade the color. Some vinyl siding is guaranteed up to 50 years. If you can find the manufacturer of the siding on your investment flip, you may be able to get the material at no cost, since most vinyl siding comes with a transferable warranty. 14 ı FIX

15 LANDSCAPING ASSESSING REPAIRS OUTSIDE Landscaping Lawn Flowerbeds Trees Lawn Green lawns sell houses. The way to have green lawns is to make sure the grass gets watered. Remember how I said that the exterior landscaping is what will get the buyer into the house? I mean it. In my contracts, I have the subcontractor buy a garden hose for about 25 to 30 and a sprinkler for about 15. I tell him he can keep them, but he needs to water the yard every day he s working on the house, for thirty minutes. He s going to be on the job everyday anyway. This is during the summer months. If I come the next week and find the grass is still brittle and hard, I know he has not been watering it, and I will deduct it from his payment, to the tune of 100. I m paying for the water, so it doesn t cost him anything to do it. I guarantee you that if you put this stipulation into the contract, including the charge of 100 if he fails to water it, he ll do it. I also don t let contractors throw trash on the lawn. They can put it in a dumpster, on the driveway or in the garage. But I need that grass to look good. Flipping Machine Tip: How to Keep the Lawn Green In my contracts, I have the subcontractor buy a garden hose for about 25 to 30 and a sprinkler for about 15. I tell him he can keep them, but he needs to water the yard every day he s working on the house, for thirty minutes. If that does not work, use green lawn paint. What do you do if the brown spots haven t cleared up by the time you re bringing prospective buyers? The brown spots will clear up eventually anyway, but you need it to look green now. There are grass paints you can apply that make your yard look amazing. These kinds of paints are applied to golf courses. I once had a dead yard that I had painted entirely green. It was the best-looking yard on the block. Check with your local home improvement center for products they recommend. Flowerbeds I also like to build small flowerbeds in the front yard. Just a small bed with the blackest dirt you can find. Put a few colorful flowers in there. The combination of green grass, black dirt and colorful flowers, especially in the summertime, is spectacular. Have your landscaper or subcontractor do this work. 15 ı FIX

16 ASSESSING REPAIRS OUTSIDE LANDSCAPING When I walk the job with my contractor, I instruct him to water the grass while he s on the job. When he s finished, he has to mow the grass and power wash the sidewalk. It s amazing the difference it makes. Flipping Machine Tip: Trim Bushes for a Bigger House All bushes need to be trimmed to below the bottom of the front windows. This makes the house look bigger. Trees If the trees are hanging down, they need to be umbrella-ed, which means getting rid of dead or live branches hanging down toward the ground. Everything hanging downward is cut off and everything hanging upward is left, because it makes the tree look taller and clean. If you stick with small-time tree trimmers, you can find ones who will umbrella three trees for around 700. The trees don t have to look perfect; you just need them shaped up. Don t pay to have the trees meticulously manicured. Lift the trees just above the height of the house, so that the house is visible from the street. You may be able to do this for as little as 250 a tree. In order to sell a house, your buyers need to be able to see it. If you have tall bushes in front of the house, remove them or manicure them down to lower heights. Box-type bushes also need to be trimmed. All bushes need to be trimmed to below the bottom of the front windows. This makes the house look bigger. If manicuring the bushes reduces them to the point where bare branches and sticks are prominent, rip them out. Put some grass down in that area instead or make a planter box right there. Frankly, I prefer to tear the bushes out entirely in most cases. Planter boxes make a good substitute for the space. 16 ı FIX

17 WALLS ASSESSING REPAIRS INSIDE Chapter 4 Assessing Repairs Inside Walls Ceilings Paint Floors Kitchen Electrical boxes Light fixtures Master bedroom Bathrooms Water heater Plumbing Doors Doorknobs When you walk into the property, you re going to keep feeding your brain as much information as you possibly can. You want to catch every detail so that you know what kind of repairs will need to be done. Walls When I look at interior walls, I examine them for several things. Is the floor straight? Is the ceiling straight? Is it straight where the wall meets the ceiling? I stand back a bit and look at the wall lines along the ceiling and the floor, to see if they are straight. I also look for cracks. Little cracks aren t generally a problem Look for cracks bigger than 1/4 inch. In some areas, the ground has a lot of soil movement, which causes small hairline cracks in the house foundation, but it is not necessarily the sign of a bad foundation. Rather, if you re getting cracks of a ¼-inch or wider, it s a typical sign of foundation problems. If they re a ½-inch wide, you definitely have a problem. Flipping Machine Info: How to Fix a Foundation How is a foundation repaired? It s quite possible for the back of the house to have foundation problems and the front to be just fine. The repairs will basically involve jacking the foundation up, putting in concrete blocks and filling it back in. You don t need to know every detail of the process don t fall into analysis paralysis. The most important thing for you is to know that the job will get done and the foundation will be straight, so you can make your money and move to the next deal. A really bad foundation might involve putting boxes all around the house. Boxes reinforce foundations at their weakest point. Most of the time, if you see a house like that, it s like a fire everyone is running away from it, including the investors. But you re like a firefighter you re going to run toward it. Never be afraid of those deals. 17 ı FIX

18 ASSESSING REPAIRS INSIDE C eil i ngs Pa i n t Ceilings Flipping Machine Info: How to Find a Foundation Contractor Make sure to get bids from three different foundation contractors. Don t waste your time with the big boys. They will charge you big numbers. You can drive around neighborhoods and find people who are physically building and laying foundations. These people won t necessarily know how to fix them, but they ll know someone who can. So go check out a new construction site and ask around. Another way is to go to a foundation company and ask to see some of their ongoing work. While you re checking it out, chat with some of the workers and ask if they want to do your foundations. Foundation companies act almost like general contractors. You can approach individual foundation workers who will do the job for far less. These small guys are independent businessmen who have the right to work On middle-income houses or higher, if you have popcorn texture on the ceiling, remove the popcorn and retexture the ceiling. If you have drywall cracks, patch the cracks. You can spot-patch textures. You don t necessarily have to retexture the whole house. If there s messed-up drywall throughout the house with holes and cracks, it may be better to simply retexture the entire house. For a 1,500-sq.-ft. house, it will cost around 2,000 to 2,400 to retexture. Paint I always plan on painting the entire interior of a house. No one wants to buy an old house. Rate the existing paint job on a scale of one to 10. If it s a nine or 10, you don t need to paint it. Anything that is an eight or less definitely needs paint. Do not look at this as though it were your own home and needs customized paint colors red, blue or green paint or knock out this wall and build an arch. That will break the bank in this business. This property is an investment, not your home. I do every paint job in a standard way. I paint the walls one color and the ceilings a different color. On our television show, we sometimes paint rooms various colors to make things look nice on camera. But to get your deals down in a systematic way, find single colors that you like and stick with them. We use antique white over and over again. At some paint stores, antique white actually comes in two shades pure white and somewhat beige. You have to use the slightly beige one, as this gives the walls a warmer feel. Use contractor grade paint, not premium grade. These are the colors we use on walls and ceilings. We paint walls antique white. If the ceiling is flat, we use pure white. If it s a vaulted ceiling, we use antique white. Flat ceilings about eight to nine feet in height will look higher with pure white and make the room seem larger. If you paint vaulted ceilings pure white, though, it makes them look unfinished, as if they only had primer on them. You can, if you want, paint an entire house antique white and it might run you slightly less money. 18 ı FIX

19 FLOORS ASSESSING REPAIRS INSIDE I have my contractor paint the doors and trim pure white with a semi-gloss finish. Ceilings and walls you re simply painting a flat paint. On all wet areas bathrooms, kitchen and laundry room you use the same colors, but semi-gloss. Do the same thing every time. When you walk your contractor through the first time, you ll specify the colors you want. Then you can tell them that, on all future jobs, it ll be the same colors, every time. They don t even need to ask you about it. Flipping Machine Info: Color by Numbers: walls antique white paint, flat, contractors grade flat ceilings pure white, flat vaulted ceilings antique white, flat doors and trim pure white, semi-gloss kitchen antique white, semi-gloss kitchen cabinets pure white, high-gloss bathroom walls antique white, semi-gloss bathroom ceilings pure white, semi-gloss laundry room antique white, semi-gloss carpets beige Floors Flipping Machine Tip: Buy Paint in Bulk Another money-saving possibility is to call up your local paint store and buy their mismatched paint. There are apartment complexes all over town with contractors painting their properties who get the shade wrong. The paint stores will sell the mismatched paint for a discount. When you buy this type of paint, you can save lots of money. Just recently, I had my contractor buy about 1,600 worth of paint for 300. I made sure he used this paint only on my property, and that he made the purchase himself, as I do not supply materials to contractors. Carpet Wood floors I nearly always go with new flooring when the house already has carpeting. Of the last 100 houses I ve done where the house has had carpet, I ve only been able to keep the carpet twice. You ll almost always need new carpet. Occasionally, you ll be able to clean it up, but that s typically reserved for rental properties. When we re talking about flipping houses, the carpet is usually trashed. Carpet Right now I m paying about 13 per yard for carpet and installation. That s carpet, pad, and labor. It may cost a bit more for transition strips where the tile meets the carpet. For middle and low-income houses, use base-grade carpet and pad. For higher income homes, you may want to invest a little more, but don t go over the top. Color: beige. Same color carpet in every house. 19 ı FIX

20 ASSESSING REPAIRS INSIDE KITCHENS Flipping Machine Tip: Always Get Three Bids While you re learning and doing your first few deals, you always want to get three bids. Again, get them from the small guys. If you open up the Yellow Pages and see a fancy ad, ignore it, unless you want to call and ask to see ongoing jobs. Eventually, you ll be able to walk into a house and intuit from experience how much it is going to cost in repairs. You ll build up relationships with people who you trust to do the work for you. Buyers don t care whether you use the same colors in all your houses. The point for them is that the interior is new and fresh. The fact is that most new tract houses contain the same base-grade carpet. A lot of buyers are going to rip the carpet out and replace it anyway. Wood floors How do you decide to keep a wood floor or cover it with carpet? If it puts you outside your budget to repair the wood, cover it with carpet. If the area is older, or historical, or more expensive, it may be worth it to refinish the wood floors. Wood floors can add value to a home If it s a lower-income area, it may actually be more expensive to put carpet over the floors, and you may do just as well to clean and varnish them to bring them to a shine. Any underlying stains will seem part of the integrity of the wood. The determining factor is always budget fitting within the 70% Rule. If refinishing the wood is going to put you outside your budget, cover the floors with carpet. Sanding and refinishing can be very expensive. Refinishing wood floors will cost you around 2.00 to 2.50 per sq. ft. for sanding, staining, and sealing. I ve also had occasions where I ve bought a house, pulled up the old carpet, and found perfectly protected wood floors underneath. Those are great deals, because you don t have to put any money into replacing the floors. If you re not sure about your numbers, get three bids before you close on the house and make sure the numbers work. Kitchens Cabinets Countertops Vent hoods Stoves Dishwashers Sinks Cabinets A lot of times, kitchen cabinets can be repaired. The doors might be hanging askew, but they can be readjusted or painted. Always check under the sinks 20 ı FIX

21 KITCHENS ASSESSING REPAIRS INSIDE for drips, stains, leaks, or spilled chemicals. If the bottom of the cabinet inside is torn out, you can simply lay a piece of plywood there and paint it to match the rest of the cabinets. Don t replace the cabinets, unless they are so badly damage that they can t be fixed. Rotted wood and missing center-dividers are a problem. A few missing drawers are not; you can fix those. If half the cabinets are good and half are in disrepair, it takes more time and money to have cabinets custom-made to fit the good half. It s easier to just tear them out and replace them all. The average house of 1700 sq. ft. will have about 14 linear feet of cabinetry. (Linear feet is how cabinets are measured. It is the length of all your cabinets if you line them side by side.) New cabinets with labor, materials and installation will cost about 1,800 to 3,400, to pull out the old and replace it with new, low-grade cabinetry. You can get them from Home Depot or Lowe s. You can get pure-white cabinets or contractor grade and have the contractor paint them. I always try to paint the existing cabinets first. When I do paint, I always go with a high-gloss, pure-white paint. It is okay to stain the cabinets, if they already have a stained finished. However, pure-white paint is always a safe bet. Countertops Kitchen countertops almost always need replacement. In states such as California, and in beach cities, contractors often go with white 4 x 4 tile countertops or granite countertops. If the tile or granite countertops are in good shape, there is no need to change them out. When the countertops are in disrepair, you can replace them with tile or laminate countertops in middle-income or lower income houses. With laminate countertops, a 14-foot length of countertop, which includes cut-outs for a sink, will cost about 800 to 1000 for materials and labor. Save the marble countertops for houses with an after-repair value of 500,000 or more. Vent hoods I always put new a kitchen vent hood in properties. Rather than using the type of vent hood that has to be routed through the ceiling, I have a recycling vent hood installed that costs about 100. This saves a lot of time and money. A recycling vent hood simply means that it processes the smoke inside itself, and you don t have to cut holes in the roof to let the smoke exhaust out into the atmosphere. 21 ı FIX

22 ASSESSING REPAIRS INSIDE Electrical boxes Stoves Put a new stove in. I send my contractor to go to after-market appliance stores or scratch-and-dent stores. This will save several hundred dollars. I set up an account at one of the stores, and they ll know what I want, which is usually the least expensive white appliances. I always put in white appliances up to about the mid-range of middle-income homes. For upper middle-income and higher houses, I put in black or stainless steel stoves. White gives a nice clean look, and most properties you flip will be middle or lower middle-income. Dishwashers I also like to have new dishwashers installed. The only time I do not put in a new dishwasher is if the house does not have one already, there s no space, and it s a lower-income neighborhood. You can sell a house in lower-income properties without a dishwasher, if the property doesn t already have one. If it s a middle-income property or above, I ll put in a new dishwasher or make room for a new one if needed. Sinks You ll also need a new kitchen sink. A stainless-steel kitchen sink and faucet installed together, at contractor grade, will be about 250. Stainless steel is good because it s inexpensive. However, in a higher-income house, don t go with stainless steel. You want to dress it up a bit more. Install higher-grade sinks in higher-income homes. Still, you probably won t need to pay much more than 400 for a kitchen sink and faucet. The price difference between materials for a lower middle-income and upper middle-income property is not big. The price difference might be 50 to 100, with some color or hue difference. You re not going for high-end, superexpensive materials. You just want it to look good, to look like it fits in a more expensive home. Electrical issues The average 1500-sq.-ft. house has an electrical panel box outside. In a worst-case scenario, if the box is totally ripped apart, it will cost you around 2,200 to get permits and a new electrical box. But 95% of all the houses you will ever buy will not require a new electrical box. The most common electrical upgrade that your property will need is faceplates for electric sockets. After you have put on a fresh coat of antique 22 ı FIX

23 Light fixtures Master bedrooms ASSESSING REPAIRS INSIDE white paint on the house, what s left behind are the old, off-color, beige or brownish electrical sockets. You will need to replace not just the faceplates, but the plugs, and also the light switches. This is necessary if they re a different color from the paint or they are old and worn-out. Fresh new carpet and paint, contrasted with dingy yellowing plugs will make it look like you did a half-baked job on the house. There will be times when the plugs look pretty good. When this happens, don t go through the expense of replacing them. In a 1500-sq.-ft. house, you ll probably spend 400 to 450 replacing plates, plugs and switches. Light fixtures I always install new light fixtures in all the rooms. As with paint, I replace any light fixture that rates an eight or lower on a scale of one to ten. I like to put up ceiling fans with light kits. At Home Depot, a pure-white ceiling fan and a light kit run about 25. People love ceiling fans, especially in hot regions of the country. When I sell the house, I turn the ceiling fans on low. It lends a peaceful, calming, elegant effect. I also put new light fixtures in the kitchen. It s very important to have a bright kitchen. Plan on spending at least 125 to install new kitchen lights. It doesn t have to be fancy. Stick with the existing lighting style and go new. I always install Hollywood lights in bathrooms. They light up the room very nicely, and they re about 35 to 50 at Home Depot. Master bedrooms The master bedroom is one of the three key areas that sell a house. You will of course paint and replace flooring if necessary in the master bedroom. A huge part of making the master bedroom look good is to make the master bathroom look good. The master bedroom part is easy. It is the master bathroom that makes the bedroom and bathroom combined feel like a master suite. 23 ı FIX

24 ASSESSING REPAIRS INSIDE BATHROOMS Bathrooms Pedestal sinks Tubs Showers Faucets To gut a bathroom and install a new pedestal sink, tub, tub surround, and toilet will cost 3,500-3,800 as a rule. What can you do to save money? Don t buy high-end tubs, faucets, and such. As long as they are new and fresh, low-cost products will generally last a long time. American Standard, Moen and Kohler are all companies with good reputations selling inexpensive products. Pedestal sinks Many people enjoy having cabinets for storage in their bathrooms, but pedestal sinks look great and make a bathroom pop. You can buy a pedestal sink for 50 to 75, as opposed to buying a new cabinet, countertop and sink for 200 or more. Pedestal sinks also have the advantage of making bathrooms look more modern and spacious, especially in small bathrooms. Definitely consider a pedestal sink if storage is not an issue in the overall house. In, say, an sq.-ft. house, storage is going to be something of an issue. But storage in the bathroom itself doesn t need to be the central concern. People tend to be more interested in the way the bathroom looks and how they can move around it, not in how much storage it has. Towels can be stored in a closet, especially if it s a hall bathroom. Who s going to be using the hall bathroom? Guests certainly will. Looks will be really important there, and a pedestal sink looks great. Tubs You don t always need to replace the tub, even if it s old and dirty. There are several solutions you can use, depending on budget and the condition of the tub. These include: bleach epoxy paint professional tub-refinisher 24 ı FIX

25 BATHROOMS ASSESSING REPAIRS INSIDE Sometimes you can bleach it. Or you can buy special epoxy paint at a hardware store and paint it. Or you can hire a professional tub-refinisher to paint it all for about 350, including a warranty. If you have a larger house with old tile on the walls and floors, you have two options. rip out old tile and lay new tile or paint old tile You can rip it all out, lay down new tile on the floors and put up new drywall on the walls to paint, but that will be expensive. You can also get a professional company to paint the tile. A professional tile painting company will acid wash the tile and use a special paint to adhere to the surface of the tile. The whole thing will cost around 2,000 to paint the bathroom floor, walls, tub, toilet, and sink. A professional tile-painting company is a less expensive alternative to tearing out the tile walls and floors. The tile will look brand new. I would take more than one bid on this process, as this is not something your contractor can do for you. Also, make sure that it comes with at least a one-year warranty. Showers If the bathroom only has a shower, you need to look down and inspect the shower pan. You want to make sure that you budget for any leaky shower pans. Inspect the room or closet on the back side of the shower for leakage or rot. If you find any signs of water damage, you ll have to tear the shower out. Budget about 3,000 to tear out a shower, set a new shower pan, re-install faucets and re-tile the floor. Here is a good money maker and saver for lower-income houses. If you need to rip the entire tub and tile out, you can lay tile boards on the walls for about 80 to 150 total. It s not real tile, just hard plastic. But it looks clean and neat. Because the tile boards come in pieces that have to be cut to fit, make sure all the lines run straight to keep a uniform look. Sometimes subcontractors try to get it done too fast and the lines end up offset and it looks terrible. If they fail to line the tiles up right, make them rip it out and do it again. Faucets Check the faucets. In lower-income homes, I recommend installing new tub or shower faucets on almost every house, because they tend to leak. In middle and upper-income homes, you can replace them on a case-by-case basis. In upper-income homes, you can still go with base-grade fixtures, but better not to install plastic bathtubs. 25 ı FIX

26 ASSESSING REPAIRS INSIDE Water heaters Plumbing Doors Water heaters At the bottom of the water heater, you ll find a small door. If it s clean, the water heater is probably in good condition. However, if the bottom of the water heater or the area around the small doors is rusted, you will probably need to replace the water heater. A new water heater will run approximately 700 for labor and materials. Plumbing We ve already talked about replacing plumbing fixtures. If you re replacing the toilet and sink, make sure you have your subcontractor replace where the water lines go into the wall. This will prevent any future leaks. Also, if there are any visible leaks, make sure those are repaired as well. I don t usually go looking for plumbing issues. Generally, if there s a problem with the pipes, you ll know. Plumbing problems, like foundation problems, leave clues. Typically, if there are serious plumbing problems, I write into the contract with my foundation repairmen that they will fix the plumbing when they fix the foundation. He may have to bring in a plumber, of course. But it s much simpler and cheaper to fix major plumbing problems while the foundation is open. You may have heard rumors about foreclosures, that owners will throw cement down pipes out of spite for their eviction. I ve heard those stories, too. But I ve never run into that problem. Not once. Think about it it takes time and money to buy cement and mix it to pour down the pipes. Most people don t want to take the effort. If they re angry at being foreclosed on, they might kick holes in the drywall, but rarely more than that. Doors If you have dark-stained doors, you can either leave them dark or paint them white. If you leave them dark, you can re-varnish them, and paint the doorframe trim white. If you decide to paint the entire door white, it will require primer and a finish coat of semi-gloss white paint. Leaving doors dark is cheaper, as long as there aren t holes or major dents in the door. 26 ı FIX

27 Doorknobs ASSESSING REPAIRS INSIDE If you need a new door slab, the door will cost around 50 at Home Depot, plus another 25 to hang it. If you need to buy a door along with the door frame, you will spend about 100 for the material, plus 50 to install and another 35 to paint. I ve had houses where the doors appeared crooked, but there were no foundation problems. In these cases, I check the walls, ceiling and floor to see if they are straight. This way, I can determine if the problem is the door or the door frame itself, instead of the foundation. When doors are hanging cock-eyed, and there are no foundation problems, it is a simple fix. They can be fixed by having the handyman rework the door frame to square it. It s a huge expense saver. These crooked doors need to be fixed, because if buyers see crooked doorways, they will think the house has foundation problems. Doorknobs Doorknobs should match throughout the house. You don t want half the house to have old knobs and the other half new knobs. Just get new ones. If you have mostly good doorknobs and one that is mismatched, it is not a big deal. Flipping Machine Tip: Tree Roots in the Plumbing The strangest plumbing issue I have ever encountered happened while replacing a toilet. The sewage under the toilet had rusted out and tree roots were growing inside. Trees look for water sources, and the roots worked their way into the perfect place, with water and fresh fertilizer right there in the sewage pipe. The plumber told me, This is going to cost 15,000. When I hear stuff like that, I think, I m going to get three bids. In the end, I found a guy who fixed it for ı FIX

28 ADDING UP REAPIR COSTS Fi x ed Va r i a bl e Chapter 5 Adding Up Repair Costs Fixed Variable Fixed In the beginning, it will take a little longer to evaluate how much you will spend on property repairs. However, you will quickly learn the costs of repairs. You will soon realize that repairs will be part of your cookie-cutter system. We have a checklist of costs. As you are learning how to estimate your repairs, take this with you when you first evaluate a property. Go through your checklist, learn to estimate costs and each time you do this the system will work faster. After five or ten houses, you will be able to literally walk in without a checklist and know the costs. If your contractor buys his materials from Home Depot or Lowe s, the costs are not going to vary that much from region to region, or from store to store. There are also online services for buying materials, such as cabinets. The prices are standard. So you can look up prices easily. At the end of this book, under Streamlining the System, we have included shopping lists for the exact type of product to buy for your cookie-cutter system. Variable What s going to vary from one part of the country to another are the labor costs. The quality of the items will also change your costs. If you are going for upper income houses, you will need to put in more expensive items, which means a higher budget. 28 ı FIX

29 Variable ADDING UP REAPIR COSTS But again, where is your sweet spot? Middle America. The products in my system work for low-income as well as middle-income houses. You will have to make a slight upgrade for higher-income houses. But don t get carried away! You only have to purchase items that costs only slightly more to make them appear much higher in quality. For instance, I use a carpet that costs 13 per sq. yard installed, in both my lower and middle-income flips. Builders use this same quality carpet in uppermiddle-income houses across America. Again, see the last chapter, on Streamlining the System, for a cost checklist. 29 ı FIX

30 HOW TO USE SUBCONTRACTORS Longer shelf-life Why subcontr actors Chapter 6 How to Use Subcontractors Longer shelf-life Why subcontractors How to find subcontractors Longer shelf-life Flipping Machine One huge formula for success is this: use subcontractors rather than general contractors I ve been doing real estate for about five years now. In the first three years, I burned through 100 subcontractors easily. In the two years since implementing these strategies, I have had to fire only two. First, you must remember that no matter how well you treat a subcontractor, most of them have a shelf life. Even my best subcontractors will be around only six months to two years. It s a part of the business. But there are ways to keep subcontractors around longer, which keeps your system running more smoothly. The point of the system is not to be harsh. You want to lay down rules that both parties can play by. You have rules to keep, just like they do, so that it s fair to both sides. Flipping Machine Subcontractors vs. General Contractors In most states, if you are using subcontractors to do your work and you are the owner of the property, the state regards them as general contractors. However, for our learning purposes and to impress upon you the need to use small guys, we are calling them subcontractors. I believe in being dirt honest with people. Sometimes you have to manhandle your subcontractors a bit and let them know who is boss. Will you lose some? A few, but if you follow this system, you ll have to kiss fewer frogs to find the prince. Why subcontractors One huge success formula for my business has been this: use subcontractors rather than general contractors. The key is to find crews who are not general contractors, but who work as subcontractors. Usually a general contractor hires the subcontractor and then charges you up to 45% profit to tell the subcontractor what to do. I d never make a dime at those prices. Stick with the little guys. But just because someone is a subcontractor does not mean he is an economical choice. 30 ı FIX

31 How to find subcontractors HOW TO USE SUBCONTRACTORS The subcontractors who drive around in big trucks with their names emblazoned on the sides are not the ones you hire. These kinds of subcontractors are good to you for one thing: finding out who their workers are. Approach the workers and ask them if they would like to do work on the side. Then you will teach them how to be subcontractors according to your system. It takes no time to find these potential subcontractors and even less time to teach them. You can also look for handymen. This will be a huge money maker for you. They know the hard part already how to do the work. You re teaching them how to do business in your system. When you re looking for a handyman or subcontractor, you don t want someone who just paints or does drywall. You need someone who paints, hangs drywall, does minor plumbing repairs, installs light fixtures, lays flooring and tile, and so on. That s what a handyman really is. I call them subcontractors, but they are really jack-of-all-trades guys. Remember, you re not looking for specialists who can customize your home. You just need the home to look great. How to find subcontractors Ask workers Ask contractors Ask home improvement stores Search newspapers Here are some ways to find subcontractors or handymen, who will do your job. Ask workers The fact is that workers are always on the lookout for their next job. If they could find that next job on their own, they wouldn t need to work for the general contractors. When you offer them the chance to work with you, they ll jump at it. Ask contractors Just as doctors know other doctors, subcontractors tend to know other subcontractors. Taking advantage of this is the key to building a network of subcontractors. You do not want to get locked in with a single subcontractor. If you have the same subcontractor for more than two investment homes, the work will start to slow down. I ve known some excellent subcontractors who, when I gave them three or four jobs, started burning me, and I had to put the hammer to them, because they were slowing down. 31 ı FIX