The Fix/Flip Phase of the Deal
As we set out to plan our rehab, we decided that while we wanted to force as much appreciation as we reasonably could and we didn’t want to go through the significant extra cost and hassle of a square footage addition. In a neighborhood of historic homes from the World War II era, the typical home on the block was between 1,000 and 1,400sf, so our house size of about 1,250sf was already appropriate.
A large addition of say 600sf would make the house much larger than those around it, and the appraiser likely wouldn’t value the extra square footage at the same rate as the typical neighborhood square footage. It would also be cost-prohibitive to construct an addition to gain just 100-150sf so I designed the new floor plan to fit the existing footprint of the house that would still give us the amenities we wanted.
Planning the Optimal Rehab for this Property
In addition to touching all the surfaces with new paint, flooring, appliances, and fixtures, our top 4 value-add objectives were:
- Open up the floor plan
- Move Kitchen to the front of the house and add an island
- Add 2nd bathroom and create a true master suite
- Greatly enhance landscaping, including patio areas
Here is an excerpt of the email that I sent to my investor friend who would be joint venturing with us on the rehab. This is in reference to the 4 objectives:
“We can accomplish this without too much wall movement, other than removing the kitchen wall, which was a given. We will slide the kitchen down about 8’ and then create the walk-in closet and master bath from some area where the existing kitchen and laundry area is.
Don’t take the kitchen configuration too literally – I just dropped in the items for now to ensure we can fit them all. The sink would look out that window that’s on the east wall already. The stove would be a slide in with an overhead hood adding style to the island. Wine cooler and 10” countertop overhang will make a nice breakfast bar area.”
Each of the key objectives and amenities will be discussed in greater detail in each of the sections below.
Step 1 of the Rehab: Open Up the Floor Plan.
As you might have noticed from the video that we took when we first got possession of the house, the original floor plan was very boxy. The front door opened into a living room, and to the left, there was a dining room framed with walls. If you walked through the dining room and then turned right, you entered the narrow galley kitchen. Beyond that was the laundry area, leading out to the back door. Someone who was working in the kitchen had no visibility to the living room and only a partial view of the dining room.
We have remodeled a number of older homes, enjoying transforming them into mid-century modern gems. While we have found that buyers enjoy seeing certain features of the older homes intact after remodeling, one feature that they are happy to be rid of is the boxy floor plan. So naturally, we endeavored to keep some of the historic features while at the same time opening up the floor plan to be much more functional and appealing to today’s buyers.
In addition to the kitchen wall, we also removed small sections of other walls, particularly around parts of the hallway that had been framed so narrow that it’s hard to imagine how anyone got their bedroom furniture from the front door to those bedrooms. As we removed and rebuilt walls, we noticed some termite tunnels so we brought in our termite vendor and had the entire home treated. We would pass the accompanying 2-year warranty on to our new buyers.
Step 2 of the Rehab: Move the kitchen to the Front of the House and Add an Island
The galley kitchen that stretched along the driveway side of the house was cramped and non-functional for today’s lifestyles. Plus, we needed some of that kitchen area to accommodate our 3rd objective of creating a true master suite. I knew that the best place for the new kitchen would be on the front left side of the home, where the dining room currently was.
With the newly opened floor plan, and the kitchen moving to its new location, we would be able to include a ~5’ x 4’ kitchen island, which would be big enough to house a slide-in stove with an overhead hood, a wine cooler, and a 10” countertop overhang on one side for bar stools. Even with the new island, there would be room for a dining area and a much more generously sized living room than when the house was originally built.
We installed an all-new kitchen, from the plumbing to the custom cabinets, the Italian carrara marble countertops, and stainless steel appliances. We placed the kitchen sink under the window which faced out to the front yard and selected a piece of onyx for that section of the countertop. Onyx can be a translucent material, and we underlit the slab with LED lights, which provided a soft glowing effect.
Although the home isn’t large, we knew that storage space, especially in the kitchen, is always welcome. So we added a long buffet counter with a row of additional cabinets underneath and topped with marble.
Step 3 of the Rehab: Add Second Bathroom and Create a True master Suite
When we bought the house, there were 3 bedrooms and 1 bath. The bath was accessed only from the hallway and serviced the entire house, of course. The only way you might discern which bedroom was supposed to be the ‘master’ was that one was slightly larger than the others. There was no master bath, and none of the closets were of the walk-in variety.
We chose that slightly larger bedroom to be our master, partly due to the size, as well as its location near the back of the house (easy access to the back yard), and its proximity to the laundry area (where we could tap into plumbing easier for the new bathroom. We had slid the kitchen towards the front of the house, which enabled us to utilize its former space to build a walk-in closet and a master bath.
We replaced the window with glass-paneled French doors to look out at the back yard. The glass had integrated blinds for privacy at a touch. For the master bath, we went with a classic look of penny round tiles, accompanied by more contemporary glass tiles. Below are pictures of the finished master suite.
Step 4 to the Rehab: Greatly Enhance the Landscaping Area Including Patio Areas
When we purchased the home, the front yard was dirt, and the back yard was dirt covered with trash. Ugh! There were no defined outside entertaining areas. As far as curb appeal, I’d say it was pretty drab.
In the front yard, we extended the front patio significantly, to provide a generous area to accommodate patio furniture for residents to sit and enjoy the quiet street. We also added sod and plants.
The back yard didn’t have any shade structures, or living plants, except for one fig tree that had somehow survived. We poured a long concrete walkway from the back patio to the alley gate, so the trash cans could be easily rolled out to the alley. We added a large rectangle of grass and a number of green plants. We replaced the garage door and added a motor.
For shade (along with a little contemporary flair), we installed a shade sail over the back patio. We wanted the new buyers to have multiple outdoor areas to enjoy. As a final touch, we designed and had a custom RV gate built, as an artistic and functional way to provide security to the back yard.
After waiting about 2.5 months to get the IRS lien discharged and to get possession of the house from the trespassers, we had been anxious to get started on the remodeling efforts. It took us an additional 4.5 months to rehab the property, including accomplishing the 4 key value-add objectives that have been outlined above.
Once the rehab was done, we staged the property with some furniture, décor, and accessories. Then we had it cleaned and photographed prior to listing it on MLS. We got immediate interest and a couple of offers; we closed escrow on the sale the next month. All in all, it took us about 8 months to complete the entire project. We spent about $100,000 on the remodel, which, at $80/sf, is a significant amount.
As stated earlier, we knew that we needed to hit on the 4 key objectives and do a very nice remodel, in order to maximize the retail value. Fortunately, the investments we made were indeed able to force massive appreciation into the property, and we were able to sell it for about $85,000 more than the ARV (after repair value) we originally expected if we had we done a basic remodel and not created a true master suite, etc.
So, by aiming for a premium remodeling project, and by executing on the key objectives needed to obtain maximum retail value, we were able to take a project that had a marginal opportunity for profit, and convert it into a deal that resulted in profits greater than $100,000.
After Remodeling Video
This video shows the ‘almost’ final product. We were still awaiting the custom RV gate to be completed and installed at the time this video was taken.
Case Study Recap
What started as a crazy, amped-up 20 hours to save a house from foreclosure, continued as it took us several months to get the IRS lien lifted and the trespassers out of the house. We leaned on our power team to help us. We mitigated our risk along the way, assessing and reassessing strategy on multiple occasions. Once we got control and possession of the property, we executed an efficient and focused remodeling effort.
It all began with my investor friend, who received a call from a motivated seller, and knew that he didn’t have the expertise to save it from foreclosure the next day. He didn’t underestimate the value of OPE (Other Peoples’ Expertise), and because of that, he learned an immense amount on this (unusual) project and was rewarded with a handsome profit split as well! This project led to other deals that we then have worked on together.