Somebody's Been a Dirty Boy

Or dirty house as it were. As promised, I visited TMH1 (This Mold House, 1st edition) this morning and let's just say I picked the perfect name for this blog. While not as bad as I had feared, apparently the previous owners decided that they didn't want the majority of their belongings, so before we do anything we will have to dispose of every thing from the china cabinet to the beds to the dishes. Fun. Anyway, aside from that, there is mold (as expected) all over the place. I have to admit though, after touring my friends' houses in Lakeview (black fuzzy mold from floor to ceiling), this house looks clean by comparison. The floorplan is very cool, complete with archways and 90 degree diagonally opposed doors at the end of the hall. There is a lot of potential, but also a lot of work to be done. Pictures speak louder than words, even though they are crap due to the lack of light, so here we go:







Like I said, a long way to go. The bottom 4 feet of sheet rock will have to come out, along with the carpet and the plywood subfloor. Luckily we have access to the 1x8 planks from underneath the house. Additionally, the studs will have to be treated with bleach and an enzyme solution to kill the mold and inhibit new growth. The remaining walls and ceiling will also have to be treated and then coated with Killz or similar primer. I'm getting ahead of myself, the next step is my contractor coming in this week to give me some prices.

That's What I'm Talking About

As of 5:45 this afternoon, the seller accepted our offer on house #2 on Walmsley. This is good news as now we can get down to business...that is of course once my general contractor takes a spin through and gives me some estimates on repairs and such. We need to get a pretty good idea of a few things in order to formulate our master plan:

1) How much it will cost to get the house back in excellent condition
2) How long it will take to complete the repairs
3) How much we can expect to make on it when we sell

Our generic set of goals is as follows:

1) < $25,000
2) 6 months
3) > 100%

Respectively. These goals aren't too far fetched, especially given the current dirt cheap prices on trashed properties in the area and the pre-Katrina New Orleans housing bubble pricing. Prior to August 30, the local market was defying the national trends and was written up in several national papers for being so unique. This could definitely work to our advantage when the market rebounds in the future.

I am personally of the opinion that there will be a fairly sizable rebound over the summer as demand escalates when people start moving back to start the 2006-2007 school year fresh. This is what we are banking on for this property...a target sale date sometime in June or July. Only time will tell, but we are one step closer to our goal tonight.

Rejected

Like it's not bad enough to drag an offer out 72 hours past its expiration, but then to reject said offer with no counter offer and no explanation is just plain bad business practice. Especially considering that the offer came with a letter of pre-approval and was for 100% of the asking price for the house. Oh well, there are plenty of other houses in this Chocolate City^tm for sale.

I wasn't going to bother posting, but then I remembered that this blog is about the entire process, for better or for worse, of buying and flipping a home. Offer rejections are part of the game, so I decided to let it all hang out, so to speak.

Having said that, I signed an offer on another house tonight. While more expensive, it is in a better part of town and has the potential for an even greater profit when flipped. I will be taking pictures of it to post this weekend, so until then, amuse yourselves.

Head First; Eyes Open

Well, after sifting through literally hundreds of handyman properties and reviewing today's proposed rebuilding initiative in the Times Picayune, I have found a respectable initial investment property.



You couldn't find a more typical representation of middle class housing in Orleans Parish...a shotgun double. It is located on First Street uptown, for those familiar with the area, it is bound by Freret, Louisiana, St. Charles, and Jackson. Sorry, but that realtor photo is the only one I have right now, I promise more in the coming days.

I spent a couple of hours this evening over at my mortgage broker's house filling out the paperwork and submitting an offer on the house. It isn't common practice to do business at private residences, but he's a friend of mine. I ought to have this process memorized as I have been through it a few times before, we presently live in one house and rent out another to a couple of nuns (don't ask, they're excellent tenants). Anyway, i'll disclose the amount of the offer and everything once it is accepted (they have until Monday). Suffice it to say that even if we had to bulldoze, we would make money on the deal. If the aforementioned initiative is passed, the area it is in is labeled as an "area to be redeveloped", so that can't hurt the property value.

That's basically it. My broker is still sending me properties because we plan on buying a couple more (especially if this one goes alright) and I am weighing the post-restoration options with this one...sell it, or rent it? Who knows. My brother is coming in from Texas to oversee things when i'm not there and help out long term. And it's amazing how much money is being thrown at this from friends and family. I never thought I would have to actually turn away investors from a project, but it's gotten to the point where profits are going to start getting too diluted if we take on much more of other peoples money. I've got enough capital lined up to handle a few different properties, so we should be able to do this whole thing right for once...and dare I say, come out on top?

Obligatory Introduction

There are several things that one is supposed to look for when planning on flipping a house and making a profit, and while they all make sense, they don't make sense when you are buying properties damaged by a category 5 hurricane. For instance, I have a book on the subject that lists warning signs to walk away from such as "peeling shingles, water spots, and evidence of water on the bathroom and kitchen floors". Now if we were buying a house in Pennsylvania, I would heed the wisdom of the author as we don't want a shoddy roof or leaky appliances to deal with. Unfortunately though, most of the houses with the greatest profit potential in New Orleans saw at least two feet of water and 100+ MPH winds making most buy, fix, 'n sell rules obsolete.

Another tricky thing about buying flippable properties in New Orleans is the fact that it is (or was) what is known as a "checkerboard city", meaning that while still imagining yourself driving one of the fifteen ferraris that you just saw parked in front of the many 19th century mansions uptown, you can get stabbed with a rusty screwdriver and have your nikes stolen even though you're only a block away. I have many a theory as to how this close-quartered disparity contributes to the racial divide and sky high murder rate by breeding hate and malcontent between the classes and still somehow begets ignorance, but that's a story for another day. The point is, that for the most part there is no way to tell which neighborhoods will come back and how they will come back. Just as easily as we could buy a house in an area that is rejuvenated and repopulated quickly, we could buy one in an area that the government may subsidize or demand be razed (or raised). This makes the whole process a bit more risky, but like they say, the greater the risk, the greater the potential reward.

I currently have my real estate agent sending me emails of "fixer upper" houses in the uptown and lakeview areas. My target acquisition cost is $100,000 per house, but there is plenty available for well below that, and we are leaning towards starting out with something inexpensive to get our feet wet and then branching out from there. At this point, many houses are going for land value only, meaning that the house is a total write off. That doesn't always mean that they can't be salvaged, usually just that the insurance claim paid off the mortgage and now the owner wants to make a few bucks and get out of dodge. These are one of our targets in addition to bank repos. See, a lot of people who lost everything just gave up and left town. After a period of no contact and no payments, the banks repo the houses and either put them on the auction block, or in many cases, sell it for what is owed. Foreclosures can be an excellent way to get average to fair condition houses for dirt cheap...in any market.

Anyway, I started this blog at the behest of my friend Bil to track the process and progress of our house flipping (ad)venture. It will chronicle the entire journey from hunting, to closing, to renovating, and finally (hopefully), to selling or renting. I have lived in New Orleans for the last six or seven years and am looking forward to playing a part in the rebuilding process by both improving it in some small way, and by home growing a local business.