Tuesday Case Study
April 28, 2015
Anthony:Good afternoon, everybody, Professor Moore here. Welcome to our Tuesday Case Study Call. As always, we have a wonderful case study for you to learn and grow from and gobble up a bunch of great ideas. I’ve had the privilege of looking through some of the slide deck already and there is some stuff in here that I’m also excited about hearing, some marketing ideas that I’ve been thinking about, but haven’t quite implemented yet. So this is going to be a great case study.
If you’re brand new, by the way, to the Mastery Program and not really familiar with this Go-To webinar, how it works and the ins and outs of it, just know that we will be taking questions at the end of the call. So you can type in questions in the GoToMeeting control panel, there is a space for that. I’ll do my best to answer some as the session is going along, so look for my answers in the background. I’ll type them in; otherwise, we’ll open up live Q&A at the end of the call.
The presentation today should be about 25 or so minutes and then open it up to the live questions so we can all interact with one another. That’s how we learn, it’s all about interaction. So I want you guys to be present and definitely take hold of any ideas. Any confusion you have, spit it out at us so we can clear up any cobwebs that you may have.
Today on the call, we’re going to be looking at a renovation. I’m not going to steal all of Brooks’ thunder here, but we are going to look at a renovation just outside of Denver. So any of you out in that market, even if you’re not it doesn’t matter, get some ideas from Brooks and what he’s done. I’ve also seen the before and after’s and there’s some cool stuff they did that I’m going to point out later in the call. Without further ado, I am going to silence myself and hand it over to Brooks. So Brooks, take it away.
Brooks:Awesome, thanks Anthony. Just to kind of jump right in, I’ll give a little background. Like Anthony said, I’m Brooks O’Hearnwith Shamrock Homes. Our case study today was from just west of Denver up in Westminster a suburb between here and Boulder. We actually found this property from a wholesaler in the Denver area, and when we walked through it we knew most of the copper wiring and some copper pipes were taken by the previous owners. When we talked to neighbors, they said this house was a foreclosure and possibly a drug house. We weren’t sure, but they said the police came in and went through the whole eviction process.
Overview
We purchased it at $185,000, we sold it at $285,000 and our original repair cost was right around $50,000. That was our budget, so you can see we kind of went over budget there. There were some unforeseen things we got into and had to replace late in the game. So that cut into our profit, but we were still profitable, very profitable. Anytime you can still make a profit in this business it’s always a win, right?Our hold time was 140 days. Like I said, we had some hiccups in the process. That’s actually a little bit extended from what we wanted to do, but still a little over four months, so not too bad there.
Like I mentioned, we found it from a new wholesaler in the Denver area. We actually bought this property just about a year ago, so this was one of our projects we did last summer. This was the first deal this wholesaler actually put out in the Denver area, so I was lucky enough to get in and meet them when their office was first opening. This wholesaler does a lot of volume, they put out about 10 to 15 properties a month and they were brand new to the Denver area. It was great timing, so things fell into the right place and it was awesome.
I initially walked the property at 10:00 a.m. Gosh, I think it was a Tuesday. After running the desktop analysis, I knew if this wholesaler’s numbers were correct on the budget that this was going to be a pretty good deal. So I went through, I knew the comps. She sent me a great wholesale package, something that rivals what Fortune Builders teach us, so that really put my mind at ease. When I started fact checking her houses, her EMA and all kinds of things like that, I just knew that this one was going to be right on the money. As long as the rehab numbers came in correct, then we were going to have a good deal. So it was a pretty easy decision.
Like you can see there, we put the earnest money down and signed a contract at 1:00 o’clock the same day. We had to go through a couple amendments to extend the contract. We wanted to close in two weeks, but ended up closing three weeks after the walkthrough and went to work the very next day getting demo done.
We were tearing down some walls and doing some different things to expand the kitchen. We knew we had to get to work right away, especially because we were up against the end of summer deadline. We wanted to get this house on the market by August, just to make sure we catch everybody moving before the school season.
I gave you a little bit about the extent of the rehab, but we had to rewire pretty much the entire house. There weren’t many electrical outlets that had any wiring left. There was a crawl space in the basement and we actually had to clean out a lot of the rubber casing on the wiring because they’d cut it all out of the walls and different thing.
Now, the previous owners were pretty lazy. They didn’t cut into the drywall or go pulling things out of the walls, but they did get up into the attic and got into the crawl space to get all of the electrical out of there that they could. They also went to the garage, the electrical box was in the garage and they cut back all the electrical there. So we knew it was going to be a pretty extensive electrical budget. There were also a couple areas, like around the water heater, that they took all the copper piping from there. They also went down into the crawl space and took all the copper piping out of there.
This kind of led us to believe that it was somebody who really just needed some quick cash. Then we we asked the neighbors and kind of found out why. Like I said, when you’re going through a foreclosure and the police have to come in, people generally aren’t very happy. Generally, they need some cash to pay their bills because their mortgage isn’t the only bill they’re behind on, so they took that.
What we didn’t find on our initial walkthrough was that they also took the coil from the air conditioning unit. That is copper, as well, but it’s also a lot more valuable, I guess, than just normal copper. So just about week before the end of the project, we had our HVAC guy out there to do the final service of everything, put the thermostat back in and he said well, the AC unit is cooked and you need an entire new one. So that was about $3,000 over that we needed to add back in, that was an overage.
The fun part was expanding the kitchen. We moved that wall about three feet and you’ll see we created a partial wall to give the kitchen a more open feel. You’ll see that when you walked into the kitchen it was just tiny. We really got a lot of great feedback when we were selling the house about that open kitchen and that was one of the great selling features.
You’ll also see some pictures of the backyard. When I first walked it, it was weeds about two feet high all throughout the backyard. They had a little playscape over on the side of the yard, but they couldn’t really get to it. We had to replace some siding and then all the normal stuff. We had some drywall repair, some paint, flooring, redid all the bathrooms and, obviously, the kitchen.
So outside of the electrical and everything like that, it was a pretty basic flip for us. It was pretty cosmetic, but the electrical and the plumbing definitely gave us some headaches throughout the rehab.
Up here on the top left, you’ll see what I’m saying about the kitchen. It was tiny, you could hardly move in there. Then you’ll see how we expanded that kitchen out and really gave some space in there and made it a more usable kitchen.
Then the backyard, this picture was actually a couple weeks after we started. The weeds have begun to die back down, but you can see that there was really nothing there. So we redid the playscape and that was a cool project for us. Since we’re a family business and my brother and I were part of the planning, we were pretty big on wanting to give the kids of whomever the potential buyers were a great playscape at the end. Obviously, that’s a great selling feature for a kid when you walk through a house.
On the right side is a picture of the master bathroom before and after. This was one of the coolest showers we’ve done to date. Our tile guy was amazing; he built that all out for us. There’s actually a seat over on the right side of that shower, so it was a huge shower. We took back most of the area that wasn’t usable because on the right side of that existing shower there wasn’t really any purpose, other than maybe to hang some towels or maybe some shelves. Obviously, a huge shower like that is another great selling feature and we got great feedback for that, as well. Kitchens and bathrooms sell houses, so we got great feedback for that.
When we were finding a buyer, obviously we post our properties on the MLS. I handle most of the marketing and on the back side on our Facebook page I’ll spend anywhere from $20 to $50 to what’s called ‘boost the post’. It’s pretty cool because I can spend even just $20 and target areas around that house. So within 25 miles, I can pick all kinds of cities. I picked Denver, Boulder, Westminster and as far south as Castle Rock and Colorado Springs. I really wanted to get all of the Denver metro area in there.
I can’t exactly remember how many people we reached with that post, but Facebook gives you all the statistics on this. Just to give you an idea of what the power is on just a small $20 post like this, we just looked at a house two weekends ago and last week I put in $20 and spread it out over five days, so I spent $4 a day to boost this post for another house of ours and it reached over 11,000 people in the Denver metro area. We got about 250 likes on the post and 11,000 people saw it, so you’re really able to do a lot of advertising with just a small budget. Like I said, it was $4 a day for five days.
An idea we got from Patrick Judd, our Inner Circle coach, is called ‘Pick Your Neighbor Day’. So instead of just handing out postcards to all the neighbors that say “Come check out our work, it’s an open house”, we kind of make it about them and say, “Pick your neighbor. Stop by, free food and, by the way, you can pick your neighbor.” It’s kind of a fun way for them to get involved in the process, that way they feel like they have some say in it and it’s a great way to get your name out there, as well, with the neighbors.
On this particular house I don’t believe we got any leads, but on different houses we have gotten some leads as far as other neighbors who know, “Hey, four blocks over we’ve got a house next door to us that’s vacant and it’s a rundown house, just like this one was. So would you mind coming and taking a look at that one and seeing what you could do to that one?” So it’s a great way, a very easy way. We pick out 100 neighbors, print up 100 postcards and hit 100 houses. It’s a great way to get people involved in the neighborhood and get your name out there.
Whether the buyer comes from the MLS or not, Facebook and the postcards are very inexpensive marketing. We spend maybe $100, total, to market our houses. The return on that investment is hard to judge, but it’s big, we get a lot of notoriety from it and we get our name out there, which is great when you’re trying to build a brand.
Lessons Learned
So a few of the lessons we learned, obviously first and foremost, if the previous owners took some of the copper piping or wiring, they probably took more than you’ll find. This is a picture over on the right of the water heater. In the first week of the project while we were doing demo, the workers just kept finding new things. Oh, they took some copper piping over here. They took some extra wiring over here.
As we were taking down that wall in the kitchen, we found they had gone up into the attic and cut all the wires even with the ceiling. So as they were pulling down the wall,all the wires were coming with for the thermostat and all the electrical outlets in that wall. That was some overages we didn’t budget for, just different things like that.
Like I said, these guys were foreclosed on, so they’re likely to cause some damage to the house. Nobody is happy when you take their house from them, even if it was their own fault and they’re not paying their bills. Foreclosure is a tough time, some people let their emotions get the best of them and they are likely to cause some damage in the house.
A good contractor cannot be overlooked. The return on investment for some extra time to find the right contractor is immense. We had a pretty good contractor in there and the project went smoother because that contractor was in there, so it was to take the extra time. He walked us through some rehabs he had done and we actually found some ideas in those other houses he had worked on. We said well, that’s a good idea. Let’s incorporate that into this house. So it’s twofold there.
The Fortune Builders documents and contracts are very strong. Luckily, things didn’t go south with this contractor. They had the potential to a few times in the construction phase, but with our documents and everything like that we were able to easily resolve the situation. Everything is in writing and you can’t argue with things that are in writing because the contractor knows that he could be wrong or you would find out that maybe you’re in the wrong. So definitely make sure you’re using those documents, the contracts are very strong. Once you get them looked over by your local attorney, they’re pretty much ironclad.
Favorite Features
Again, just to highlight some of the favorite features. I know I showed the backyard to you a little bit, but up in the top left-hand corner that’s a little fire pit. It wasn’t there when we bought it, but there was an above-ground pool that the neighbors told us about. Actually, this was one of the small, little projects that my brother and I did. We found a little do-it-yourself fire pit online, redid the sand there and put in some pavers to box in the fire pit. We dug it down a little bit, put some lava rocks underneath it and it was a pretty cool selling feature.
We didn’t hear a ton back while we were doing the showings, but it’s one of those little things that my brother and I picked out and just wanted to do. We like to pick one small thing for us. We take advantage of some of the time we spend on the job and ended up putting in a fire pit. That was pretty cool.
In the middle there is the view from the living room. We did all engineered hardwood up in that top level and then you can the open view into that kitchen. That picture is from the front door, so right when you walk in the front door you can see all the way to back door and into the kitchen, which is pretty cool when you’re selling the house.
It’s a tossup, but I think my favorite feature in this whole house was the master bathroom. That shower really turned out nice. One of the overages we didn’t quite budget for was enough money on that glass. To get that custom glass is pretty expensive, but we learned if we can make the measurements work it’s a lot easier to just go get some prefabricated glass at Home Depot. It looks about the same and you don’t have to go through the cutting of special measurements. So that was pretty cool and I think our favorite feature.
Just to give another shout out to our Inner Circle coach, Patrick Judd, he is awesome. We spent a year with him learning from him and he has taught us so much that I couldn’t thank him enough and then, obviously, Fortune Builders for giving us these systems. This house was pretty cool and we’re still chugging along out here in Denver and hoping for another great summer.