The Purchase Transaction and the Importance of Working with the Right Realator

 
So, as you can probably assume, the profitability of a flip is often determined in the purchasing phase of the project.  Of course, the scope and quality of the renovation is an important element, but you have to assess the upside potential of the entire project in order to guide decisions you make on the scope of work. 

On a tight budget by, Southern California standards, we needed to be very careful in choosing the property and estimating high on the renovation costs,  we also needed to be conservative with the expected sale price.  To check our math and review possible scenarios we started by creating a spreadsheet and included the purchase price, and closing costs on the front end, from there we added other known costs such as HOA fees and Property tax.  We then created scenarios at various price points and renovation costs.  For this project we made a chart that included the actual front end costs and 4 scenarios, each of which had columns of selling prices at 25K intervals,. The closing costs on the sale were estimated based upon the potential selling price. We then chose various renovation budgets to plug into the charts to calculate the maximum we could spend on renovations at each price point.  We also created a chart that pulled the costs from a spreadsheet with a running actual total allowing us to monitor the bottom line with each purchase. 

 
Our shopping process took quite awhile, and our realtor never got frustrated or pushed us to choose a property.  He understood that we couldn't just "pick one" or we could end up with a property that would not be a profitable flip.  He even insisted we pull out of one of the first properties that we had an accepted offer on.  He worked very hard to get us an accepted offer on that property in a multiple offer situation.  The project seemed too good to be true: a townhouse on trendy Abbot Kinney Blvd, in Venice. 

We had such big plans for the place.  Our realtor was also excited about our planned renovations and thought we had a huge upside potential.  However, his excitement faded when we got the CC& Rs to review - 70% of the units were inhabited by renters.  The HOA financials and the way the board was run were bad signs, but 50%+ occupancy by renters and the fact that more than 1/2 of the units were owned by the same 2 individuals made the property "unwarrantable"  meaning no bank would lend on it, thereby limiting us to an all cash buyer.

We loved the property and already had our drawings and plans close to completion when we reached the day to remove our contingencies.  We wanted the property, and had hope that someone could find a lender, or, maybe, we'd get a cash buyer.  Our realtor insisted that this was not the property for us & I think he even said we might as well take our money to Vegas, because, sure, we could get lucky with a buyer, but it would be just that - luck - and a long shot.  So, sadly, on the last day to remove contingencies we canceled our escrow. 

We then spent several more months shopping. I'm sure many realtors would have felt we really wanted that property and that their job was done and they could collect thier paycheck.  But that's why Bill is so great - he didn't let us make an emotional decision, even though it would have been the easiest course for him - he insisted we make the right decision - to walk away from a risky project. But Bill stuck with us and after many more shopping trips we came upon the Playa Del Rey area and property we finally purchased!  And Bill, again, used all of his expertise to get us the property we wanted in a multiple offer situation, and it was not by coming in with a crazy over asking bid - he did it by assessing the property and making educated decisions as to how we could make the offer more attractive to the sellers. We actually got the property for below asking and Bill also got us a few credits for repairs!

One of the ways he made our offer attractive, was to not add needless contingencies such as loan, appraisal and inspection (and it saved us time and money because as the buyer we would pay for the appraisal and the inspection.)  Now, that is not something our realtor would have suggested if we were financing the purchase or if we were not doing a major renovation on a condo.  Additionally, knowing this unit was owned by siblings, living out of the area who's father had passed away, Bill put in a request that the furniture be included in the sale. This was attractive to the sellers because it removed a logistical problem for them, but for us it was an added bonus - the furniture is all high quality  and Mid-century modern!  Now, with a little reuppolstery and some editing we have great pieces for staging! 

Keep reading our blog - in the next post we will get into the "fun stuff" of floor plans and design.  In other upcoming posts we will show you how to utilize what you have in fixtures and furniture that can be used as is, moved to a better location, or transformed!

And, we will show you how to turn high quality but possibly dated or worn furniture into like new pieces, by yourself and on a budget!

Hi Again!

It's been awhile, but we have been busy with the renovation and our primary business - school portraits. 

In the last post we said we would give you a little background on why we chose the condo we ended up buying.  To begin with, we searched for several months in Venice, Marina del Rey, and Santa Monica.  However, we had a check list for the "perfect property" and experienced difficulty in fulfilling that wish list in those areas within our price range.

Our Shopping Checklist:

1. Area.  We wanted something on the Westside of LA, preferably near the beach.  Our reasons for the location choice was (a) We live in and know the area (b) Generally, beach communities hold their values and increase more quickly then surrounding areas (c) we like the beach & Westside lifestyle, and it is easier to create a home for a demographic you understand.  We were happy to discover Playa Del Rey, a somewhat undiscovered little, beach community that has just the vibe we wanted.  The community itself is experiencing growth.  Prices are going up and trendy, new eateries are moving in bringing people from surrounding areas and making Playa del Rey a little less "undiscovered"    This upward movement is great for the value of our project as prices are increasing at the same time we are adding value and desirability to our unit. 

2. Price.  Unfortunately, price had a huge part in our decision.  If we had more funds available we probably could have gotten a project with more upside potential. Especially for  a first time flip, we wanted to limit our cost basis.  http://www.zillow.com/homes/Playa-Del-Ray-Los-Angeles-CA_rb/

3. Condition.  We were looking for a condo in original condition, but fairly clean.  Our goal with this project was a simple cosmetic flip.  We were hoping to be out of the project fairly quickly.  More about the "fairly quickly" part in an upcoming blog - we are behind on our posts, so we know that we did not finish quickly in any way!


The original kitchen, though it is a galley kitchen, is wider than most galley kitchens. It has a great, large window providing lots of natural light. At the other end is a non-load bearing wall allowing for the possibility of an open concept. Though the cabinets were in good condition they needed to be removed in order to reconfigure the layout, open and enlarge the kitchen - which we felt was critical. The walls and ceiling surfaces appeared to be in good condition. 

 

This is the original living room, as you can see the walls were in good repair.  Most importantly, the acoustic ceilings, that were popular during the mid-century era, had been scraped and the ceilings resurfaced.  For us, the ceiling condition was a big plus because "popcorn" ceilings often contain asbestos, which must be removed by someone trained in asbestos abatement.  Obviously, asbestos abatement is a costly and time consuming endeavor that we were happy not to have to deal with.

4.  Appealing Floor plan.  Since we were looking at condos our ability to make structural changes would be limited to non-load bearing walls. Originally, we intended to paint, replace flooring and update finishes.  However, as you will come to see, we have a hard time limiting our vision and found quite an extensive amount of the floor plan we could reconfigure.  This has certainly not helped with our budget or timeline!  

 

This is the floor plan that was posted on the original MLS listing http://www.themls.com/login.cfm   Many aspects of this floor plan were instantly appealing to us.  First, all of the rooms are generously sized and there are 2 bedrooms plus a den. We knew immediately that we would create a third bedroom out of the den.  Adding a third bedroom would instantly increase value.  As you can see,  the floor plan here has the den (middle "bedroom")listed as a "bedroom" but it is not actually a bedroom without a closet.  We saw plenty of options for adding a closet.  We will discuss some of those options and our ultimate choice in a later post.  Also, notice the large bathroom area in the bedroom on the left side of the floor plan.  You can see it has double sinks, a shower, and a large storage closet.  We were happy with the square footage of this space, but did not care for the layout.  We are not big fans of the "shower/toilet room" or the open concept sink/dressing area but we did see potential for a generous and luxurious master bath. The living room is large and the windows on the long wall provide ample natural light and a great open, airy feeling.

 

 

The dressing area of the master bedroom is, although awkwardly configured, spacious.  The size was appealing because many older condos have small, functional bathrooms.  Unlike a single family home, a condo doesn't allow for extensive renovation of bathrooms due to interconnected plumbing and limited access to pipes.  Actually, the limitations were even greater then we had anticipated.  This created some frustration and  disappointment because we originally wanted to convert the 1/2 bath into a 3/4 bath, but more about that in an upcoming post!  

 

Here are 2 more photos showing the potential of the kitchen.  As you can see in the second photo there is a set of sliders leading to the sunroom that could be removed, opening the kitchen to the adjacent area.  The top image shows a doorway separating the kitchen from the dining room.  Our vision was that by removing the slider and the door wall between the kitchen and dining room we could easily give a more open feel to the closed off galley kitchen.  Continue reading our blog because in an upcoming post we will discuss how, with these changes, plus a little more demo, we were able to create an extra large, open concept kitchen and increase the size of the already large living room!

The 2 photos above show the sunroom.  The sunroom has an inviting wall of windows and is accessible to all the public areas of the condo via floor to ceiling sliders. The sunroom was very bright and airy and provided a nice extra room and additional square footage.  We liked the vibe of this room but found a few things problematic (1) the den, which we hoped to convert to a 3rd bedroom, had a glass slider, something that was nice and gave an open airy feeling to the room as a den, but as a 3rd bedroom we did not like the see-through access to a shared space (2) the wall of sliders looking past the sunroom to the exterior windows made the living room an interior space with no exterior windows.  We will discuss our thoughts and the options we investigated regarding this room in a future post. 

 

 

Check back often (we will be better about updates - we promise!) to see how we are taking this already great, mid-century condo  and turning it into a modern, efficient home with a retro vibe.  In upcoming posts we will get into the specifics of our floor plan modifications, the challenges, compromises and happy accidents we encountered as we put or vision to paper and made plans to convert this awesome, but  somewhat awkward, extra large condo into an amazing space!

Our First Flip

Hi!  Thanks for visiting our blog.  A little info about us:  We are twins, Cindy & Sheri,  we have been building and renovating houses for 12 years.  We have remodeled and added a second story to two homes in Venice and Mar Vista CA, and gutted and redesigned a condo in Mammoth Lakes, CA.  Now, we begin our adventure of trying to flip a home. 

It all started when we decided to add space for our grandma - we had purchased a small house to share in Venice, CA, then grandma decided she wanted to live with us.  We loved our grandma and wanted to make her last years happy, so we added on to our 1929 Spanish Revival home and our adventure in home renovation began.

In November 2014 we decided, finally, to put our experience and our love of home design and renovation to the test and try to make a business of it.  We chose a condo in Playa del Rey, CA as our first "official" flipping project.  Armed with cash from the sale of our Venice home, we went looking for a project in the Westside, beach communities.  We ultimately chose to buy in Playa del Rey because it is an up and coming beachside community, and we were able to find a condo with a lot of potential that was still in our all cash price range.  We like Playa del Rey because it is flanked by the expensive and well-developed areas of Venice, Marina del Rey, and Playa Vista. Playa Vista, a community which is working to position itself as the new Southern California Silicon Beach, is home to Google, Yahoo, Facebook and YouTube. Amazingly, Playa Del Rey, only minutes away and walking distance to the beach, is still somewhat undiscovered and affordable for first time buyers.



Map showing the location of Playa Del Rey, CA



Exterior of the Playa Del Rey condo we ultimately decided on

We decided to flip a condo, instead of a single family home, for several reasons
1.  First of all, it would eliminate any possibility of adding a second story - a time, consuming and expensive endeavor.
2.  The initial investment would cost less, allowing us to pay cash.
3.  Renovation costs would be lower
4.  The possibility of unknown structural problems would be greatly reduced
5.  We assumed we could get the project done and sold quicker - more about this assumption in our upcoming posts.

Here are some photos of the original interior. In the next post we will talk about the features  that made this condo the ultimate choice for our project.



Living Room View 1

Entry Hall

Kitchen

Dining Room

Sunroom