Pick Your Flip
100+ Picture Guide To Flipping Houses
By Sathish Sekar
© Copyright 2016 Sathish Sekar. All Rights Reserved.
Disclaimer: This content is for informational purposes only. Any real estate investing should be done with caution and full awareness of any risks. The content provided in this book was deemed accurate at the time of publication. I do not take any liability for any consequences resulting from the use of the information contained herein. You are responsible for your own choices, actions, and results.
Table of Contents
I. Finding Properties
II. Due Diligence
Other Special Sales
Flood Plain/Natural Disaster Risk
Research Comparable Sales
CMA Final Notes
III. Property Viewing (Process)
IV. Good vs. Bad Property Conditions
Good– what you want
Bad– what you don’t want
[* Good- what you want *]
[* Bad- what you don’t want *]
[* Good- what you want *]
[* Bad- what you don’t want *]
Other Interior Rooms
[* Good- what you want *]
[* Bad- what you don’t want *]
[* Good- what you want *]
[* Bad- what you don’t want *]
[* Good- what you want *]
[* Bad- what you don’t want *]
[* Good- what you want *]
[* Bad- what you don’t want *]
[* Good- what you want *]
[* Bad- what you don’t want *]
[* Good- what you want *]
[* Bad- what you don’t want *]
[* Good- what you want *]
[* Bad- what you don’t want *]
Good-what you want
[* Bad- what you don’t want *]
[* Good- what you want *]
[* Bad- what you don’t want *]
[* Good- what you want *]
[* Bad- what you don’t want *]
[* Good- what you want *]
[* Bad- what you don’t want *]
Good-what you want
[* Bad- what you don’t want *]
V. Rehab Potential
Rehabs In Progress
VI. Negative Factors
Close To Commercial
Weird Exterior Elements
VII. Repair Estimates
[* Hybrid Approach- You are the GC *]
Evaluating Repair Estimates
VIII. Calculate Offer Price
IX. Making An Offer
Addendum I: Sample Inspection List
Addendum II: “Black Swan” Cashflow Properties
Addendum III: Helpful Resources
To those hunting for fortune.
You are bold and fortune favors the bold.
This picture guidebook will help you pick a single family house to flip. These principles could be applied to any other residential real estate (e.g. condo, townhouse, or multi family). But the examples we use are from single family houses.
First let’s define our main investing strategy.[* Flipping is defined as researching a property, acquiring it, repairing it/adding value, and then reselling the property for a profit.*]
I have seen hundreds of houses and this is my accumulated knowledge as a result. In addition, I have flipped houses myself as an investor. During my time as a real estate agent in Chicago, I have helped many investor clients view these kinds of homes. My experience comes from looking at properties in Chicago, but I tried to make this guide as generic as possible. So this knowledge could be applied to properties in your local market.
The scope of this book is limited to [*RESEARCHING *]which property to flip. I will guide you to identify the right property. It will be on you to go through the preceding steps in the flipping process. That is: Acquire the property, repair the property, and resell it. This book is only focused on the first step. As part of this first step you will need to do due diligence (research beforehand), then go view the property. After your viewing you will do even more research.
Although reading the book sequentially is preferred, it is not required. The table of contents is very detailed and you can find the specific section you need. Feel free to jump to the section you feel is most relevant right now. If you want to jump to the good/bad pictures, see the “Good vs Bad Property Conditions” section.
This is a thorough book. So I understand you may consume it piece by piece. Any honest feedback on this book is appreciated. If at any point you feel compelled to provide comments or suggestions, please leave an Amazon Book Review.
This guide assumes you already have a pool of properties available for purchase. Through this guide, you will eventually narrow down this pool of potential flip houses. There are two main distinctions I will make: MLS properties & Off-market properties.
MLS is an acronym for ‘Multiple Listing Service’. These are properties listed by a real estate agent on the open market. These listings are on the Multiple Listing Service of your local market and have full online syndication to public real estate sites (e.g. Zillow, Trulia, Redfin). Think of this as your traditional home sale.
_][_You want to sell your home, so you call a real estate agent. They list your property for sale and work for you. They also post a typical “for sale” sign in the yard and work with other agents to secure a buyer. These are MLS listings.
MLS listings are the most common source of properties. If you go to any public real estate website the listings you see are mostly MLS listed properties.
These properties are the easiest to find since they have public exposure. Anyone with internet access can look these up. Consequently, these are also the properties with the most competition.
My assumption is that most beginners will be looking here for properties. For example, most bank owned properties will be found through the MLS. Foreclosed properties are great properties for flippers to start with. Banks who have repossessed their mortgaged properties through foreclosure will typically employ a real estate agent to list them.
Redfin has the most up to date listings on its site. It syncs every couple of minutes with most MLS databases. So I recommend using Redfin searches if you don’t have direct MLS access. You can set up alerts to email you listings as they come up in real time. See Addendum III for link.
Off-MLS properties, or “Off market” properties, are the second distinction. These are typically harder to find. By definition this means any property not publicly marketed by a real estate agent.
These are harder to deal with for beginners. Since there are lot of unknown variables, these purchases tend to fall through more often. I will not delve too much into these. But if you do find a property off market, you can still use this guide to determine if it is worth flipping.
Some possible sources of off market properties:
p<>. Auctions. Bank owned, tax sales, sheriff sales, foreclosures.
p<>. Probate properties. Often referred by heirs or attorneys.
p<>. Motivated sellers found through guerilla marketing, advertising, or mailers.
p<>. Sellers found through your personal relationships or word of mouth marketing.
p<>. Properties from wholesalers.
I am not exploring all these options. Other books will teach you about these off market deal sources. For this guide, I am assuming you already have some properties shortlisted and want to narrow down your list.
So now you have a list of potential flip houses. The next step is to research them on the computer first. This will you save time from driving to properties that don’t have any potential. Eventually you will also do more research after viewing the property.
[*If you find a red flag that eliminates the property, do not do further research. *]For example, if the building violations are too extensive just throw out the property and move to the next one. This will save you time so you can move on to more promising properties.
Seriously though. Before you drive out, you need to do research on the computer!
As part of your due diligence, you look for special sales information or conditions. These are conditions which will determine how and when you can buy these properties. Be sure to ask your real estate agent if you have questions on any specific listing.
Banks who have repossessed their mortgaged properties through foreclosure will typically sell them off through a real estate agent. These are known as “REO” or Bank owned properties. Most bank owned properties will be found through the MLS. These foreclosed properties on the market usually require bank approval before they are sold. Generally, these properties are the best source of flip houses. Plus the bank is motivated to sell them. They are usually easy to show and most are vacant with a lockbox. And they can be purchased as quickly as you can arrange financing. The downside is they have more competition since they are publicly listed.
Some MLS properties have an exclusive bidding period for owner occupants. During this period only owner occupants can make offers on these homes. So as an investor, you will need to mark the date these properties become available to all bidders. Track the dates carefully on your calendar. Be sure to go look at these properties a couple days before you can bid on them. The most common properties with these restrictions are Fannie Mae and HUD foreclosures. Fannie Mae calls it their “First Look” period. Wells Fargo also has a owner occupant grace period for offers.
p<>. Fannie Mae- “First Look”
p<>. Wells Fargo
Other mortgage holders may have their own investor restrictions. If you are in doubt, call your real estate agent to find out the details for a listing.
[_ Do not lie about being an owner-occupant so you can get your offer submitted earlier. The big lienholders like Fannie Mae and HUD do check up on these claims. If you are caught, you will be blacklisted from buying additonal properties from them. Or worse you will face legal action and fines. _]
A short sale results when a house is sold for less than the balance of its mortgage. That is, the bank comes up “short” because they incur a loss on the sale and their mortgage loan is not fully paid off. These sales need to be approved by the bank before they can close. Without using too much legal jargon, that is the simple explanation of a short sale.
Buying a house in a short sale usually takes extra time to close. This book does not discuss the details of buying short sales. Personally, I never went through the process of buying a short sale to flip. There were enough opportunities in my market where I did not need to wait for a short sale to be approved. That being said there are still opportunities in short sale properties. But I would not recommend them for beginners. They are OK to lock in if you have multiple projects going. However if you need a project to flip now, don’t worry about these.
Know that if you make an offer on a short sale, you still need to do your research. And you can look at this guide to determine its flipping potential. But be aware that it could take additional weeks or months to actually close the purchase.
Other special sales could include court approved sales. For example, a probate sale where the sale needs to go through a court approval. This can take a few weeks to several months. So be sure to ask your real estate agent to find the details on these listings.
The ideal flipping property should be vacant and on a lockbox. That way you can go there whenever as long as you have the code. You can send partners, contractors, inspectors, appraisers in there easily without making ten phone calls. Occupied properties are not good for flippers. They are usually too much work to schedule showings. As always be sure to go through your real estate agent for any showings on MLS properties, if you are not licensed yourself.
If you want to buy an occupied property, you better have liquid cash ready. That way you see the property once or twice with your contractor, and then you can make the decision on buying it. If you need to go through a hard money lender, DO NOT pursue occupied properties. There will be too many showings required. Instead move to a house that is easier to show.
A property may have building violations recorded by its municipality. These existing building violations can be cumbersome if you decide to buy a property. Fixing these violations usually requires certain repairs. So they are worth researching before you even drive out. How you can search for these violations depends on your municipality. Try Google searching for an online lookup tool to see if the property has any outstanding fines or violations. For example, search “Chicago building violations” and see what comes up.
For example, in Chicago you can search online for any building code violations. These violations may influence your decision to even visit the property. Although sometimes you may be able to ignore them. In Chicago, we watch out for properties that are in “Demo Court”. Which means the City of Chicago has filed a lawsuit to have the building demolished. So if the city wants to demolish a property, there is likely way too much damage to allow for flipping. And you would do better to move on. See the below screenshot for building violations on a “Demo Court” property.
Some municipalities may not have an online look up for building violations/liens. As such, you may need to skip this step in the initial due diligence. But you should be able to get this information later through a FOIA request. Alternatively, you may need to go to a courthouse or government building to look up the records.
With modern technology, you can often view a property and its neighborhood before driving to it. There are several internet map websites which will give you satellite views of any property in question. I recommend Google Maps as it tends to be the most accurate, up to date, best performing map site. Also Google Maps has the Street View option which gives you a 360 degree view from street level. (See Addendum III for link)
So once you type in your property’s address you should try three different filters…
The first map filter to use is the street map view. By default, Google Maps will start in this view. Click in the bottom left corner to toggle views (Click “Map”). This is where neighborhood knowledge becomes key.
p<>. Does the map view to outline any busy roads, shopping centers, or points of interest? In the Map view, you can usually see these markers.
p<>. Is there a train station close by? Is it close to public transit?
p<>. Are there any rivers or lakes that may be a flood risk?
p<>. Any parks or greenbelts by the property?
p<>. How is the property located relative to the rest of the city?
Most internet map sites have an Earth satellite view. This will show the actual view of the property from the sky. Typically, Google Maps updates these images at least once a year. They are very detailed and usually you can zoom in to see what the property lot looks like. Click the bottom left corner on “Earth” to toggle the satellite view.
p<>. What is surrounding the property? You may see bodies of water, commercial properties nearby. Being near industrial or commercial properties can potentially devalue your house.
p<>. Are their busy roads near the house? How many lanes wide are these roads? A busy 2 lane street is way better than a bustling 4 lane throughway.
p<>. Is the lot shape regular or irregular?
p<>. How do the neighborhood lots look? Are there many vacant lots, or torn down buildings?
You can learn a lot from these two views in Google Maps before you go visit a property. But now you MUST go to the street view.
Street view is a feature within Google Maps available in most major cities. You can literally jump down on the street and get the view as if you were driving by the house. This is a 360 degree ground level view showing you the surrounding neighborhood.
In Google Maps, you can access Street View by dragging the yellow man from the bottom right corner onto your desired street. Or you can type in an address and it will provide a street view preview you can click. Be sure to toggle up and down the street so you can see the surrounding neighborhood. In some cities, you can even go to the back alley and see the street view from behind the house. In this street view, you can see what the surrounding houses are like and the quality of the neighborhood. Also look at the cars. Are they nice cars or junkers? This can hint at neighborhood quality.
This tool should be used with caution. Be sure to note the date that the imagery was taken. Typically in big cities, Google updates at least once a year. So the picture you see may not exactly be what the property is now. But if it is vacant, distressed, or foreclosed you can bet that any issues you see in the picture got worse. So if you see an issue in a picture 6 months ago, it probably got worse (especially if the weather changed). The street view image is probably the best that property’s condition ever was. For example if you see a collapsed roof, it probably did not get fixed. It would only get worse from there since banks typically don’t spend money on their distressed assets unless they absolutely need to.
Use this tool to preview a block before you drive out and determine if it’s worth the drive. If the block is like a war zone, it may not be worth to even check out the house. Fipping a house is about the house as much as about the surrounding location!
Search your subject property address in your local tax records to find its history. Your county should have an online tool that lets you see recorded deeds. You can see when the property last sold. Also you can see any pending litigation or liens placed against the house. If you have MLS access, you can likely use REALIST to look up your tax info.
REALIST is a tax record aggregator that compiles information from county sources. It will show you info on the property from the assessor. It will also show you a summary of tax bills and deeds that are recorded. It can also suggest off market comparables. These are comparables that have sold, but off the open MLS market. Usually these sales did not involve agents. If you don’t have MLS access, you can ask your real estate agent to send the Realist report for a property.
Also look up the property’s tax bill and see if the property taxes are in line with similar properties. If the property is over assessed and the taxes are too high, you will have trouble reselling it. Since the end buyer will have more difficulty getting a loan.
Check the square footage given by the local tax assessor. The assessor measures the outside of the building and tends to give a truer estimate of a property’s size. You can use this square footage number when doing your CMA. MLS listings usually have over inflated estimates of square footage. Agents tend to exaggerate their listings and make them sound bigger than they are. This is also relevant if your lender has a square footage minimum.
As part of your due diligence, check if the property is in a flood plain. You can check on the official FEMA website. A flood plain may prevent an end buyer from buying your rehabbed house. If their lender even underwrites the loan, they may require them to get insurance that is way too expensive.
A quick check is sufficient. You want to check for anything that may rule out a property all together. For example, if a house is in a 100 year flood plain you likely won’t buy it. Since the flood insurance is likely too high regardless how the flipping opportunity may look. (See Addendum III for link to FEMA floodplain map)
In other parts of the country, there may be other natural disaster risks. Perhaps volcano, earthquake, tornado, or hurricane risk. Search online for tools to estimate these risks if they are relevant to your local market. Oftentimes a local insurance agent can direct you to an online risk calculator.
You should get familiar with the neighborhood in which you are looking for properties. If not, you really need to drive through them. But if you cannot, you can use Street View as previously mentioned. But at some point you need to go to an area in person. Going in person allows you to feel the ambiance, environment, and level of comfort.
Also you can look at school ratings and crime quality. Depending on the demographic of an area, the school quality may or may not make a difference in whether you can resell the home. Trulia is a real estate website that can give you local information on crime, school ratings, and market trends. (See Addendum III for link)
p<>. What is the feel of the neighborhood? Would you feel safe walking around? This is something you CANNOT get from Street View: the actual “vibe” of an area.
p<>. Are there many loiterers, or is it pretty quiet? Look for people standing on corners or congregating in large groups.
p<>. How is the quality of the cars? Are they new, or old cars? This can indicate the economic level of an area.
p<>. Also try going to an area at night and see what the situation is like. Do you feel comfortable walking around then?
After all the prior steps in your due diligence, you come to researching comparable sales. If your property has passed the other checks mentioned before, you can move on this step. This is held until the end as it is the most time consuming and, frankly, the most difficult. Also remember to keep your emotion out as much as possible. *Estimate safely based on facts rather than optimistically based on desire. *
So as part of your due diligence, you want to see how much money you can make from a given property. In order to find that out, you must know what you can resell the house for once you fix it up. An entire book could be written on how to do a CMA (which I may write someday…). But for now a short overview is following.
CMA stands for “Comparative Market Analysis”. Its purpose is to determine a property’s ARV (after repair value). This CMA determines if there is any money to be made in a property you want to flip.
“I have a house that needs work. But I don’t know how much it will be worth after I fix it up. So I will look at similar houses in the close area and see what those houses have sold for. Those values can help me estimate the after repair value of my house”.
In short, a CMA determines the property’s ARV. See the figure further ahead for clarification.
The subject property of a CMA is the property you are evaluating. For example, you see a new foreclosure listing. This property is owned by a bank and it needs fixing up. As part of your due diligence you need to find the ARV (After Repair Value).
To determine your ARV you look at similar houses that are near the subject property. The houses must be similar to your subject and the location must be nearby. Since these houses are “Similar”, they are “COMPARABLE” to the subject property. By looking at these Comparable properties, you can estimate the ARV of your subject. Comparables are colloquially referred to as [*“Comps” *]by investors and real estate agents.
Your analysis must focus on sold comps. These are properties that have closed and the sale price is recorded. Properties that are currently for sale are not reliable data points to determine an ARV. So do not make an ARV based solely on Active listings.
You may be able to consider Pending properties (under contract/in escrow). With these properties keep in mind that you do not know the sale price, only the asking price. So the actual sale price of a pending listing is likely lower than the sale price. Typically properties sell for around 95% of the list price. Ask your real estate agent to verify this sale price to list price ratio in your market. In my analysis I used closed and pending properties to calculate an ARV. if your real estate agent is well connected in the area, he can call the listing agent and find the sales price of pending properties.
These subject properties should be similar in size. Specifically they need a similar number of bedrooms and bathrooms. In the example above, the ARV of the property is around $200,000.
Now think back to the first flowchart on flipping a house. You are estimating the resell value after you add value to the house through repairs. This ARV number is critical to your due diligence. It will determine your estimated profit and eventually what price you can offer to buy the property.
The best way to find comparables is with MLS access. Direct MLS access will give you the most complete and easily accessible comps. If you do not have direct MLS access, you can ask your real estate agent to give you comps or look online yourself. Public real estate websites like Zillow and Redfin connect directly to MLS databases. These sites provide most of the MLS data you can use for a preliminary CMA. I personally would recommend Redfin as it is the most up to date and user friendly. (See Addendum III for link)
Most houses that are fully rehabbed by flippers will be listed on the MLS. These are the comps you will want to use. [*An MLS listing has the widest exposure to all the qualified buyers willing to pay top dollar for a move-in ready home. *]These retail buyers are represented by agents who only look in the MLS for properties to show. So this is the best information source on what a rehabbed house will sell for.
You may also be able to find off market sales to use as comps. However you likely won’t have all the information for which to compare them. For off market sales there is likely no official listing that lists size, room count, condition, or pictures. So it is hard to use them as a data point with which to compare your subject property to.
When looking for comps, I recommend searching within a half mile radius of the subject property (See next picture). You may need to go further out if needed. But usually if you cannot find good comps within half a mile you need to reevaluate that subject property. If you do not find ANY rehabbed houses in your comparable search then it is not a good neighborhood to buy in. You want to focus on REHABBED houses that have sold. Since that is what your flipped house will look like. So if you cannot find good comps try to find another property to pursue.
This is where it is helpful to have 2 computer screens. One screen has the subject property listing. The other screen has the comparables search (i.e. Real estate website or MLS).
Save your list of comparables that you find. If needed, save them manually to a spreadsheet or write them down. Next, you will analyze the comps to arrive at an ARV.
Now you have a list of comps. You can start comparing them against your subject property.
p<>. Look for same bedroom count first. When the appraiser reviews your rehabbed house they will be looking at nearby comparables with the same number of ABOVE GROUND bedrooms. So the rehabbed comps with the same bedroom count will be the most pertinent. Still take into account the below grade bedrooms (basement bedrooms), since they add value to the buyer. But they still don’t officially add value to the appraisal.
p<>. Analyze the exteriors. Look for comparables of the same exterior. For example, buyers do not think of frame and brick houses as the same. Try to find comps of the same age, style, and building material.
p<>. Look at quality of finishes. Did they gut the house? They may have a full remodel or just cosmetic touch up. What quality did they use? Low grade, mid-grade, high-end, or luxury finishes. Buyers will notice that. For your property, you need finishes that are on par with what buyers are expecting in your market and what the comps are showing.
p<>. Prices of comparables. Be conservative in your assessment. Do not assume you can over improve a property past the price that the comparables suggest. So don’t count on “busting through the comps”. If you’re reading this, I assume you’re not Donald Trump. You cannot do that unless you are very experienced in a market and have great intuition for the area you are working in. If you are starting out you need to go conservative. Assume your ARV is at the lower end of what fair market value is on a rehabbed house. This will give you some safety cushion for any cost overruns.
In reviewing your comps, you ideally want 3 sold comparables. Minimum 2 sold comparables. More than 3 comparables creates certainty and substantiates your ARV even more. But as an appraiser will tell you, you do not give equal weight to all the comps. The comps that are closest AND most similar to the property should be given the more weight in calculating your ARV.
If you still cannot arrive at an estimated ARV through comparison. You can calculate an average sale price per square foot of the sold comps. And multiply that number by the square footage of the subject property. That can give you an ARV. The problem is that this square footage approach may miss other factors. Usually this dollar per square foot approach works better in more expensive markets.
Do this CMA research before you drive out to a property to see if it is even worth your time. Consider if the purchase price is negotiable or not. If the price is not negotiable and there is no margin for the ARV, that property will not work. Otherwise if the margin is small and the purchase price is too high, you still may be able to make a low ball offer. In which case it may be worth driving to the property.
Also it may be helpful to actually go look at the rehabbed comps. You likely won’t be able to go inside the sold comps, but you can drive by them. Also find some houses that are freshly rehabbed and active on the market right now. Go see them and see what the competition is in your area. If you are short on time, just drive by the active comps. I would recommend this for beginners to learn their market and their competition. Otherwise you can usually get by just using the computer to preview and look at listing pictures. You can also use Google Maps with Street View to get some idea of what a comp looks like.
Once you do this due diligence, you can see if the property is worth driving to. The initial due diligence prevents you from driving to properties that have no potential anyway. Driving is very time inefficient and should be done judiciously. Doing research beforehand on the computer is much more efficient.
This due diligence process will eliminate many properties before you even drive out. Do not be discouraged if this happens. You are simply eliminating properties in a time efficient manner without the extra costs of travel time/gas. If any properties are eliminated through any of these due diligence checks, move on to the next property.
So your subject property has passed your initial due diligence. Now you should go view the property in person. Hopefully you are a licensed agent. That way you can easily access properties as soon as they are active on the market. Otherwise you need to call your real estate agent to schedule viewings.
This section is an overview of the PROCESS you should use when evaluating properties. This is how to look at houses when you go see them. The next section, “Good vs Bad Property Conditions”, covers specific issues to watch out for.
While looking at houses, I bring my smartphone as a camera. I needed show my partner the properties I looked at. So I took pictures for later reference. I also took a flood flashlight. Mine was about 6 inches long and had a side handle. Typically it costs less than $10 at Walmart. This has a wide lens that provides light for me to look around the houses. The fixer-uppers that you look at often have the electricity cut off or are boarded up. So you need a flashlight (See below picture). DON’T use the stupid flash light on your phone. For one it will drain your battery, and also it prevents you from using the phone camera easily. By the way, I would also have a car charger for your phone ready.
I also had a simple clip board with my property listings (See above picture). It also had a stack of inspection lists. I never brought the inspections list in to the house since my hands were full with the flashlight and the phone. But I filled out the inspection sheet right after viewing the house and before driving away. There is a copy of my inspection list in Addendum I.
Any honest feedback on this book is appreciated. If at any point you feel compelled to give suggestions, please leave an Amazon Book Review.
I start with an exterior walk around of the property. While walking, I take my phone out to take some reference pictures. Here are examples from a standard exterior walkthrough I would do.
First I go to the side walk with the exterior front shot.
Then I walk down the block on both sides to get side shots of the roof.
Then I walk down both sides of the house. Taking pictures of the side while noting the building materials.
Then I take pictures of the backyard and garage.
Then I also take pictures for the back of the house and the roof.
Generally I try to get the keys out of the lockbox before I do my exterior walk around. That way I can easily get into the garage or gate if I need to.
Next phase is to move to the interior entrance.
As you enter, check for any signs of forced entry. As seen above, the door frame will show this.
As you walkthrough each interior room you can note the condition. Also check the floors, walls, and windows. Verify the actual room count as sometimes the property listing will be incorrect. If a house has an extra room that is not accounted for, it may mean your ARV is higher than you calculated.
p<>. [*Foyer, Living Room, Dining Room, Family Rooms. *]These will be the common areas (likely on the first floor).
p<>. Kitchen. Note the cabinets and countertops. See if they can be refinished, or if you need to gut the kitchen and remodel.
p<>. Bathrooms. Check the condition and see if you can refinish. Or if you need to gut and remodel.
p<>. Bedrooms. See how big the rooms are. Also note the closet size.
p<>. Go to the higher floors (e.g. 2nd & 3rd floor). Be sure to examine the ceiling and observe if there are any moisture spots or cracks. This may indicate roof issues.
Take pictures of all these things. Generally, you should take a picture of anything that is positive or may be a problem to fix.
This may be the most important part of the viewing. Your basement walkthrough will reveal the vital organs of the house and whether it is structurally sound.
You can check for foundation issues. If it is unfinished you can observe the foundation floor and the sides.
Note if there are cracks in the foundation and how severe. As seen above, you can see some side cracks have been filled in. Also the concrete floor is worn away exposing the original brick floor. You should also check for any water leaks or mold.
See if the mechanicals are still there. Note the condition of the furnace, water heater, and laundry machines.
Also check if the electrical box is up to code and what condition it is in. Pictured above, is a very out of date electric box.
In Chicago, we have extreme weather changes during the year. So often there are issues in the basement due to the alternating hot and cold weather. Whether it be mold, flooding, concrete cracks, or plumbing leaks. See the next section “Good vs. Bad Property Conditions” for details.
At this point you have seen the house inside. If you see any interior issues, try going to the exterior to investigate what caused it. If there is an issue on the sides, floor, or ceiling, there is usually an exterior cause. Take pictures for your reference and later due diligence.
So now you are done viewing the property. Go back out to your car. Start writing down your notes on the house. Sometimes you can eliminate houses right away after viewing them. They may need more work than you are willing to do.
Fill out the inspection sheet. Try to do this quickly within 5 minutes. No need to write a novel. Focus on the positive or negative observations relating to exterior, interior, and basement. Also note the rehab potential, neighborhood quality, negative factors, and other issues relevant to flipping the property. Check if your estimated ARV appears realistic and if you can improve the property up to market standard. (See Addendum I for my inspection sheet)
When you get back to a computer, be sure to upload the pictures from your phone to a dedicated folder. That way you can delete the pictures on your phone and clear up memory.
This is the thickest section of the book. Here you will find pictures of the good, the bad, and the REALLY bad properties I have seen. I hope you will take note and watch for these items when you go look at houses. Most of these topics are divided into “good” and “bad”. Some topics are not divided because there is really only a “good” or “bad” side to them.
Not everything will be wrong with a property when you go to look at it. Sometimes there are conditions that will be in its favor. Some parts of the house will need very little work. Be sure to take note of these. There may have been some recent updates from the last owner. If the work is good quality and recent enough, it can save you in repair costs.
Don’t be too enamored with a property. In other words don’t get too emotional because a property has one good room that does not need work. Be sure to consider the house as a whole. Consider all the issues that must be repaired. And of course consider the ARV (after repair value).
Also be careful when looking at houses that are too nice and recently rehabbed. These are usually not distressed or foreclosed properties. In which case you likely can’t buy them at a low enough discount to flip them. So try to look at properties with upside/equity built into the price.
Here you will see pictures of the interior rooms in a house. Like bedrooms, bathrooms, kitchen, and basement.
You want bedrooms that are structurally sound. Ideal bedrooms will have drywall and hardwood flooring.
Nowadays, hardwood is what buyers want in their house. But carpet is also passable in a bedroom. When rehabbing, always replace carpet! Carpet wears out very quickly, collects stains, and will get that old moldy smell.
See if there are fans or light fixtures you can refurbish. Oftentimes you may need to replace doors and closet doors if they are outdated. Walls can usually be repainted. Also check windows to make sure they are modern enough.
These pictures show worn out hardwood floors. But they are still intact. In bedrooms, you may need to refinish some floors to get their shine back.
Basement bedrooms can also be added or repurposed. Be sure to have a window if you are trying to make a basement bedroom. Basement bedrooms without windows, feel like prison cells. Pictured above is a basement bedroom with a window and a closet.
Ideally, you want bedrooms that are big enough for a queen size bed. Also bedrooms need generous closet space. Older homes were not built with the same demands of today. Today’s people have way more clothes than they did in past generations. So closet space is important.
You don’t want basement bedrooms with no windows (like a prison cell). In the first picture there is no windows. Second picture shows concrete walls with no drywall. So again it feels like a prison cell with a tiny window.
The last picture is of an attic that is very low. This was a partially finished bedroom, because it did have a door. But the shape is very awkward and wouldn’t be practical for everyday use. Also the subfloor looks shoddy at best.
Not sure if this bedroom was ever in style. Ugly two tone wall paper. Red paint trim. And they had the nerve to have a red closet door. Carpet is also old and moldy. This bedroom can be gutted and fixed. So it is not a tough problem to handle. But if you are a beginner you may want to avoid a house this much out of style.
Kitchens are a room where your end buyers will be spending a lot of time. So you need to make sure this room can be repaired up to market standard.
Look for the kitchens where you don’t have to do everything.
Perhaps the cabinets can be refinished and cleaned. Cabinets themselves are very, very expensive. Even though they are made of wood. They require handiwork and the labor is expensive. Especially if it’s a dark wood.
In rare cases you can also find kitchens with good cabinets in them. The above cabinets can be refinished. You should also replace countertops with granite and get a new backsplash design.
This last picture has beige cabinets in good shape and could be refinished. . But this color is outdated. Also the appliances are outdated. The Formica countertop needs to be replaced. Counters may be saved if they are granite. If they are other material like vinyl, linoleum, or Formica it needs to be changed. These materials are cheap and out of date. Today’s buyers want GRANITE. So give it to them. You may need to replace the tiles also, if they are outdated. Tiles typically get outdated every decade.
Pictured above is a kitchen in almost new rehab condition. It was done a few years ago by a well-known rehabber in the Chicago area. But the house foreclosed only a few years after it was sold to the end buyer. Everything here is good to go. But the cabinets and drawers have had the handles and knobs stolen. Other than that, the style is still modern enough for someone to buy in today’s market. Plus is has nice lighting tracks, a backsplash, and intricate tile work.
Pictured above is a HUD foreclosure house. This house was new construction about 8 years ago. The kitchen cabinets are still in tact. Granite is still there on one wing of the kitchen. The other slab of granite for the wing is leaning against the wall. A contractor can easily install this granite slab since it is already cut. All you need to do is align it and caulk it properly.
The above kitchen was also in a HUD foreclosure house. It was rehabbed maybe 15 years ago. The cabinets still have a nice white facing. If you change the handles, you can save the cabinets by giving it a fresher look. Appliances need to be changed also. The countertop and backsplash looks like regular floor tiles. So the counters need to be made granite and pebble tiles should go on the backsplash. But overall this kitchen is a good starting point. Hardwood floors are also looking great.
This is a house that we bought to flip. The cabinets were ordered and left by the prior owner. The rehab project stopped in the middle when the old owner got foreclosed on. So all we had to do was assemble and install the cabinets. Then order the countertops and appliances. The bamboo floors were already new enough so we kept those. These kind of houses can be hidden gems if they have had some rehab work done halfway.
Some kitchens are going to be a lot of work. Observe the quality of the cabinets, countertop, flooring, and appliances. You may need to gut rehab the kitchen. See if there is anything stolen like the cabinet handles or even appliances.
These two pictures show very damaged kitchens. The former picture has very old cabinets that cannot be saved. The cabinets are falling apart on the latter picture. Also note that the walls and flooring are old. Basically you need to gut this and build a new kitchen.
In these two pictures the kitchens are intact. But they cannot be saved and would need to be gutted if you flip the house. The former picture has old Amish style cabinets. These are in no way fashionable to today’s buyers. Also the counters are vinyl. Flooring should be changed also. There is an old dishwasher which indicates this kitchen was done over 20 years ago. The latter picture also has old cabinets that are not modern. If you look on the right side you can see newer cabinets mixed in with the old ones.
This previous picture shows really old white cabinets. Again you cannot use these since today’s buyers do not want this style. Bottom line is some kitchens are so old, it does not matter what condition they’re in. If it’s too old you need to demolish it and rebuilt the kitchen!
Same with this kitchen. The cabinets and the island design are outdated. Also the old owners couldn’t afford countertops. So they just used floor tiles as a counter. YOLO.
Bathrooms are commonly updated by homeowners. They are small rooms and are often utilized. So they are popular rooms to get updates.
As seen above, sometimes you will see the bathroom halfway finished. So you can finish the bathroom upgrade yourself. If you can get the matching materials, you can save money on replacing everything. Here they did most of the tile work. But they have not installed the fixtures. When we bought this house they thankfully had extra materials so we could match everything.
Occasionally you will find updated bathrooms that have bad design or bad craftsmanship. These can usually be fixed, rather than fully remodeling them.
These two pictures are recently rehabbed bathrooms. The colors are not neutral and are a bit strong. So they may alienate some buyers. But since they are modern, you could probably keep these bathrooms as is. Just do a maid cleaning so it shows well.
This picture is a bathroom in a recently built house. The fixtures are still there with the jacuzzi tub. And the his & her sink has a granite vanity top. So it is still a pretty nice bathroom.
These pictures do not have enough contrast with their color schemes. The fixtures blend into the tiles. Also they tiled the floors and the walls, which does not look good! These bathrooms don’t have enough contrast to appeal to a buyer. Buyers want some nice color combinations. But thankfully you can change out some of the tiles to create contrast or even add a backsplash.
You need to have the right colors. As seen above, some bathrooms just have ugly color schemes. People do not want to sit on a brown toilet seat. Change to neutral colors. These bathrooms can be fixed by changing some of the flooring or fixtures. But you probably don’t need to gut rehab it.
Then you find the bathrooms that have already been rehabbed. These are great pluses for a house. But be sure to check the rest of the house to see what else needs to be fixed. Remember that bathrooms are just one part of the repair project.
Now on the flip side you will find some f*cked up bathrooms. The design may be terrible or the plumbing may not be right.
In these pictures you see that bathrooms will be built on a platform if they can’t fit the piping beneath the current floor boards. This is done so they can install the toilet sewage piping. In the preceding pictures, these bathrooms look very ugly and unnatural. So be sure to get a good contractor who can rehab your bathroom properly so it flows with the architecture of the house.
This is a picture of a standing bathtub for older folks. This will not appeal to your end buyers. So you will need to gut it. You will need to chip out the entire tub piece by piece. And this can be expensive and laborious as these tubs are made of solid metal.
There will be other bathroom issues covered in the following sections: Plumbing, Stupid Fixes, and Building Violations.
Basements do not always need remodeling. Some basements are partially finished because that is all the owners had money for. Other times it may only need new flooring, because the old owner used cheap vinyl tiles. You also may need modern updating to the walls and paint colors.
This picture has ugly, cheap vinyl tiles. The drywall also has a really ugly pattern design. But the drywall structure is sound and there is nice can lighting (even some flood lights). So with new flooring and wall paint, this basement could shine.
This picture has good floors and nice tile design. The flood lighting is in place. You just need to change the ugly yellow paint and this basement is good to go.
This picture shows old 1970’s style wood paneling. Plus the floors are cheap vinyl. You could probably keep the drop ceiling tiles. Foundation floor looks flat and stable. So you just need to replace the flooring. The wood paneling may have drywall behind it. In which case it would be easy to to rip out the paneling and paint the drywall.
The basement here is ready to be finished and the mechanicals are present. Ductwork is easily accessible and even has framing on the ceilings. There is electric conduit already laid down in the basement walls. So finishing this basement would only require finishing surfaces like drywall and ceilings. Also you would either remove the vinyl tiles or go over it with ceramic tiles.
If you’re lucky you will find basements that need almost no work. You can keep the walls, ceiling, and the flooring. You just need to clean, refinish, and maybe repaint.
There is no “Bad” section here. The bad elements of a basement you will see in the foregoing sections.
This section covers other interior rooms. E.g. Living rooms, dining rooms, family rooms. These are examples of interior rooms where you don’t need to do much work.
These are pictures of a dining room and living room, respectively. Now these floors can easily be refinished. That’s really the only major work that needs to be done. You can keep the walls, windows and lights. The second picture has remnants of carpet padding which can be easily sanded off. Don’t be scared if you see hardwood surfaces that are worn out. If the floorboards are intact you can usually save them.
These pictures shows a nice living room. The walls are immaculate and may not even need new paint. But carpet in the living room is way outdated. So you should change it to hardwood.
These floors are in better shape. But still need refinishing. If the floors were sparkling shiny, the room would look totally different.
These two pictures have beat up floors, but they can be saved. They also have wall mirrors which are not fashionable anywhere except inside bathrooms. Mirrors were previously trendy as they made rooms look larger. However, today’s buyers do not want such features. They want rooms that actually are more open in their layout, not just the appearance of such. Bottom line is the mirrors should be removed from the living room.
These floors are in great shape. The first picture has newly finished floors in a HUD foreclosed house. Second picture has fresh bamboo floors. Walls are good in both. So you just need to clean and leave these rooms alone. These are the houses you want to go after.
This is a nice tasteful eating area. It has great tile work and two tone paint decor. This doesn’t need much work. So it is a great find if you can get properties like this .
Another great example of quality work in the living room. First picture is the living room of a recently built house. There is wall paneling and nice trim. Along with a fireplace mantle and floodlights. Second picture has wall trim dividing a two-tone decor. This house was rehabbed about 5 years ago by one of Chicago’s biggest rehabbers.
These two pictures are of a staircase in a recently built house. The stair case has nice solid wood steps with nice wall paneling. It is a little too nice for that neighborhood. And as a result the top stair bannisters are missing. These were probably made of solid metal so someone likely stole them. So a wood plank is used as a support instead. Thankfully, this is an easy cosmetic fix. The main stairs are there and making small cosmetic repairs, like bannisters, should not scare you.
This section will mostly focus on bad plumbing. Good plumbing is that which isn’t broken or leaking. If the water is on at the house and there are no leaks, the plumbing is fine. But when there are issues it could be because water pipes are broken, leaking, or a water main is not shutoff.
Also thieves can break in and steal copper piping. This copper can easily be melted down and recycled, so there is a black market for such stolen piping. People will often steal copper piping in properties which are distressed or vacant. They will also break in and take plumbing fixtures if they are expensive. The risk for robbery depends on the neighborhood a property is in.
First picture shows a bathroom that was gutted by thieves. You can tell that they stole piping by the ripped up drywall. Thieves will even look behind tubs and vanity sinks. The second picture shows they will look also in utility rooms. Here the piping from the washer/dryer connections was stolen. Piping can be stolen behind laundry machines, furnaces, and even water heaters.
This is a picture of a flooded basement. Clearly the sump pump was not working. If you see this much standing water, I would eliminate this property. But if you are experienced, try to identify the cause of the flooding. It could be seepage or maybe even a broken pipe.
Also take note of sump pumps in the basement. These are back up pumps that will move excess water out of a basement. Confirm the existence of one in every basement. This picture is of a working sump pump. As you can see by the bubbles and the buoyancy detector, the sump pump is submerged.
This is a broken water main pipe. This is not good. And clearly the water shutoff valve is not working. Thankfully this water easily drained into the ground, so it didn’t flood the basement level. Watch out for these kinds of pipe breaks. Be sure to consult with your contractor before buying a house with these kind of blatant plumbing issues.
HVAC stands for Heating, Ventilation, and Air Conditioning. In short, this refers to the heating and cooling system of a house. You want to inspect this to see how much upgrading and repairs are needed for a flip. Electrical components are also included in this section as it is essential for modern buyers to have.
You may find mechanicals that are good enough and do not need full replacement. Furnaces and water heaters can be reused if they are less than 10 years old. The main thing is they need to look “new”. So you may be able to clean and polish them to make them passable. If you are in doubt, just replace them.
These two forced air furnaces are only a few years old and still look new. So you would not need to replace these. It is better off to clean and polish them so they look new enough. If you are detailed, you can read the sticker to see the manufactured date and confirm the age of the furnace. You can also service them to make sure they are functioning well. Generally, forced air furnaces are preferred as they show the house has been updated in the last century. A forced air furnace often indicates the presence of a central A/C system as well.
These water heaters pictured above are newer. You can tell by the shiny exterior and the copper pipes coming out of them. These can definitely be kept and do not need replacement.
Generally, A/C units can be kept if they are in good enough condition. This above is a decent A/C unit and is still connected on its platform. It was not stolen despite the property is being vacant and foreclosed. This was in a working class suburb. The better the neighborhood, the less likely someone will steal the A/C unit. Also if the neighbors are good and maintain their property, it discourages thieves.
This A/C unit is very large. It was obviously expensive when it was bought. But it does look rather aged and close to 20 years old. So you need to replace it even though it probably works.
Cages around the A/C unit can prevent theft. These are metal cages bolted down to the ground and enclose the condenser. Even if the thief lifts the cage, it is a lot of hassle. Most thieves will move on to a different house. So the cage has great value as it can discourage thefts before they are attempted.
Watch for the furnace, water heater, and A/C unit. These three main mechanical items are rather expensive and will save you big if you can keep them.
Also note the ductwork in the house. If the ducts are easily accessible in the basement, you can build off it if you are finishing the basement or adding rooms down there. Otherwise you need to rip out the ceiling wall to install the ductwork and then re-wall it.
The electrical box is also something to note. If it has reusable fuses, it should be good enough. The fuses should be labeled also. These are good examples of decent electric boxes. They are adequate enough and do not need replacement. The buyer only cares if the electricity works: yes or no. The age of the wiring and breaker box are not of concern as long as folks can plug in their TV and watch football.
HVAC components can be expensive to replace. They are usually one complete machine unit, so they can be easily stolen. The three most likely items to be stolen are the A/C unit, water heater, and furnace.
Of the three main HVAC machines, the A/C unit is the most likely to be stolen. For one it is usually residing outside the house and not inside. The A/C is stolen for the copper in the condenser. See prior section for A/C cages which protect the condenser from theft.
Also check the age of the electric breaker box. The breaker box above has old coil fuses that actually need to be replaced every time there is a short circuit. This will need to be replaced with a reusable fuse box. Oftentimes the end buyer will have a home inspection and electrical is something the inspector will bring up. So better off to upgrade the electrical now before it’s a surprise.
Although this electrical box has reuseable fuses, it is still old. And it doesn’t have labels. So you should replace this box. On top of it all it just looks plain ugly.
The electric breaker box can be stolen. People can steal electrical wiring and light fixtures also. Be sure to note these electrical issues. It can be expensive to rewire a house since you usually need a licensed electrician.
Here they stole the forced air furnace. They likely ripped some pipes out also as you can see a water puddle. This water is likely from a broken pipe. So be sure to account for these issues in your repair estimate.
This furnace is for radiator heat. As you can see it is very old. Typically replacing this radiant heating system with forced air can be very expensive. So be sure to note these features and estimate the repairs accordingly.
Air vents should be by a window. Not in the middle of the room. Pictured above is the stupidest vent formation in history. This would be cumbersome and probably expensive to fix. You would need to rip up the floor and the ceiling of the lower floor to reroute the ductwork.
This section can be summarized by my companion video. ( https://youtu.be/OIp-YJLYDcY)
Mold is an issue you may find in some vacant and distressed properties. Mold grows when it has moisture and a host to grow on. For mold to grow it needs water, heat, and organic material.
Drywall provides the organic material for mold spores to grow. Another common mold location is on wood. Mold usually looks worse than it is. It is usually black but can come in any color (e.g blue, green). The color of mold does not necessarily indicate how dangerous it is to your health.
Well this section is an oxymoron because mold is never really good to have. However some mold is easier to deal with than others. Drywall mold can usually be cut out. But it is best to have a professional mold remediator come in. Stay away from big national franchises, since they tend to over exaggerate mold issues. Smaller local operations tend to be more honest about how much mold remediation you really need.
As seen above, some mold is relatively new and can be easily remediated. Be sure to look for early signs of mold spores. You will see little dots and slight discoloration. To solve this issue you could replace the drywall or scrub the wall with bleach water to kill the spores. Note that this mold will get worse unless it is remediated and the moisture source is stopped. Stopping the moisture source should prevent the issue from resurfacing.
This section on “bad” mold could be a book of its own. If you are unsure do not get close to mold or breathe in too much. Mold can be toxic to your health. Do not touch the mold as that may infect your skin and spread more spores throughout the house. After mold is remediated you need to find the source of the mold. What caused the moisture to allow mold to grow? It may be a roof leak, basement seepage, or leaking pipes.
Oftentimes bathrooms have mold. In vacant & distressed properties, the bathroom plumbing likely hasn’t been maintained. As a result there could be water leaks and moisture.
Organic material is what mold needs to grow on. Drywall is vulnerable because it is two sheets of paper of around a gypsum core. Any mold on drywall is only on the surface. If you actually cut into moldy drywall, you will see that the interior gypsum is not affected by the spores.
A leak in the ceiling or roof can lead to mold. The first picture is of a coat closet by a front entrance. The roof above this closet had a hole in it. As such, rain got behind the walls and lead to the mold formation you see. So you would need to fix that roof and replace that drywall. The latter picture is the ceiling of a bathroom. There is likely a roof leak and the moisture is trickling down. The ceiling drywall needs to be replaced. Also there could be even more mold behind that sagging drywall and in the attic below the roof. So the visible mold may not be the only mold present. This is why it is important to consult with a mold remediator if not familiar with these environmental conditions.
Believe it or not, mold can also grow on insulation. These pictures show the mold spores as black kernels that look like maggots. This is likely due to a water leak, perhaps in the basement overhead pipes.
Wood paneling can also get mold, especially in the basement if it floods. Here you can see the panels are wavy from the moisture they absorbed. So mold spores were able to grow because the moisture soaked into the wood, which is an organic material. This picture obviously shows that this basement flooded before. That is why they removed the floor trim off the wall edge.
Oftentimes people try to hide mold by cutting out part of the drywall. Or they will scrub the mold off with bleach. Then they will apply a mold killer primer (i.e. Kilz). This will kill remaining spores and resist mold reformation. But if there is still moisture, mold will fight its way back as you can see in the second picture.
Also watch out for properties that have dehumidifiers. The owners of the property will often put these if there is extra moisture in the basement. Usually if there was or is mold in the basement, they place a dehumidifier to prevent the issue from getting worse.
Seepage is water that leaks into the basement from either the sides or the floor. If you spot seepage you should identify the source. Usually you can observe the watermarks to determine where it is coming from.
Oftentimes untreated seepage can lead to mold. The above pictures shows water leaking from a pipe. This moisture has lead to mold on the back of the drywall (left side of picture).
As you can see in the above picture. There is seepage from the bottom of the foundation. This will become more evident when it rains and there is more ground water flowing down around the foundation.
There could be minor cracks in the foundation that allow water to get in. Or the water seeps in through the foundation and the frame of the house. If the foundation is not totally sealed, water can come in where the concrete stops and the house wood frame begins.
Seepage may be fixed by sealing the foundation. You can seal the foundation on either side (exterior or interior). However it must be done thoroughly. If there is a serious seepage issue, you may want to pass on the house. Otherwise you should consult with a basement flooding specialist.
Watch for windows as they are very expensive to fix and replace. Having a house with recent windows is a big plus. Not having updated windows looks bad and also affects the house structurally. A window that is not flush can allow moisture inside. Also it is less energy efficient as it lets the heating/air conditioned air outside.
The windows above are in good condition. They have been replaced within the last 20 years. As evidenced by the plastic frames and thin designs. You can see they are double paned and are relatively energy efficient. So with some polish and refurbishing, these windows would be passable in a house you want to flip.
In the homes I saw, old windows were pretty common. Sometimes I even saw original windows which were over 50 years old. These can be very expensive to replace, especially if they are custom sizes. Seriously, windows are more expensive than you think!
In this first picture you can see the heavy glass pane and the solid wood frame. These kind of old windows are heavy and break easily. Modern plastic framed windows are more reliable. The second picture shows old and broken windows. The second picture was in an enclosed porch with about eight windows, so it would be very expensive to update.
Also the frames may be so old that they leak air. This can cause seepage on both the interior and exterior. The above picture shows streaks coming down from the broken window frame. The moisture has lead to algae growing on the wood siding. To fix this you likely need to replace the window and all the siding.
These two pictures are of an old window that is sealed with foam. They did a very ugly job. Honestly the second picture looks like pink slime. With these older windows, they can be so heavy that they shift the window frame out of shape. At which point moisture can leak in.
Metal bar frames over windows are very unattractive. They scream “ghetto”. So try to remove them, and add a security system if you do not feel secure.
As seen in the first picture, you may also need to replace the window frame and the casing. This can be as expensive as the windows themselves. So be careful and observant. See underneath the window frames to see if any moisture has seeped into the wall. Like in the second picture, you will see discoloration or pocketing in the walls. This may eventually lead to mold.
Any modern house today has walls made of modular drywall pieces. Before drywall, most walls were plaster. Plasters walls are a single sheet of mortar that dries to make a wall. The mortar is placed over a bed of wooden laths. Laths are small wooden boards that let the mortar take shape (See above picture).
By today’s standards, plaster walls are very out of date. Having plaster also indicates the house likely was not updated within the last 40 years. Since any remodeling project would have gotten rid of the plaster in favor of modular drywall. Repairing plaster can be difficult. Your best bet is to demo the plaster and put drywall. Again this is all additional expense.
A good plaster wall is one with an even surface and very minimal cracks. As in the picture, you should check by windows and corners. These cracks can be filled with more plaster, but they inevitably will lead to more cracks. Plaster walls are very rarely in good shape though. I didn’t even put a picture of a perfect plaster wall because they are that rare. Every plaster wall will crack at some point.
This above picture shows plaster walls with moisture bubbles. Best solution to any plaster wall issue is to replace it with drywall. But if you are flipping the house, you may be able to get away with keeping the plaster walls if they are smooth enough. When I was looking at houses, I usually passed on those with plaster walls.
Drywall is way superior. Because it typically does not crack. And if there is ever a crack or a hole, as in this picture, you can just cut out the drywall. Then patch it with more drywall easily. But you do not need to replace the whole wall as you would with plaster. Hence the drywall modularity provides more practical benefit.
Flooring is one of the first things your end buyer will notice when they walk into your house. So if you buy a house with good flooring, it can save a major expense. Likewise if you need to replace the flooring it can be a major expense.
In the above pictures, you need to completely replace the flooring. The old flooring was ripped down to the subfloor and all you see is wood planks. These two pictures have great walls and the windows are decent too. So the main repair would be the flooring in these rooms. Flooring a few rooms can be easy. It would be a significant expense, but not crippling.
Also there could be a perfectly nice room with cheap, ugly vinyl tiles. You obviously need to upgrade this as part of your project. Vinyl tiles are not current and they never last long. In this picture, this was the only room that had vinyl. The rest of the first floor was dark hardwood. So it would not cost much to change the flooring in only this bedroom.
Sometimes the rooms are good but the floors need saving. So check if you can refinish floors rather than replace them. This picture shows a living room with a nice mantle, good windows and intact walls. The paint is even still good. But the hardwood floors are defaced and need refinishing. This can be done while keeping the existing floor boards. (See “Other Interior Rooms” for examples of saving floors)
At times you may need to replace flooring because it is just too outdated.
If it is carpet, it almost always needs to be replaced. Thankfully if you’re staying with carpet, new carpet is very inexpensive. The carpet in these two pictures is very old and dirty. You can see the heavy stains that cannot be removed. First picture is a bedroom that has ancient carpet over the original hardwood. The hardwood may be able to be refinished. But it would be a larger job since you need to go through more than one room in the house. Second picture has carpet in a big dining room. If it is a dining room, you most likely need to replace with hard flooring like tile, or hardwood. This will be much more expensive than carpet.
Hardwood may be refinished if the boards themselves are intact. These floorboards look in tact. However they need heavy sanding and refinishing. This is likely needed throughout the whole house. So this job would get expensive and time consuming. It may not be worth buying this property if there is another property you can flip quicker.
Vinyl tile usually need to be replaced since they wear out quickly. The first picture show water damaged vinyl tile in a basement. These tiles need to be scraped off and replaced with ceramic tile or carpet. Second picture has a basement bedroom. The vinyl tile is starting to chip off as it is so worn. This also needs to be changed out to some carpet or ceramic tile.
Ceramic tiles may be saved if they look modern enough. But these tiles tend to go out of style every 10 years. If you are in doubt, you are better off replacing these too. In these pictures the tiles are cracked. So all the tiles should be replaced.
Flooring may also be damaged by water. It can warp and get out of shape. You may or may not be able to fix this water damage. Most likely you will need to replace all the flooring in that room. You may even need to fix the subfloor if the water damage permeated through.
Other times you may be able to save the floors if there is water damage. These were actually new floors, but the house was in the middle repairs when we bought it. These boards above contracted because of the winter. So we just re-cut the floor boards and the floor was in good condition.
These two pictures show uneven floors. If this is the case, you likely need to repair the subfloor. The subfloor are the wood boards that make the foundation below the main flooring. The subfloor is usually not visible so most people don’t think about it.
Exterior elements will usually wear out quicker than the interior of a house. Especially if you are in a market with changing weather (like Chicago). You need to take care of these exterior items as they are visible to the end buyer.
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Concrete is expensive and very labor intensive to install. So you need to watch for it.
Sometimes the concrete is good. As seen above in the concrete porches, it may just need minor patches and paint on the handrails. If possible, repairing concrete is better than replacing it. Replacing that much concrete can be very expensive. But don’t be scared by concrete on the front porch. For example, most older houses in Chicago have concrete porches.
Check for concrete patios that may be intact. As seen above, for god knows what reason some concrete has carpet over it. Exterior carpet is very outdated. So be sure to throw out the carpet and just refinish the concrete.
In Chicago, older houses commonly have a concrete porch. These tend to have problems over time. Chicago has crazy alternating weather between hot and cold. So the concrete will eventually crack and chip away. Over time, there are several issues you may encounter with concrete.
The first picture shows a concrete porch without a handrail. This needs to be installed for safety and building code reasons. That ghetto wood rail will not work if you want to flip the house. I.e. Bad curb appeal.
This is a picture of a severely cracked porch. This concrete above is chipped so badly that it cannot be patched. If the porch is falling away from the house, the porch may need to be replaced. We later found that the village building inspector mandated this porch be replaced with a wooden one.
This is some bad foundation sealing. It has cracked and been sealed over multiple times. The best solution is to clear out all this sealant and reseal it from the original foundation. If you see this kind of issue you should also check the basement for seepage
This is a picture of a cracked driveway. Unfortunately, concrete driveways are expensive to replace. It is a large surface area of concrete so it is labor intensive and can cost thousands of dollars. Local building inspectors may be b*tches about this. I knew a landlord who had to spend $10,000 to replace a driveway because a village inspector had a bad mood. So think twice before buying a house where you need to replace the driveway.
These are pictures of concrete sidewalks that need to be repaired. Since they are off the main sidewalk in front of the house, you need to maintain them. If it is a public sidewalk close enough to the street, the local municipality should maintain it. The first picture shows a very old sidewalk with weeds cracking through. Second picture is of a poor concrete replacement. You can see how it mounds and looks very ugly. So you may pass on these houses if you don’t want to do concrete replacement.
The floor of most garages is also concrete. The concrete slab in the garage can be expensive to replace and may cost several thousand dollars. This picture shows slab cracks and where the owner tried to fill them in. However the underlying cause was not solved. This slab cracking can be caused by soil erosion under the garage which causes the foundation to shift. Also there could be some tree roots growing under the garage which may cause shifts.
Even on wood porches, the porch can start falling away from the side of the house. If this is the case there is likely something shifting under the foundation of the porch. And you likely need to replace the whole porch.
The roof is the most basic protection for any house. It covers the house from exterior elements that are falling upon it (e.g rain, snow, hail, wind). This structural component needs to be in good condition if you want to flip a house.
Look for houses with roofs that are in good condition. This will save you a big expense.
See this picture of a Cape Cod home. Typically the more slanted the roof, the more durable it is. The more angled the roof is, the easier the elements will slide down it. The flatter the roof is, the more likely you are to get leaks and damage.
See these roofing examples on a Tudor home, and a bungalow. In Chicago, we use mainly asphalt roof shingles. Which unfortunately wear out after a few years to a few decades. Roof durability depends how expensive the shingles are. Any kind of hard roof material will last longer (e.g. clay tiles).
A bad roof can be a money pit and could eventually lead to leaking. Roof issues may be due to extreme weathering or age.
This roof above is clearly worn out and needs to be replaced. Depending on the property and your comfort level, you could go up in the attic to inspect the roof and trusses. Roofs tend to be expensive fixes. You likely need to “demo” tear off the old roof and install a new one. Depending on the roof elevation it can be very expensive to hire a roofer.
Here there is a tarp on the roof. This indicates there was a roof leak. So instead of replacing the roof, they have a temporary fix. This looks very ugly and is bad for curb appeal. It also indicates deferred maintenance because the owner could not afford a real roof patch.
You should look above the gutters at the edges of the shingles. See if there are multiple roof layers. Remember it can be expensive to tear off multiple roof layers. This will add time and expense to your roof job. The best solution is to put a new roof that is comparable to that of the neighboring houses. Buyers will definitely notice if it is new.
Be wary of flat roofs. They are difficult to maintain and tend to leak more if they are not installed properly. Also they are not as attractive. This picture is the roof built over the addition to a Georgian house. It has a flat tar roof covering it.
Fences are important for curb appeal. Buyers will want their yard to look nice and framed. Fences can be expensive to repair so watch out.
This first picture has a solid fence. Paint is good and the fence boards are in line. Posts and bases are upright. This fence would need almost no work.
This fence is also in good shape. The white fence belongs to this property. The dark fence on the left is the neighbors fence. There is actually a short chain link fence next to it on this property’s lot. But either way you don’t need to do much work to this fence. It just looks ugly.
Fences can be more expensive to fix than you think.
This picture shows missing fence boards. These are not too expensive to fix. You just need to make sure you match the color and material accurately. Whether it be wood, iron, or vinyl fence boards.
If the fence is crooked or fallen, you need to replace the concrete bases that hold the fence posts. That is the real expensive part. Almost every municipal building code will require you to fix fences. So be aware of these costs.
Tuckpointing refers to filling the joints in between bricks. Bricks are usually separated by sand and the gaps are topped off with mortar. Tuckpointing means replacing this filling and adding the finishing mortar to prevent weathering. Over time tuckpointing will wear away and moisture will get through the bricks. This will cause seepage and other environmental issues. So this is something to pay attention to especially in older brick properties.
Every once in a while, someone actually pays a professional to tuckpoint their house. And it doesn’t look like a blind man with a broom did the mortar work. You can see above that the tuckpointing was done in spots and the mortar is placed neatly on the gaps. Ideally the new mortar should match the old mortar. However color matching may be impossible due to weathering. If you want a complete color match you should re-grout the surface of all the joints.
This section shows tuckpointing issues for brick houses. In Chicago we have extreme weather changes. It turns from near zero temperatures in January to over 90 degrees in July. This can cause tuckpointing to wear out.
With water, a brick exterior can have cracks in its mortar. This picture shows water seepage from a down spot. You can see the mortar erosion around it. Moisture can get into these cracks and cause havoc on the interior. So these mortar joints need to be replaced.
Chimneys often have tuckpointing issues. They are higher up and tend to take more weathering (e.g wind exposure). Chimneys are exposed from all sides, so its tuckpointing will wear away sooner. These pictures show bricks that are falling out around a chimney. You can also see the bricks with no mortar on the chimney stack. To retuckpoint this, you may need someone to basically rebuild the chimney. Since you need to take down all sides of the stack for stability and then put the new mortar in.
Front porches also may have tuckpointing issues. Older homes could have porches with brick sides. These also have extra exposure from multiple sides. These bricks may need to be tuckpointed or realigned. First picture shows poor tuckpointing work. You can see the bricks smothered with mortar. Also the unmatched mortar is very obvious and ugly! In the second picture you can see that the brick faces are totally cracked. So you may need to replace all the bricks to maintain an even facade. Also be wary of any concrete issues that can affect the porch bricks.
Oftentimes people will use mortar to cover damaged bricks. Instead of putting mortar in between, they will just mortar completely over the bricks. This is common on the bottom level of bricks. If the mortar is not high quality, this layer will just crack though. So one must be cautious about this temporary solution. What you should do is replace the underlying bricks and retuckpoint each joint. The first picture shows the pull over mortar that is cracked. You can see how damaged the bricks are underneath. This usually indicates there will be more damaged bricks on other parts of the house. Second picture shows a pull over mortared chimney. Again this does not look attractive. To fix this you may end up replacing the whole chimney.
The purpose of gutters is to collect water that flows off a roof and redirect it to the ground. These need periodic maintenance and are often neglected on distressed properties.
A “good” gutter system will not attract much attention. It will be attached right below the roof line and it will look painted. The metal pieces will be aligned properly with no leaks. That is simply what you would want.
As seen above, these are bad gutters that are rotting away. They are really old and falling away from the roof line. The second picture shows gutters that are as old as the house siding. You can also see crawler plants growing by the gutters indicating there may be some leakage. Bad gutters can also take away curb appeal.
As seen above, gutter downspouts may be stolen. These downspout pipes direct the collected water down to the ground. Since they are at ground level, thieves can usually rip them off and sell them for scrap metal.
Watch out for trees growing over the gutters. They will shed leaves and other branches onto your roof. And eventually this matter may flow into the gutter and clog it. To fix this you may need to cut branches on the tree. And this may be expensive if it is a big tree.
Most end buyers will expect a garage with their home. So you should observe this structure when you visit properties. Also see my companion video on garages. (https://youtu.be/wKL_h9GJP5k).
If the garages are new or in good condition, it can save you money.
These two pictures shows almost new garages. The concrete slab is pristine with no cracks. The overhead door is aligned. Also the wood framing is solid with no sagging. The only thing you may do is an exterior cleaning.
This is an exterior shot of a garage. The roof is solid along with the edges/gutters. But the siding is worn out. To fix the siding, you may be able to power wash it or repaint it to improve curb appeal.
This is an older garage. The roof is aging but passable (still functional). However, the siding is rather worn and it is chipped at the bottom corner. So you can’t just refinish it, you need to replace this siding. Garage siding is usually a lot cheaper than house siding.
This is a picture of siding that is loose and out of place. You can either realign these siding boards, or replace them. Regardless this metal siding should not be too expensive.
Sometimes you will see garages that are structurally sound and ready to be rebuilt. This is a property that we bought. The old owner had already demolished the exterior of the garage. Since the slab was good, we just needed to rebuild the sides and the roof. We also replaced the garage door to make it modern.
The brick garage pictured is in good shape right now. But may require tuckpointing in the future. Most modern houses do not have brick garages as they are very expensive and hard to maintain. However, they do look better than sided garages.
Garages can have several structural issues. You need to check components like the roof, siding, framing, concrete floor, and doors. Replacing a garage can cost several thousand dollars.
Some garages have degenerated into basically shacks. As pictured, you see the very old and rotting siding which is falling off. The roof trusses are sagging and the gutters have fallen off. This garage should be torn down and rebuilt.
Garage roofing can also be worn out due to weathering and age. As seen above, you can see there were multiple roof layers. They are starting to erode away and also the garage structure is slowly collasping.
This is an even worse roof. There are holes where the shingles have collapsed. There’s also multiple roofing layers on the garage. The siding is also worn and the paint is wearing off.
Garage siding can have the paint fall off or chip away. Standard materials for garage siding can be wood, metal aluminum, or vinyl. Garage siding is not expensive to replace.
Garage drywall can also get mold if there is moisture. Moisture could come from seepage, or a roof leak. You would need to take out these sideboards and replace them to remove the mold.
Brick garages can have tuckpointing issues. First picture show the bricks falling out near the corner of the garage door. Second picture shows bricks collapsing below the roof. This indicates greater structural issues. If the bricks are really bad, you need to rebuild the garage.
Check the condition of the garage overhead doors. As in the pictures, they can become misaligned or the panels can be out of place. People may even kick in the overhead doors to break in.
People also try to break into garage service doors. The first picture shows a door that has been rammed into. Also it looks like they tried to burn the door down. Second picture shows an access door with a cracked frame. Check door frames for vertical cracks that may indicate a break in.
The garage slab is something you also need to pay attention to. Inside the garage, check the slab for cracks and foundation issues. See the “Concrete” section to see potential issues with a garage concrete slab.
Driveways may need repairs also. Generally, asphalt driveways are easier to refinish and replace.
However, replacing concrete driveways usually requires an expensive demolition. Then you have to get new concrete ordered. You can either have the concrete mixed manually by wheel barrow. Or save time by ordering a concrete truck. Either option can cost several thousand dollars depending on the driveway size. Municipalities may also have strict regulations on driveways. They can even make you replace the driveway if it is too cracked.
The deck in the backyard is usually made of wood. This can be a significant expense if you are not careful.
Decks are usually made of wood. They can be refinished, or the wood boards can be replaced. You want the deck to be at least in passable condition. This picture shows a deck that needs refinishing and coating. But it is structurally sound.
Decks can be expensive to replace. So you don’t want something that is a money pit. Although a deck is only made of wood it can be expensive to demolish as well.
Oftentimes you need to have handrails around the deck. Municipalities can be b*itches about this. They require handrails and posts around the perimeter to prevent people from falling. For example, this deck above looks very nice and is in good condition. But the local building code required the next buyer to install handrails all around.
There could be vinyl or metal siding on your house. Cheaper properties tend to be fully sided. Using siding is cheaper than using stone or bricks for an exterior. Siding is by nature more flimsy and is less durable. So you need to check the condition of any siding when you evaluate properties. Garages are also likely to have siding. Siding usually comes in vinyl, metal (aluminum), or wood siding. With vinyl being the cheapest material and wood (cedar) being the most expensive.
This is an example of good siding on a house. The siding boards are all in place. The color is uniform and even. You could power wash this exterior to make it look even better for the end buyer.
This picture shows siding that can be tucked in easily. It is probably vinyl or metal. Vinyl siding is cheap to replace, but still can be expensive to install. Siding costs depend on the house elevation and square footage of each side. Also check if the siding can be saved. Othertimes the siding may need to be tucked in. In addition, you can try power washing the siding to get the dirt off and improve the curb appeal.
Sometimes the siding is too damaged and must be replaced. It may be that the house frame is damaged structurally. In which case it may be best walk away from such structural issues.
This picture shows a corner of a house from the interior. You can see that the exterior wood frame is chipping. You likely need to replace this frame completely. So it is better to skip this house if you are not an experienced flipper.
This is the “WTF were they thinking?” section. Sometimes people are broke and they fix things stupidly. Usually these issues could be fixed cheaply. But keep in mind that the solutions you see here are likely not up to code. And these are mostly temporary, band-aid solutions. But either way they are amusing to look at…
As opposed to using real construction materials, they like using duct tape, glue, and cardboard to fix a window/wall. And of course some genius is using a french fries box to cover up a drywall hole.
Stupid is when you have hardwood, then put vinyl tile, then put another layer of vinyl tile. Once the vinyl wears out and you see that the hardwood is ruined because of the trapped moisture.
Stupid is using really bad caulk to patch up drywall. Not sure if they tried to caulk in a cardboard box or what…
You may find ghetto rigs like taping a water main shut. Note to self, using zip ties and tape will not close a water main pipe. Needless to say this is not up to code.
Garbage bags are not up to code either. Neither is using saran wrap and tape on your windows.
So this genius thought a lone toilet in the basement would be a good idea. This will need to be deconverted since there was no permit pulled. Also no flooring was laid down and it doesn’t look like there were other fixtures going in. What’s worse? That this was right next to the furnace/water heater or that there was no sink nearby. So I guess this is a utility/toilet room?
These folks decided to put their overflow for the water heater into a bucket. They were thinking “f*ck a sewage drain, a bucket will hold the overflow”. But obviously the bucket only has so much capacity until it overflows….
As opposed to actually fixing the switch, a simple message reads “bad switch”. Also there is no switch plate. Not up to code.
The following pictures are not from houses that can be flipped. These houses are just plain bad. I felt they were worth showing since they were pretty memorable. And it shows what can happen to a good property when not taken care of.
This house has broken windows- interior broken windows! WTF. That means somebody broke them intentionally or they were drunk. Also there were squatters as evidenced by all the clothes lying around. There are cheap beer cans and condoms scattered throughout. Clearly there were some messy squatters living here.
Note the falling drywall. Also the broken window in the living room. Clearly some crazy people lived here.
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Be sure to look at the overall rehab potential in the house. Can you increase the livable square footage? Perhaps you can add a finished basement. In Chicago there are many properties with half a second story that can be expanded into a full 2nd level. This can dramatically increase the market value and add bedrooms to a house. The key is to add bedrooms since that will increase the appraised value. This in turn will enable buyers to get better loans to buy your rehabbed house.
You need to check the ceiling height if you are increasing living area. Is the basement or attic height tall enough for expansion? I used selfies to record ceiling height. I am very average height at about 5’9” so I used myself as a measuring stick.
You can see in these two pictures that the ceiling slopes down pretty quickly. So these would not be very functional bedrooms. Since people could not walk around freely. You could walk side to side maybe 3 feet, but would need to duck the rest of the way around the room. However in some markets it won’t matter. Some demographics of people just want bedrooms period.
This first picture shows me in an unfinished attic. The cross beams intersect the room at about 6’ high. So it would not be practical to finish out the roof as living space. It should be left as storage space. Remember you lose about 6 inches if you put a ceiling. This space loss is due to the piping, electrical conduit, vents you need to put behind the ceiling. So keep that in mind when evaluating ceiling heights.
You also need to check the ceiling height below air ducts. If it is too low it may intefere with normal movement across the room (usually in the basement). As seen above, this basement air duct is too close to my head. Meaning that it is about 6’ high. So this basement would likely not be up to code. Most building codes require a minimum ceiling height of 7’ for basements.
When evaluating properties check how easily you can expand the rooms. Can you keep the walls as is, or do you need to knock them down and expand? After looking at many houses over, you will see what the potential of each house is.
This pictures shows a second floor addition to a bungalow. Adding bedrooms and bathrooms almost always increases market value (especially full bathrooms).[* Expansion will increase market value up to a certain point.*] After that ideal expansion point there are diminishing returns based on the comparables. If the comparables show that people will pay top dollar for a 4 BR/2 BA house. Building a 6 BR/3 BA home may not add the same proportional value. Be sure to learn the local nuisances of your market and what buyers are demanding.
These two pictures show finished attics. The first picture is a room which could be one big master bedroom. Due to the placement of the stairs at the end of the attic, it would be hard to divide this into two bedrooms. There wouldn’t be enough room for a hallway. The second picture shows a finished attic with a bedroom. I would add a closet somewhere to make it an official bedroom.
This shows a 3rd floor attic. The ceiling is rather high and could be converted to living space. Perhaps it can be another bedroom or a rec room.
Some houses for sale are rehab projects that stopped in progress. They come with construction materials leftover. These can be steals, so don’t be scared to bid on these too.
This is a house we bought. The rehab stopped in the middle because the money dried up. There were cabinets, flooring materials, and some wood posts left behind.
This same house had tiles we could use to finish the bathrooms. As well as some miscellaneous paint, grout, and some tools. If you find houses like this, you can easily finish the job if you have a reliable contractor.
These are pictures from a house that stopped in the middle of rehab. As you can see there is a pallet of concrete mortar bags. This was designated to replace the concrete driveway in front. Also there was insulation and cabinets left over. Leftover materials are a positive factor to consider in your property evaluations.
These are some negative factors to consider when evaluating properties. You should consider these factors after viewing the property. Trying to flip a house with these factors may be difficult or lead to a lower ARV (after repair value).
Houses on busy streets are less desirable and sell for less. Buyers with children will not like the extra traffic. They worry their kids will be at risk when outside. It also causes potential noise pollution. So the house should have quality windows to block out the sound. Houses at these locations can be harder to flip. Buyers will question if they want to deal with the busy road for the next several years of ownership.
As with train tracks, be sure to note which side of the street is better. In suburbs, a major street could be the dividing line between municipalities or school districts. This can lead to dramatically different values. Keep these distinctions in mind when selecting comparables for your CMA. Have a local realtor help you if you need more expertise.
Municipal fines, liens, and violations can derail your property purchase or resale. Municipality refers to the town, city, or village that your property resides in and is under the jurisdiction of. You must be aware of these issues by researching them.
Local fines and violations can be recorded against a property. Initially you can try searching online to see whether a property has liens. Some cities place repair escrows against properties that violate building codes. This means the new owner has to post the repair escrow and then correct the code violations. Again this discourages people from buying the fixer-upper properties in the first place. But government bureaucracies do not care; they care about increasing revenues.
*Before closing on a property, fill out a FOIA request with your local municipality. * Ask them to pull any files related to the property address. There is usually very little cost for this request. The FOIA request would also pull up any liens recorded against the property that may NOT show up on a title search. Most title searches will miss municipal liens like fines for yard maintenance. These can be significant if you are surprised by these fees. This FOIA request should also bring up building violations (see next section).
Almost every local government has a building code for residential properties. When looking for properties to flip you may find properties that violate these building codes. See earlier Due Diligence section on “Building Violations”. This section goes back over building violations AFTER you have seen the property. These are some examples of violations you may see.
Oftentimes finished basements are not built up to code. You usually need to get a permit to do this kind of work. Technically a municipality can require you to deconvert the basement and redo the project according to their code.
In this example, some f*cktard broke about 23 different building codes. This was an illegal finished basement with a bathroom. There is exposed ventilation coming into the bathroom, exposed electric conduit, and a water meter. And a sewage pipe right behind the toilet. Also on top of it all, this is probably not a legal height for a basement. So you wouldn’t be allowed to finish this basement anyway.
In these two examples, some genius thought putting a bathroom in the same room as the electrical box made sense. This is not up to building code.
Also watch for minor violations like missing handrails. Most building codes require handrails along the full length of stairs.
Electrical typically has very specific building codes. You need to use conduit and insulated wiring. Also you may need a certain number of outlets per room. As seen above, you probably cannot use duct tape like an idiot to secure conduit.
The quality of the immediate neighborhood will influence buyers for your rehabbed house. Buyers are buying the neighborhood as much as they are buying your house. Be careful block by block. In Chicago, the block quality can change in as little as 1/8 of a mile. Suburbs tend to be more homogenous.
p<>. Are there loiterers or gang bangers around?
p<>. Is the block mainly owner occupants or renters?
p<>. Are there many board ups? Are the houses in disrepair?
p<>. What is the quality of cars? Newer or junkers?
This also important for the security of your repair project. You want good neighbors who will watch your property and call the police if there is suspicious activity. If you are in doubt you can go back to Google Maps and use the Street View. Also you can do the overhead satellite view to identify vacant lots. This will help you determine if the house is on a bad block. (See “Map Analysis” for details)
This picture was taken next door to a property we were evaluating. As you can tell, the house is distressed and hasn’t been maintained. There was trash and old tires in the backyard. Amazingly, it looked like someone was occupying the house. This would make a bad impression on an end buyer. Who wants this as their neighboring house?
Being close to commercial properties will devalue your residential home. So you need to check if you are close to a big warehouse or industrial building. End buyers want to be around other houses and properties similar to theirs. If it is an eyesore, it can be a negative selling point. See above pictures as examples. Be sure to check for this in your map analysis. (See “Map Analysis” for details)
As a negative factor, train tracks are similar to busy roads. Some buyers don’t care as trains can be quieter than auto traffic sometimes. But they usually reduce a home’s value. Especially if it is a busy commuter line. Freight lines tend be quieter, less frequent, and run at night. If you have a hard money lender, they may consider this as a negative factor when preparing your loan.
Train tracks can be the dividing line between neighborhoods. In Chicago, there are many train tracks that divide neighborhoods. It may even be the same neighborhood by census area. But there is usually a “good” and “bad” side of the tracks. If the comps on one side of the tracks are more expensive, than that is likely the better side. And you want to know which side your property is on. These distinctions depend on your local market. So ask a local real estate agent for advice. Eventually you should be able to see through the comps and make the distinctions yourself.
Functional obsolescence refers to an outdated house that is inherently less desirable. I.e the houses’s features and structure are no longer in demand. These outdated design features are not easy to change so they may eliminate a house for flipping. For example, consider 4 bedroom house with just 1 bathroom. This house is functionally obsolete because most buyers today demand at least 1 bathroom for every 2 bedrooms. Also a house with no basement is not in demand. It will sell for a discount compared to a home with a basement. Again functional obsolescence depends on what your local market demands.
This picture above shows a basement that basically acts as a wine cellar. You cannot access this basement from the interior. So there is only an exterior entrance to the basement. Even if you built an enclosed back porch, the architecture would not flow well. So you would not be able to integrate this entrance into the rest of the house. As a result, I would recommend passing on this kind of house.
This is an enclosed front porch. It has old radiator heating and very old windows. These windows are probably original wood frames. Also there is old vinyl flooring along with an ancient door. It would expensive to update all of these elements. So it would be best to pass on a house like this.
Wall mirrors are out of date. You should not put big mirrors in living rooms. Nobody wants those in modern times. Mirrors should only be in bathrooms and walk in closets. If you buy such a house, you will need to take down these mirrors and put drywall.
Nobody wants mirrors in their living room anymore. Especially not some random mirror closet in their living room.
You should also check the size of the bedrooms. Are they big enough for today’s buyers? Buyers may be bringing in a queen or king size bed. Also do they have enough closet space? Buyers today have a lot more clothes than 50 years ago. So the home either needs to have good closet space or the potential to have big closets. (See “Bedrooms” for details).
Sometimes houses will have weird exterior elements that you don’t want to deal with. They could be expensive to remedy and not worth the hassle.
These pictures show large dead trees that need removing. These tree stumps can be very expensive to get rid of. You would need to break up the stump and possibly get rid of the roots.
These pictures show wheelchair ramps that are big eyesores. The first ramp is made of wood so it would be easier to get rid of, but still expensive since it is so long. The second ramp is made of concrete so it would be very expensive to demolish.
You may also have a wheel chair lift at the front entrance. This can be difficult to get rid of. Especially if it is mounted in concrete. In addition to being an eyesore, this may add thousands of dollars in repair costs.
This was a foreclosed house with 2 junked cars on the parking pad. Not sure whose they were. But again this is not a good sign for the neighborhood. Junked cars also signify “ghetto”. Not good when you’re trying to resell your flipped house.
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Repairs will be an important part of your purchase. As previously mentioned, this book will not cover the steps after buying the property. I only discuss the process before you submit an offer for a property. So now I will discuss estimating your repair costs so you can calculate what price to offer.
Once you have seen a property and it meets your other due diligence standards, you can get repair estimates. Repairs bids are best estimated after you’ve seen the property. It can be very difficult to estimate repairs off pictures since you likely cannot see every room. Repair bids will typically underestimate the costs and length of the project.
Ideally once you have seen a property and it looks promising, you should get your contractor to go with you. Then the contractor can give you an estimate on the repair costs. If you are a beginner you should get this before you even make an offer. Be sure to follow the rules on who is allowed to see the property and if they can go by themselves. Tell the contractors what your goal for the property is, and to what level they need to rehab it. And what quality finishes to use.
A good contractor can look through a property and immediately give you a rough estimate on repair costs. Most likely he will need to do detailed calculations later to get an exact quote. But every contractor should be intuitive enough to give you a range after a short walkthrough. “This is going to cost between $30-35k”.
NEVER BELIEVE CONTRACTOR ESTIMATES TO BE TOTALLY ACCURATE. In the end, they will almost always go over budget and take longer. So add about 10% to the quote for overages. Also add an extra week or two to the project length.
If you are a beginner, get multiple bids so you can get contractors to give competitive quotes. In the spirit of abundance, you should not try to cut your contractor down too much. Eventually you will cut their quote so much that they will either reduce the quality of their materials or the quality of guys they use. Either will end up hurting your finished product.
But don’t be scared to negotiate down the initial repair quotes. Especially if it a new contractor for you and they give their first quote. They may be testing to see if you are a sucker. So ask for a detailed breakdown and an itemized quote. Ask them “We understand you need to make money also, so what is the best price you can give us on this job?”.
As an alternative to a contractor bid, you can also do the repair estimates yourself. Perhaps you cannot get a contractor out there quick enough before you need to bid on a property. Once you look at enough houses with a contractor, you will have an intuition of how much repairs will cost. As with contractor bids, you need to account for overages in your repair quote.
If you are going to do the work yourself, check if this is OK with your financier. Hard money lenders may require a licensed contractor. Private money lenders likely won’t care. Either way if you choose to do it yourself, you need to treat this as a professional engagement. Do what a normal contractor would do. Have a scope of work with a detailed, itemized quote.
Doing the repairs yourself may not be the best use of your time. You may save on costs but your time does have value. So think about whether you want to spend several months working on this flip yourself, rather than hiring a general contractor to handle the project.
Another approach is to act as your own General Contractor. You would be the direct manager of the repair project. You can choose what jobs you want to do yourself and what jobs you will outsource to other sub-contractors. Again this does take significant time, but can save money. But be honest about what your limitations are. Some projects may be outside the Do-it-yourself sphere and required an EXPERT. Don’t be scared to hire outside help for certain specialized jobs (e.g. electrical, plumbing). Especially if it will save you time.
If you want to do multiple flips, it is better off to get a good GC and let them manage your projects. That way you can focus on starting other projects and reselling your houses. Remember that today’s time is something you will never get back.
Not only do you need to compare the cost of the repairs. You should analyze how much work is needed and how fast it can be done. Are the repairs extensive and structural? Or are they cosmetic? If you need to rebuild half the house, it may be better to skip that house and move to an easier project. As a beginner focus on easy and quicker flips.
Also the repairs may be too expensive compared to the potential profit of the project. The more expensive the repairs, the longer the project usually takes. So think about whether it is worth it to tie up your money for a long period of time. Time is money. See the next section for further discussion.
At this point the due diligence should be completed; both before and after viewing the property. This includes an estimated ARV (after repair value), repairs scope, and the repair quotes. Now you can determine what you can pay for the property.
Your key to success is calculating your maximum offer price. Maximum offer price is the most you can pay to acquire the property, fix it up, resell it, AND still earn your minimum profit goal. Your minimum profit goal is up to you. You should aim for at least $10,000 as a minimum standard. Better yet is $20-30k. If you can average $20-30k net profit for every flip, you are doing very well. Any profit over that amount is an even better deal.
Your minimum acceptable profit should factor in the expected time of the project. First you should account the repair time (add a few weeks for delays). Then account for the time it takes to market the property for resale. And finally estimate the time it takes to close the sale with your end buyer. It could be about 3 months from when you buy your property to when you resell it. I usually estimated 1 month to do repairs, 1 month to market the property and 1 month to close a buyer under contract (or close escrow).
Your minimum acceptable profit should determine how much money you want for your time and effort. Your time has value. If you spend 3 months working on this flip and you only make $5000, is that worth it? Probably not. Typically $20k is a great goal to start with. So I suggest $20,000 as a minimum acceptable profit for beginners.
Closing costs should be considered on both the buy and resale side. Closing costs include the fees related to having the transaction consumated. These include fees for title/escrow, attorneys, taxes, transfer duties, and deed recording. Basically the fees you can’t avoid when buying or selling a property. For the resale side, closing costs can be estimated at 10% of sales price. For buy side, it could be from 2-5%. Better to use 15% as a safe estimate of total closing costs for buying and reselling this property. Estimate high since this also accounts for miscellaneous expenses that will inevitably come up.
Max Offer Price = 200,000- 20,000-50,000- 20,000
Max Offer Price = 110,000
In the example above, $110,000 is the max offer price. So if you can get the property for less than that number, your profit would obviously increase. Your first offer should be less than your max offer whenever possible. Having a max offer makes you a stronger negotiator. You know exactly at what point the property will not be a good deal. It is up to you to stick with your max offer though. (Again the art of negotiating and acquiring property is for another author, not me).
Depending on where you get the properties from, you may be able to negotiate down the purchase price. If it is off market, you can usually negotiate. If it is with wholesalers, likely not. If it is a MLS property (perhaps foreclosure), there may be a lot of competition. The bank may have a lot of offers sent by real estate agents. In which case your max offer price may have to be your first offer. Remember to stay within your limits. But losing a property over a few thousand dollars will be regrettable especially if you are under your max offer price. Don’t be scared to go over asking price on an MLS listing if you still follow your Max Offer limit.
Again, don’t go over your Max Offer Price!
Once the offer price is determined, you can start acquiring the property and start the 2nd phase of flipping a house. This guide is not going in depth about negotiating your property purchases. This guide is focused only on identifying which properties you want to pursue.
If it is an MLS listing, you work through your real estate agent to make an offer. For off market properties, you can contact the seller or other representative of the property.
What I would suggest is to make a legitimate offer. Do not low ball unless you have a reason to. Figure out what profit margin you are satisfied with and make your offer based on that. The deal has to work from both sides; buyer and seller.
Once you have a property under contract, double check your due diligence. You should pull the FOIA request, examine negative factors, reexamine repair estimates, and check the ARV estimate.
This book explores how to evaluate and identify properties to flip. I did not delve into the process of actually flipping and repairing the house. There are other books out there that will provide this knowledge. But me being an real estate agent, I had direct access to many potential flip houses. Also I have seen hundreds of foreclosed houses. So I am qualified to discuss what you should look for in picking a house to flip.
There are several factors to consider in evaluating properties. Now it is up to you to keep these principles in mind as you scope out properties. Over time you can learn the specific demands of your market and where the best deals are.
For the creation of the book, I would thank all who have imparted investing knowledge upon me. One of those people is John Signorelli. He shared his wisdom from years of developing multi-family properties and his advice was invaluable.
I hope this guide has been helpful. I tried to point out some common pitfalls people make in choosing houses to flip. If you liked this book, please leave an Amazon Book review. I would love to hear all feedback (positive and negative) and your questions. I hope to update this guide periodically, so suggestions on new content are welcome. Feel free to email me, [email protected]
Real Estate Agent/Investor
In a previous section I mentioned several negative factors to watch for. As such you will come across properties that are not flippable. But do not necessarily give up on a property if it cannot work for a flip. These negative factors can still help you get a discount on these properties.
As seen above, a “Black Swan” house is very ugly and may be beyond saving for a flip. But “Black Swan” houses may have potential as a rental property. Renters are far less picky and care less about these negative factors. And since owner occupants and flippers do not want a “Black Swan” house. You can probably pick up the house for cheaper and with less competition. Buy it dirt cheap, rehab up to minimum rental standard, and then just rent it out. You can then do a refi immediately through a commercial lender. Or you wait 6 months to season it and then get your cash out. Then this “Black Swan” property will pay you cash flow monthly.
These “Black Swans” can make nice CASH FLOW properties. As a plus, you may be able to get these ugly properties qualified for Section 8 tenants. Section 8 Vouchers are part of the U.S. government subsidized rent program. The government pays rent at “market rates” for such properties. The tenants (voucher holders) pay what they can, the government subsidizes the rest of the rent. So you can potentially make a killing by getting properties in the hood and renting them via Section 8. Your cap rates will literally be off the charts. Again this type of real estate investment is not the focus of this book. If you are interested in this vein, please email me and I can point you towards more information.
FEMA floodplain map- US government search for flood plains. Not all counties are covered. But most populated areas are. http://fema.maps.arcgis.com/home/webmap/viewer.html?webmap=cbe088e7c8704464aa0fc34eb99e7f30
Redfin- Contains the most up to date residential real estate listings. Syncs with MLS databases every few minutes. Set up email alerts for new listings. https://www.redfin.com/
Google Maps- Best overall map site to view property listings. Can use map, earth, and street views. http://maps.Google.com
Trulia- Real estate listing website. Also has local information on schools, crime, and market trends in an easy to read format. From the home page, click “More”, then “Local Info”. Then you can select the local information you want and type your location. http://www.trulia.com/
Chicago REIA- A local investor organization I am a part of. Their presentations inspired some of the content in this book. http://www.chicagoreia.org/
I welcome any feedback for this book. I hope to make further changes to this text and release updated editions.
As mentioned in the conclusion, please leave an Amazon book review. The reviews will help my book gain credibility and exposure. Feel free to be honest in your reviews. All negative and positive feedback is greatly appreciated.
Please leave an Amazon Book Review
Thank you again,
The 100+ picture guide to flipping houses. Learn how to evaluate and identify properties for flipping. This book explores how to: •Perform due diligence and internet research •Research comparable sales (“Comps”) & calculate an ARV •Walk through a property intelligently •Identify good vs. bad conditions. Flag negative factors •Evaluate repair estimates •Calculate an offer price I have seen hundreds of houses and this is my accumulated knowledge as a result. And this knowledge could be applied to your local market so you can PICK YOUR FLIP. "To those hunting for fortune. You are bold and fortune favors the bold." Table of Contents (Overview) Introduction I. Finding Properties II. Due Diligence III. Property Viewing (Process) IV. Good vs. Bad Property Conditions V. Rehab Potential VI. Negative Factors VII. Repair Estimates VIII. Calculate Offer Price IX. Making An Offer Conclusion Addendum I: Sample Inspection List Addendum II: “Black Swan” Cashflow Properties Addendum III: Helpful Resources