We are almost ready to close on the sale of The H2O House (still working on pics!), and I’ve finally received most of the final invoices and receipts from my GC for this rehab (see final numbers broken-down below)…
We were about 7% over budget on this one (about $2500), with $500 of that being a bonus for my GC — who’s been working hard for us — and the other $2000 pretty much attributable directly to the fact that we needed to replace the AC condenser and coil, though I hadn’t budgeted for it (wishful thinking on my part). I hate being over budget on any project, but this one was my fault for not determining much sooner that the condenser would need to be replaced, and had I accounted for that, we likely could have trimmed in other places or just raised our budget estimate.
Here is a detailed comparison of the estimated and final budget numbers:
We’re still waiting for final plumbing numbers (the estimate is still the placeholder) and there may be a few little punch list items in the next couple days, but this should be pretty close to accurate for our final budget.
hey j, do you use this same spreadsheet for all your flips? if so, is it available any where on this site? valuable tool.
Hey Cliff,
Are you talking about the rehab budget spreadsheet? I build a new one for each rehab, though I’ll sometimes cut and paste if I have a project that’s similar to a previous project.
If there is a particular spreadsheet example you want a copy of, just shoot me an email (feedback@123flip.com) and I’m happy to send it to you.
I’d be interested to read how your remediating the mold. I know you’re getting efficient at it by now.
Did you have any rough electrical work or was it just hanging new fixtures on the existing wiring?
Hey Mark,
Mold is still something we can’t really estimate ourselves, and because there are so many different ways to remediate (and different very qualified companies will often make very different recommendations), so we’ll just get multiple recommendations/bids, and go with whatever seems most reasonable for that property. For this one, our mold guy recommended pulling out all the sheetrock, putting in dehumidifiers for about a week and then fogging for several days. Because the mold hadn’t gotten to the studs, it wasn’t necessary to encapsulate the wood or anything (like we’re doing on The Rookie House). As for rough electrical, everything was in good shape (the house is only 12 years old), so it was just finish work for the electrical.
Have you ever done an analysis on your line by line variances of actuals versus budget? I’d be curious if that variance continues to decrease as you get more experienced which would give you more confidence in your budgeting and bidding.
I was just surprised by the variances on some things like the sheet rock, painting, and cabinets. Your actuals were 20 – 30% higher than your budget. Was that more design choice or misbid?
Hey Nathan,
We’ve actually gotten really good about estimating costs for all the cosmetic stuff, to the point where we’re generally within 2-3% on our original budgets (in fact, we were on-budget for about a dozen straight projects, and then the last three all ran into unforeseen surprises that pushed us over). The big overages in this house were caused by the following:
– The mold was much more extensive than we had originally expected, and we went from pulling out about 30% of the sheetrock in the house to about 60% of the sheetrock in the house. We had to really negotiate down the sheetrock costs to keep from going much more over budget on this one;
– The extra painting costs were directly related to the extra sheetrock work. It costs more to paint new sheetrock than to repaint, as you need a first layer of primer before a finish coat can go on.
– The extra cabinet costs were due to a late decision to replace all the bathroom vanities in the house, instead of just replacing one of the three bathrooms, which was our original choice.
Had it not been for the extra sheetrock work and the late cabinet decision, we would have been pretty close on the overall budget. In fact, we were able to make up those overages in other places, though the one big item that threw us over budget was having to replace the AC unit, which was a complete miss on my part (I should have realized it at the beginning and budgeted for it but I didn’t).
That makes sense… in my line of work we’d actually open up separate line items for those things that were clearly extra scope to segregate costs that were popups versus original baseline. The goal is to stick to the budgets for the baseline work and have allocated enough Management Reserve based on a risk assessment beforehand to cover the in-scope but unplanned work.
I am curious though, it seems you have the ability to cut corners in other areas to make up for your over-runs, seems to be your plan going in. May I ask why you don’t originally plan to cut those corners to minimize costs and maximize profits? I get the impression at times you may spend up to a budget (hey honey, we didn’t have to paint that other room so we can use a custom paint color)… just curious as to why?
Hey Nathan,
That’s a great question…and my wife asks me the same thing… 🙂
To be honest, the big reason is that I hate for houses to sit on the market for more than a week, and I know that by doing a little extra, we can generally cut down on DOM. So, I generally plan to use a bit upgraded carpet and pad, maybe an accent wall, maybe 42″ cabinets instead of 30″ cabinets, etc — as I know these things will generally improve the appeal of the house. That said, I don’t believe any of these things are absolutely necessary, so if we start to overrun the budget, I’ll downgrade a bit.
I realize that this probably isn’t the right tactic (if I’m willing to downgrade, I should just do it), but psychologically I find it the more appealing route. I’m probably throwing away some money here and there, as you and my wife point out… 🙁
Buyers are pretty sophisticated and while they may not be able to articulate that the reason they love your home is the 42″ cabinets, the deep kitchen sink, and the smooth finish ceilings, they know quality when they see it and they’re willing to pay top dollar.
Mark –
That’s very true, though often they’re offering more than the house is appraising for, so top dollar isn’t really helping us! 🙂
This is actually a fine line we try to walk between doing a remodel that we are very proud of and one that will fetch us the most profit. Obviously, we’d never do anything that wasn’t good for the buyer, but there are some upgrades (like the 42″ cabinets) that sometimes just don’t make sense when we know the appraisal will come in low. I still like to do those upgrades, but my wife is more pragmatic and would rather save the money.
These types of decisions always provide some interesting discussion on each rehab…and normally I get the final say (because I’m telling the contractors what to do), so often we’ll go a bit more upgraded than other on my team would suggest.
Those are good points. Even though we may only get appraised value regardless of how we finish it out, doing it right so that it sells in one week nets more money due to the time value of money and holding costs.
I have to control myself in not putting in the “nicer” cabinets or the “nicer” floors etc. Because even though I got this obsession with the house being “perfect” and making it the best possible the reality is that there are things that we will notice but many buyers won’t.
IMHO very few people will notice that the cabinets are 30″ instead of 42″ or that the floors are solid hardwood vs. bamboo, yet there is a significant difference in price between those two examples. It is also a fine line between what is good enough vs where you will not get your money back. Experience helps with this but I am still figuring this stuff out.
I had a property where I was very worried about whether to replace the roof or not. The roof still had plenty of life left on it but it looked worn and faded. I debated it a lot whether to do it or not but in the end neither the buyer nor his inspector even brought it up and we got the house under contract on the first week of listing it, so that was $3k I saved myself there.
Hey J,
You talked about mold remediation in a comment above. This may be a stupid question with an obvious answer but when you pulled the sheetrock and dehumidified and fogged the house for a few weeks, was the rest of rehab at pretty much a stand still?
Im looking to tackle my first mold rehab and Im still doing research on the mold remediation process.
Thanks!
Glenn
Hey Glenn,
Mold remediation can take anywhere from a day to a few weeks, depending on what needs to be done and the condition of the property. But yes, in general, the project (at least the interior) will come to a standstill while mold remediation is being completed. We will sometimes move forward with exterior work during this time, but since the exterior generally takes a lot less time than the interior, it really doesn’t impact our schedule either way whether we move forward with exterior work or not.