This is my first time blogging, so I guess the first thing to do is tell you about my background. I’ve only been in real estate for approximately 1 year now. I made huge carrier change a while back (that’s another story) that led me to the real estate industry. When I first starting working, the first couple months were going very well. I was learning so much everyday. We were purchasing about 7-10 homes every month. All of the rehabbing was going so smoothly. Everything appeared to be going well on the outside. Later I learned that this was only on the surface. As more time passed I start to learn more about this company, things were not looking so good.
Now I do want to make clear, we are not doing anything illegal. I feel compelled to tell you my stories because this very small, family ran company is loosing sooooo much money and is falling apart, mainly due to greed. Well, only one person’s greed….my boss…my broker. Let’s call him Tony.
Mistake 1 Has anyone ever heard of a budget?
A house was purchased at one of the foreclosure auctions for $195,000, I know stupid…Half of it was burnt down. This house is in a very good neighborhood next to a gulf course and country club. It is approx 3000 sq ft. According to the comps the house fully fixed up can go for anywhere from $450k-550k. It really depends on what you choose to do to the home. Everyone was real excited about this house. The initial talk on the cost for rehab was $70k. The person handling this project is Tony’s son. Let’s call him Joe. Joe is not a general contractor. He has never handled a project of this size ever. Tony is compelled that his son is going to do a great job on the house. You can always hear Tony talking to himself saying this is an awesome learning experience for Joe. Well Joe goes straight to work. He gets about 5 day labors ( you can pick them up at home depot here in Austin) and starts to do a trash out. He caves in the roof that was burnt down. Everything is cleared out fairly quickly. Here’s where the problem starts.
Even though this is Joe’s project his dad cannot help but get in the way. He needs the house to be measured so the architect can start designing the house. Now remember I told you greed is the cause of everything. Tony is trying to figure out where he can save money. The first place is the measurements. Instead of hiring someone to do it right he decides to do it himself even though he does not have the time to do it. He finally makes it out to the house at 8pm with one other staff member ( he just started working with us the week before.) The continue to work in pitch dark for a few hours getting all the measurements. The next day they were submitted to the designer and the plans were drafted and the house was supposed to be a 4200 sq ft home. Construction started. It wasn’t until the framing was almost done that Joe figured out there were problems with the design…All the measurements were wrong!!! This naturally stalls the project. Mind you, Tony paid $2000 dollars to have the plans drafted. With all of the arguments that were going on it took about 1 week to get this resolved and an extra $1000 to have the place re measured and drawn back up. Oh yeah the house is now only 3600 sq ft. (There are so many other mistakes that are going on at this project, I’m trying very hard to only focus on issues that have to do with a budget. In my future posts you will hear about all the other mistakes.)
The house is still is process of being built. Construction started about 6 months ago and we are only at the insulation stage. We were supposed to be done 3 months ago. We are waiting to hear if we are going to pass our inspection. To date their is no budget. Remember I said the original number for the project was $70k. I just talked to him yesterday and he said it’s going to cost a solid $200k!!!!! Do I need to say it again? It went from $70k to $200 thousanddollars in repairs. He spent $50,000 on the framing alone. Are you kidding me?! There isn’t even any freakin’ dry wall up yet. And he still doesn’t even know the real number, that’s him guessing. Joe pretty much over ordered everything and has no intentions on trying to return any items. As a matter of fact, most of those items have been left outside in the backyard and are now destroyed from the weather. The roof had to be put up two different times b/c the first time it was put on backwards. All of the solid wood doors have water damage on them b/c they were left outside in a storm ( he still plans on using them). They are soo many issues they are hard to name. BUT, to me the biggest thing issue of them all…there are only workers at the house for 3 maybe 4 days week. Joe is so busy with other projects he pulls the contractors off to work on his personal rental properties. Do you see the problem with that scenario? We are loosing money every day.
Joe now has to cut back on the high end items to make sure he hits that $200k budget. Instead of real wood floors he is putting in engineered wood floors, he is planning on leaving real wood floor samples when the house is done thinking no one will notice. Now he is putting in imitation granite in the kitchen possibly granite tiles. No more energy efficient windows. Now he has the cheapest vinyl windows from home depot. The list goes on and on. Oh yeah I never mentioned that this house was purchased on behalf of one of our investors. Tony also borrowed $100,000 from another investor at 10 points as a construction loan. Now if you were the original investor would you be pissed off? With the cost of repairs shooting up so high we just lost all of the profit. $100,000 in planned profit. Tony is still convinced Joe does not need to make a budget and I haven’t the slightest idea why. We are going to be forced to sell this house for about $550k so we can break even. WOW is all I can say. Freakin’ WOW. Has anyone tried selling a house over half a million in today’s market? My hope is you can learn from these mistakes. I know I am. Until next time….
