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TAREK: Flipping houses is a risky business.
CHRISTINA: Aah!
I'm Tarek, and this is my wife, Christina.
We're real-estate agents.
Ever since the market crashed, it's been a rocky road.
With a family to support, we're starting a new business,
and we're flipping foreclosures,
short sales, and bank-owned properties.
We pay for these houses in cash, sometimes sight unseen.
Sold to this gentleman right here.
Some of these houses are easy fixes...
That's not bad. It's just cosmetic -- paint, flooring.
...but others are total teardowns.
Look. The entire floor is bowing.
It's down there, down here, up there.
And you never know what you've got
until you walk through that door.
God, this thing's hideous.
-- Captions by VITAC --
Closed Captions provided by Scripps Networks, LLC.
CHRISTINA: So, how'd you find out about this house?
This one's a bank-owned listing.
It's an REO property, went to auction, didn't sell.
"REO" stands for "real estate owned,"
which is a foreclosure that didn't sell at auction,
and ownership goes back to the bank.
Our new strategy is to keep track of these properties
and *** them up at a discount
when the banks put them back on the market.
Here's the deal -- it's a hot lead.
We got to make a decision quick.
They're asking $187,900.
It's only 736 square feet.
It said it does have a studio in the back.
So that's the only reason that I'm even considering it.
Well, how do you know this little bungalow in the back
isn't part of the 736 square-footage?
Because that's impossible.
It just -- A house can't be that small.
Something about this listing isn't adding up.
I think they forgot to list
the livable square-footage in the studio.
If that's true,
this place is way undervalued and a good investment.
The neighborhood's really cute, actually.
Where?
Hopefully this house isn't too bad.
Well...
Oh, God. What the heck? [ Laughs ]
Well, that's a good start.
Cross your fingers.
Oh, no.
Look. The entire floor is bowing.
It's down here, down there, up here.
So, this is a bedroom? It's a sad little bedroom.
Look at the kitchen. Geez.
This is the tiniest little kitchen.
We could make it nice, though.
Yeah. You have to completely tear out everything.
Okay, let's imagine this now, right?
Imagine there was all new cabinets,
all new counters, a nice stove.
So, this is bedroom number two?
Well, I guess this is the master suite.
Huge bathroom -- major selling point.
We should definitely make the bathroom nice
because it's, like, one of the best features of the house.
So, we bling out the bathroom.
Yeah, for sure.
I'll tell you what --
the guest house better look like the Ritz.
Oh, man. Is this our fence?
[ Scoffs ]
Oh.
Oh. Is this your studio?
Oh, this is awesome.
Oh, wow. There's another bathroom?
This is a huge --
This is nicer than the other house.
I know. It's really weird.
So, the house is 736 square feet.
If this is 400 square feet, that's like 1,136.
Yeah, that's a huge difference.
So, this is the biggest selling feature of the property,
and it's not even marketed in the square footage.
The banks have so many foreclosed properties,
it's hard for them to keep track of all the details.
I need to find out if the studio's permitted.
[ Telephone rings ]
ADAM: Hello?
Hey. What's up?
Hey. You know that house we're looking at in Whittier?
Yeah.
Really important -- I need you to call the city
and find out if the guesthouse in the back is permitted, okay?
I need you to call, like, right away and call me back.
I'm on it. Call you right back.
Bye.
While Adam's checking on permits,
we're gonna drive the neighborhood
to see what's on the market.
TAREK: Here it is.
This one is listed at $250,000.
780 square feet.
Guest house?
Does not mention a guest house.
Okay. Next one.
Here's the house right here. It's definitely not a flip.
This isn't a flip.
The list price on this is $264,000 --
two bedrooms, one bath.
It's 864 square feet.
So, I mean, it's bigger.
All right. What else do we got?
So, this one's 1,119 square feet.
It's huge.
It's a two bedroom, two bath, listed at $290,000.
[ Dog barking ]
How does it look?
It's really nice inside, big and open floor plan.
I think this might be a good buy.
I mean, it could be an awesome buy
if the guest house is permitted.
Adam.
ADAM: Good news, man -- it's permitted.
No way.
Dude, that's awesome. Yes.
All right, great news, man.
I'll give you a call a little later.
All right, cool.
I think if we can get it for $185,000 or less,
we're gonna be in a great shape,
and I think we need to put in an offer right away.
[ Telephone rings ]
COREY: Hi. This is Corey.
Hey, Corey. Tarek. How you doing?
I'm doing good. How can I help you?
I'm at this property in Whittier you sent me to.
Here's what I want to do.
I want to write an offer at $182,000, all cash.
I'll make a phone call and see what I can do for you.
All right, that's fine. Just let me know.
All right, thanks.
TAREK: Three days later,
the bank accepted our offer of $182,000, all cash.
So, we've entered a quick 15-day escrow.
But before we close, we have to do our due diligence.
So, I'm having my contractor, Dan, inspect the place
to make sure we know what we're getting into.
I need you to go through this place
with a fine-toothed comb -- everything.
We cannot miss anything.
Okay.
So, here it is.
It's like a little Cracker Jack box.
And check this out.
All the floors in the entire house are, like, all warping.
Well, it looks like we got a subfloor issue, dude.
We're gonna have to go under the house,
jack it up, put some new piers and posts.
TAREK: Okay.
This kitchen is so dinky.
I don't even know where things go.
You know what would be cool?
If we could actually open this wall
and make this a little bit bigger.
If we open this up, it's big and open.
86 the doorway 'cause you have a walkway over there
and do wrap-around cabinets.
MESSINA: Open this up and have this go around this way.
Exactly, like big, open kitchen.
I think it would look good.
Good plan.
TAREK: The bathroom is actually pretty darn big.
It's nice.
So, I want to do it really nice in here.
Tile up the bathtub. Tile up the floors.
Here I want to do a double vanity. Would that work?
Yeah, we can do a double vanity.
But you got to realize that we're gonna have a small mirror
'cause we have a window here.
That's fine. We can put the mirror right here.
We can put a sink right here.
Look at this.
That's the outside of the house. You got to be kidding me.
Dude, that's disgusting.
Dude, little mousey hole. [ Chuckles ]
This hole is because the 1920s siding is falling apart.
This is really scaring the crap out of me.
MESSINA: Dude, there's some minor woodwork,
but this is just a bad paint job.
I'm pretty sure it's lead paint.
I'll look into the cost
to see what it's gonna take to deal with it.
So, this is just paint? It's not as expensive as it looks?
I've dealt with a lead issue
on another one of our properties.
We were able to encapsulate the lead
just by painting over it.
And that only cost about two grand,
which is totally doable.
What are we doing about this fence, man?
Because it's falling over.
Okay. We'll replace it.
Here's the shed, and it's a bit of an eyesore.
I haven't decided what we're gonna do with it yet.
All right, so, let's look at this back house.
So, this right here is the reason we bought the house.
It would probably bring $600 a month in income.
Remodel in here, a nice little kitchenette,
nice bathroom and shower.
This is what's gonna sell this house right here.
MESSINA: What kind of flooring you want to put down?
Probably laminate here, tile here, cabinets, counters.
Same cabinets as we put in the front, in the back,
Yeah, same as the front.
Okay.
I'll put the numbers down, I'll get the bid over to you,
and we'll see where we're at.
Dan's bid came in at $30,000,
so we went ahead and closed escrow.
Demo starts today.
This all comes out. This whole thing comes out.
If we stick to our 30-day schedule and our $30,000 budget,
we'll be $212,000 into this house.
And with neighborhood comps around $230,000,
I think we should be able
to make some good money on this flip.
Dan, what's up?
Well, bro, we got a problem.
Okay. Well, it's always bad news. What's up now?
We got a lead issue. City just called us on it.
You know, there are two ways
to deal with a lead-based paint --
remove it or encapsulate it.
Unfortunately, we can't encapsulate all of the paint
because it's peeling off.
All right. So we'll remove it.
Well, we got to remove it,
but we got to remove it according to EPA standards.
Everything that we produce is hazardous waste.
It's got to be transported
by a hazardous-waste transportation company,
disposed in a correct site.
How much?
$12,000.
$12,000 to scrape a little bit of paint?
That seems really, really high, man.
It's not gonna pan out. It's not gonna work.
What else can we do?
Unfortunately, it has to be done.
There's nothing we can do to get around it.
This whole thing with the lead-based paint --
it's so beyond what I thought it would be,
I'm just shocked right now.
So, there's no other way to make it safe
without spending $12,000?
There is no other way to make it safe.
If we don't do it, we can be fined.
Okay. I got to talk to Christina.
That's terrible news.
I mean, that's probably
the worse news we've had on all of our jobs.
That's the biggest expense that we've been hit with ever.
TAREK: We're flipping a 736-square-foot bungalow
with a backyard studio that we bought for $182,000.
We were expecting $30,000 in rehab costs,
but then we found out we had to
abate the peeling lead paint on the house,
according to EPA standards, which set us back $12,000.
MAN: You're getting dressed over here.
MESSINA: Lead paint is toxic, and it is regulated by the EPA.
It's a labor-intensive process and expensive to remove.
There are two ways to deal with a lead-based paint --
remove it or encapsulate it.
Unfortunately, we can't encapsulate all of the paint
because it's peeling off.
So, we got to scrape the excess off.
It's got to be transported
by an EPA-regulated transportation company
into a hazardous-waste dump.
There's no way around it.
TAREK: Now that's all behind us, we're finally moving ahead.
We're getting rid of all the plaster in the kitchen
and jacking up the house with a standard car jack
to level out the floors.
This whole part of the house here
has been raised up an inch and a quarter.
We poured concrete pads, lifted up the house,
and set the house back down and make it level.
We're good.
We talked about opening this wall...
Yeah.
...and making it a big kitchen.
Opening up the kitchen wall
is part of the overall strategy here,
making the space feel bigger than it is.
It's gonna be key to selling this flip.
So everywhere we can do that, we will.
Can we actually bring this whole thing up to the ceiling?
That would be way better.
That would make everything seem so much larger.
Okay.
What would it cost to do that?
You know, with demo and finishing it off,
a couple hundred bucks.
With the budget already up $12,000,
it's painful to approve any more overages here.
But I really think opening up this hallway is worth it.
Outside, I also have some decisions.
Demo-ing the shed and its foundation
is gonna cost $1,000.
So, we're thinking about keeping it as a screened-in patio.
You see how we got here?
We take the wood back down,
it's actually framed in for screens.
What is that gonna cost?
Screens is minimal, dude.
It's a couple, 300 bucks to get it done.
Here's the huge one. This is the big one.
What are we doing about this fence, man?
Since this fence is shared with our neighbors,
we have to get everybody to sign off before we can change it.
However, there are two neighbors I haven't been able to contact.
If we can't get their approval soon,
we might have to leave it as-is.
If not, if we make the house nice --
The fence is not an option.
There's no way we can keep this fence.
It's not even a fence.
It's just, like, wood thrown against a wall.
Listen, if we make the house nice enough,
people aren't gonna be bothered by the fence.
We have to fix this.
Well, right now --
Let's pull the whole thing up.
I tried to crank it yesterday.
We were working on the plumbing on the interior.
We came up with a plumbing leak at the main line.
So, how we looking here?
We got a little leak on our side here.
The meter's not shutting down all the way.
So we're just gonna pull the meter
and let you guys re-run your line here,
put a new copper pipe in.
All right, perfect.
You know, this is typical with any old home,
especially when you're dealing with galvanized pipes.
You know, with copper systems,
you don't have this kind of problem.
Galvanized pipes --
over time, in the ground they just deteriorate.
MESSINA: More issues.
We got a main-line break.
The pipes are corroded because they're galvanized.
So, we're gonna have to replace it from this point,
all the way back to the meter.
So, what we're gonna do is we'll dig here.
We'll take this concrete out to here.
We'll take the sidewalk out here
and run a new line into the new meter.
You know, I know this is not good news for Tarek right now,
but it's something that has to be repaired.
We just can't Band-Aid this one together.
TAREK: How much is this gonna cost?
I don't have a ballpark until we get into it to see how much --
I got to go rent equipment.
The city wants us to pull permits.
I even got to pull permit to break open the sidewalk.
Huh.
Once again, the budget is out the window.
Right now, with all the costs going up,
all the profits going down,
I wish I never even bought this house.
This is great news, by the way.
TAREK: We're mid-flip on a 736-square-foot bungalow
with a backyard studio that we bought for $182,000.
Our original plan to rehab for $30,000 in 30 days
is totally falling apart.
With $12,000 to dispose of lead paint,
$2,000 for a busted water main, and lots of little tweaks,
we're nearing $15,000 over budget.
We're also 20 days in
and nowhere near our 30-day goal of being finished.
But there's no going back now.
We're moving ahead
and retro-fitting the kitchen with new copper pipe,
insulating and installing a new level subfloor,
and drywalling in preparation for new cabinets.
Well, at least they finally fixed the water main right here.
They had to rip out all the concrete,
hook up all the piping.
Two grand.
At this point in the project,
I couldn't imagine anything else coming up this big,
so I'm hoping right now
we can move forward and just finish the job.
We already added 50% to our initial budget.
We just need to get in and out of this thing fast
and make really good design choices.
I know the kitchen's a big one.
You want to start there or the bathrooms?
Kitchens.
Because this is a small space and not much light,
I think we should not do the dark flooring
that we usually do and do something lighter.
Then do lighter or darker wood in the entryway?
Light wood here.
Just make it feel light, bright, and open,
as opposed to dark and closed off.
All right, the bathroom.
This looks awesome. It's gonna be a huge shower.
We're doing a nice mosaic-tile inlay.
My thought is, if we completely got rid of this window,
right -- so it's a flat wall --
we can put a bigger vanity, a bigger mirror.
I see what you're saying.
I'd prefer to have a bigger mirror,
but, I mean, some people might prefer to have the window.
I mean, are you even allowed to not have a window?
Yeah, as long as there's ventilation.
It's right there.
But I think that's the way to go.
Yeah.
I mean, it would make it feel bigger, actually.
Oh, it'll feel huge.
I know we're taking a risk by removing the window,
but it will make the bathroom feel bigger,
just as we've done in the kitchen and the hallway,
and that's really gonna appeal to buyers.
CHRISTINA: Hopefully we'll find some nice flooring.
We just bought this cute bungalow,
and we're looking for some flooring.
Okay. Well, let's take a look out back
at all of our flooring material.
TAREK: Awesome.
So, this tile is the limestone.
You'll notice it's a lighter color in the background
and then that it has
a lot of different spotted patterns and things.
What does it run? What's the cost on it?
The cost on this one is $5.50 a square foot.
Yeah, not my favorite. What do you think?
CHRISTINA: Yeah, probably should see some more options.
The next one we can look at is the marble.
How much does this run?
This one is $6.50 a square foot.
I don't like it. I think it's too shiny,
and the colors are not really consistent with each other.
For me, this reminds me
of houses 10 years ago, really dowdy.
Yeah, it looks kind of outdated.
Yeah. I'm just not really loving that one, either.
Okay. So, let's take a look at the travertine.
You'll notice the color is a little bit softer,
a little more neutral.
Yeah, it's really pretty.
This one's definitely my favorite so far.
The best part about this -- this one is $4.50.
Oh, wow.
This is the least of the ones that we've been looking at.
So, now we're looking at about $1,300 of material.
If we did our standard ceramic-tile floors
in this house, we could do it for around $300.
But because we think
the finishes will help sell this place,
we think it's worth the extra cost for the travertine.
CHRISTINA: $1,300? That's not too bad.
I mean, it looks really nice.
I think it'll look really good in that space.
Cool.
Now that the lead-based paint has been taken care of,
we can paint the house.
We're also tiling the kitchen and bathroom with travertine,
as well as the bathroom and the kitchenette
in the guest house.
CHRISTINA: The house looks so pretty.
Paint came out awesome.
I like this color for the neighborhood,
kind of like a tint of purple, but...
Yeah, it's weird. It's like a gray-purple.
It's really pretty.
It looks nice.
Window's gone.
Oh, wow. What a difference.
I already see two things -- a positive and a negative.
It feels bigger, but it's darker.
Way darker.
We knew this was a risk to remove the window.
I just hope the extra space pays off.
Now that the kitchen is tiled, we can install the cabinets.
It's all oiled up.
We finally got permission from the neighbors
to replace the fence.
We're also installing the floors
and the granite countertops in the kitchen.
Looks nice, right? They match perfect.
Actually, everything came out perfect.
I'm very happy.
Hey, your fence is up. It's not falling over.
Yeah, the fence looks nice. And what is this thing?
It's a screened-in patio.
We're gonna paint it and put in screens.
We need to get rid of this. Such an eyesore.
I think it's gonna honestly hurt our profit.
It's so ugly.
It's not just about taking it down.
It's about, "What are we gonna put there?"
It's gonna be $1,000 to take it down.
I don't know how much it's gonna be to repair the concrete.
Well, that's why we have the stager coming over.
Maybe we can have her work something out
where we stage it like a patio, put some nice furniture.
Christina has a point.
The cost of demo-ing the shed will be worth it
to have a nice-looking patio
and will most likely raise the house's selling price.
It needs to come down.
All right, we'll take it down.
We're almost two weeks
and $20,000 over the initial budget.
With closing costs, our break-even is $255,000,
which means we really need to list around $300,000.
So, we're checking out the most recent comps we can find.
All right, I mean, similar comps --
$264,000, $260,000, $265,000.
Break-even's at $255,000, based on these comps.
These numbers make me really nervous.
There's nothing to support $299,000 here.
TAREK: We're sweating it at the end of this bungalow flip.
Our rehab budget got ruined early on
with the huge lead-paint-abatement costs.
And now we're adding $1,000 to rip down a shed
that was ultimately just an eyesore.
We're also two weeks over
our 30-day goal to flip this property,
and now that it looks like some of the comps are dropping,
we're scared of our asking price.
So, in order to really hit that upper end,
we're irrigating and laying sod --
instead of doing bark -- and getting the house staged.
We have to sell at $299,000 to make this work.
What do you think?
Someone's gonna come in and say, "Wow, it's under-priced.
It's beautiful. It's huge. I want it."
MACIAS: Nice neighborhood.
GREENE: It looks like a cute house.
Mm-hmm.
There's also a 300-square-foot guest house in the back,
behind the garage.
375.
With a full kitchenette -- so, perfect rental.
Wow, looks really nice.
Yeah, it's staged very nicely.
Let's check out the bedroom here.
This is really small.
I think the windows are the original.
New carpet.
So, that'll help the buyer quite a bit.
Nice.
TAREK:It's granite, yeah.
GREENE: The kitchen is beautiful. Ooh.
You got all new appliances. Stainless-steel sink.
This is, like, a perfect chef kitchen.
Yes.
We also added some travertine floor.
Very nice.
TAREK: Yeah. So, it's real stone.
It's not ceramic. It's a nice soft stone.
WOMAN: Okay, now, look at this bathroom.
The bathroom's great. It's huge.
WOMAN #2: Oh, very spacious. Yeah.
Like, this almost makes up for the room space.
I like this little hallway.
Oh, this is adorable.
This is really, really nice.
So, you've got a two-car garage.
You've got a driveway.
I like the two sinks very much.
CHRISTINA: Yes. Me too.
Oh, this is nice.
Really nice.
They even got your kitchen area.
This is good rental income, definitely.
And it's very nice, and it's permitted.
We don't have to worry about that.
I like that it's open.
It feels roomier because it's open.
There's nothing you need to do.
You could literally just bring your toothbrush
and move right into this bathroom.
Ooh. I like this.
[ Chuckles ]
You guys live in the front. I'll live back here.
You're in the back. There you go.
All right. Thank you.
Have a good day.
Do you ladies happen to have any buyers for this house?
I don't have anyone at this time, but we might.
$299,000. Yeah.
For $299,000, I think it's a pretty good deal.
Yeah, it's worth it.
I think we did the right thing
by listing this place at $299,000.
Even though it's in the top range
for the total square-footage,
the possibilities for a great rental income out back
separate it from other properties
and make it worth way more.
My instincts about this place were right.
After a week on the market, we received 12 offers.
And the place sold for over asking, at $320,000.
After closing costs and construction costs,
that leaves us with a profit of $66,200.