Over the past 15 years, Scott Friedmann has bought more than 30 homes with flooded basements and broken windows. Some have mold and asbestos hazards. Others are just frayed around the edges.
As a professional house flipper, Friedmann gives new life to neglected homes. The money is good—but, Friedmann warns, flipping is not as easy as it looks.
Friedmann started flipping as an investor, working with a developer in Charleston, South Carolina. “We did two or three a year for 10 years,” says Friedmann. “We were 24 for 25 making money.”
A fastidious student, Friedmann traveled to Charleston several times a year, studying his partner’s every move while also reading books. In time, Scott earned his real estate and contractor’s licenses. “It took 10 to 12 years of doing projects as an investor, learning the business, before I started it on my own,” he says.
Five years ago, he flipped his first project in New Jersey, a fixer-upper in Maplewood. Eventually, he was making a better living flipping than he was as a management consultant. He quit his corporate job and created a new business, the Home Revivalists, with his wife, Marisa, an interior designer.
In addition to flipping houses, Friedmann teaches others as part of his business. “My students follow me around my houses and focus on the nitty gritty,” he says. (For more information on his classes, visit his website.)
Friedmann shares these tips on flipping with New Jersey Monthly:
Know Your Market
Friedmann insists it’s essential to be familiar with your market area; in his case, he only buys in Maplewood, South Orange, West Orange, Millburn, Chatham and Madison. “I know this market inside and out,” he says. (In fact, the one project in Charleston that didn’t work out was located in a neighborhood that he and his partner weren’t fully knowledgeable about. “We did a lot of work, and then it sat on the market,” he says. They sold at a $4,000 loss.)
To maximize his knowledge, Friedmann spent several years attending open houses in and around Maplewood every Sunday. “You get a sense of the different neighborhoods and what’s a good deal,” he says, adding that it’s best to see at least 100 homes in an area to truly understand that market.
On the other hand, Friedmann warns against jumping on the urban-renewal bandwagon in places like Jersey City and Camden. “I wouldn’t invest in an area where I don’t know if that area is trending upward or downward, what the street’s like, whether the place is right for a family or for a single guy,” he says.
Friedmann uses several methods to find properties for flipping. Most often, he works with a broker, finding homes through banks, auctions—live and online— and foreclosures. Sheriff’s sales of foreclosed homes are generally listed on the county website six months in advance. “If I see one that I’m interested in, I’ll drive by it and walk around it,” says Friedmann. “You can’t go inside to inspect them, so I’ll put a flashlight in the windows.” Friedmann also frequents websites such as auction.com. He checks daily to discover new inventory. Online auctions are run much like eBay, with a five-day bidding window. Live auctions take place in the county courthouse, often once a week. Friedmann also has developed connections with real estate agents who help him find homes.
To fund his initial flips, Friedmann took out mortgages, but that’s not ideal. “It costs money and it’s a slow process,” he says. He gradually established credit lines with a few banks. This gives him access to cash and makes him a more favorable buyer. “It puts me toward the front of the line, since I can close tomorrow.”
Ultimately, buying low is key. “You do this to make money,” says Friedmann. “Everything begins and ends with the numbers.” His goal: “I look to make $100,000 at the end of the day.”
Plan the Renovation
Once an offer is accepted, the standard is 15 days to inspect the property, but it usually only takes Friedmann a day or so to know his plans for a property. He walks through the home before closing, looking closely for issues and running numbers in his head. Asbestos removal is generally between $3,000 and $5,000, he says. A flooded basement costs about $3,000 to remediate and repair. New windows? “It costs about $400 per window,” he says. “The house I’m doing now has 30 windows. That’s 12,000 bucks.”
A renovation budget should be realistic. “People say plan for 20 percent over, but it’s really more like 25 percent,” says Friedmann, who usually adds another $10,000 to his budget for overages. “These homes tend to be neglected and have problems. You have to be prepared for the unexpected.”
Upgrading the home’s plumbing, electric and HVAC are only done if they are not working properly. He suggests putting money into areas of the home that potential buyers can see like custom lighting, flooring and kitchen countertops.
Knob-and-tube wiring, common in houses built before 1930, can be an unexpected problem. “It’s a fire hazard and has to be removed,” he warns. Friedmann says there are two quick indicators to determine if a house has knob-and-tube: electrical outlets on the baseboards and old-fashioned, push-button light switches. “Replacing knob-and-tube throughout the whole house will probably cost up to 10 grand.”
Friedman suggests splurging on the kitchen; “The kitchen is number one,” he says. While he doesn’t necessarily spring for custom cabinetry and granite countertops, he upgrades with new materials and appliances. He’s also a fan of a master suite. “A new kitchen and master suite adds obvious value to a home,” he says. “Renovating bathrooms is just as important [as kitchens].”
Friedmann prefers not to sink too much into landscaping, typically budgeting only $3,000-$5,000 for exterior upgrades. “It’s not where the value is,” he says.
Make the Sale
It’s important to sell at the right time. “Summer is the worst time,” says Friedmann. “List before Memorial Day or after Labor Day.” In most cases, Marisa stages the home prior to an open house. “It’s minimal, but I’ll do a few things—linens, stools and pillows, for instance,” says Marisa. (Some of her favorite items are sold on the Home Revivalists website.)