The Balcones project was a big one for us. We took this 1950’s ranch house down to the studs for a complete interior remodel. And that’s probably where we should have stopped.
Instead we decided to add on a 2nd story addition. And that’s pretty much where this one got away from us. We’ll get in to all the nitty gritty heartache below but suffice to say this house took us to school. We’ve since licked our wounds and moved on BUT we cary the lessons the Balcones project taught us into every flip we do.
So let’s start from the beginning shall we. When we first met the Balcones house is was a 2,298 square foot 3/2 located in a popular area of Austin just Northwest of downtown. Built in 1955, the interior was original save for a really bad master addition added on at some point in the 1980’s. We purchased it in November of 2015 for $530,000.
The house was located on a busy street and near a particularly busy intersection but two properties close by had recently sold for top dollar so we weren't worried.
The layout was rough. It had a kitchen completely closed off from the rest of the house, a living room that was awkwardly far away from the other living spaces. It did not have a powder room so guests had to share a bathroom with the spare bedrooms.
The master suite addition also needed help. It’s 1980’s vibe didn’t jive with the rest of the home’s 1950’s interior finishes. The Master had a large en-suite bathroom but it lacked privacy in ahem important areas. It did however have a pink bidet.
To address some of this property’s short-comings we took this house down to the studs. We closed off the main living room to create an office/den. Then we completely gutted the rest of the living area to create one large open space for living, dining and kitchen. We added modern finishes to the kitchen as well as a big prep island.
We kept the downstairs master and added privacy to the master bath-including a toilet closet-and updated the finishes.
We carved some of the space from the master for an additional bathroom downstairs for the spare bedrooms. The bathroom has en suite access to one bedroom and across the hall access to the other.
We then turned the original bathroom into a powder bathroom with shower. We also added a tankless water heater and relocated the washer and dryer for ease and convenience.
To capitalize on a high resale price-per-square-foot we decided to build a 2nd story, adding an additional 1200 square feet. This 2nd floor addition included a game room/living space, large balcony and a huge master suite.
Wait I know what you’re thinking-don’t you already have a master downstairs? Yes but hear us out. The location of this house is such that from the 2nd floor you get sweeping views of downtown and we thought adding a master with views would really put this property over the top. We also imagined that a house this size might appeal to a multi-generational family who would appreciate two masters or two a family with a teenager who would love their own space.
Remember how we said the house was located on a busy street? The driveway of this property backed straight onto a main road-making access precarious. We decided to add a circular drive to alleviate this headache. That decision only turned into headaches for us when the concrete crew we hired hit a gas line that had not been buried deep enough and the fire department had to show up.
Additionally we found out that per a new permitting requirement from the city (so new that our architect was not aware of it when drafting our drawings) that we did not have enough water pressure at the street to extinguish a fire should one break out. Because we had added so many square feet the current level was not enough. They required us to install an indoor fire sprinkler system (to the tune of $75,000). That surprise combined with a huge remodel budget ($300,000) completely ate all the profit on this job.
We originally listed in March of 2017 at 1.125 million based on some strong comps in the neighborhood. Unfortunately the property sat and sat as we continued to get negative feedback on the property’s location on a busy street. It eventually sold in August of 2017 for $840,000.
Some important lessons learned:
1. Location matters. No matter how nice you make it on the inside, location is king.
2. Stick with small renovations (ideally cosmetics only). Had we stayed within the original footprint we wouldn’t have had surprises like the $75,000 sprinkler system.
3. Time and carrying costs can make or break your project. The bigger the project the more time the project will take. And setbacks tend to add up exponentially. It's also not very good diversification. We probably would have learned the same lesson about not compromising on location with a smaller project, but since all our capital was in one big project it was more devastating. One of our biggest regrets was not that this project didn’t make money, it was that all that useful capital was tied up for so long not making money on other projects. We could have easily done 6 smaller projects in the same amount of time with the same capital and probably would have made money on all of those.
All in all there were a lot of lessons learned on this one. Thankfully one bad project didn't scare us off entirely and we're still out there flipping houses.