Why Mold is Gold

Josh here... I'm turning over this blog post to SREC's head coach, Kyle Garifo, who has been working on some big projects in his market. He'll walk you through why mold is gold, why not to shy away from flipping bigger houses and how to learn the exact systems that we use in our business to turn around 2-3 big profit flips per month.

"The Mold House" - Sheldon Road Case Study

Hey, Kyle here. First, let's break down the numbers on this particular case study:

Sheldon Road in Huntley, Illinois
Purchase Price: $100,000
Rehab: $80,000
ARV: $300,000
Gross Profit: $60,000

This property was a short sale. One of the pipes had cracked, so the water ran down throughout and flooded one half of the house. Since this occurred in the winter, the flooded half of the house was encased in ice and the neighbors started complaining to the city, but the homeowners couldn't be located. We were able to buy the property for $100,000 and assess the damage.

What we found was...

Mold.

Half of the house was covered in it and the other half was not, but we had the whole house tested just to be safe because we would not want to put a property with hidden mold on the market.

Many people are scared of mold, understandably, but it really isn't as big of a deal as you may think. You don't have to hire a company and spend $30,000 on it. At the end of the day, it's probably going to cost us about $10,000 of remediation, but it's a 2,800 square foot house including the basement, so it will end up being a great profit for us! Because of the mold issue, people were afraid of it and that allowed us to be able to secure it for $100,000 and sell it for $300,000!

When it comes to a home like this, it's really all about the numbers. Depending on how much you can get the property for, how much work it needs and what the ARV is, it doesn't always make sense to buy, but this property will turn out to be a screaming deal.

Remediating Mold in 3 Simple Steps

Step 1: Document the mold problem and create a remediation plan

The first step to getting rid of the mold is assessing the situation. We needed to know exactly where the mold was coming from (which was discovered that it was caused by the leaking pipe) and how much of the house was affected. We tested every room and took small parts of drywall off even in rooms we didn't think mold was in just to be sure the inside of the walls weren't hiding anything.

In the parts of the house the did contain mold, we ripped out 80% of the drywall and put in all new carpeting. Thankfully, the house is only about 10 years old, so no big structural jobs were required. The roof and windows were both good to go.

Step 2: Calculate the extent of the contamination

On the half of the property that was affected by the mold, we needed to fix the damaged walls, flooring, the sub-floor in some places, and even some of the pavers on the front stoop needed to be replaced.

As soon we were able where the problem began and how far it had reached, we first fixed the leak to prevent any new leaks from happening.

Step 3: Remediate mold contamination

Once the pipe was fixed, all of the walls and floor were scrubbed clean of the mold with a bleach solution and painted over with a special type of primer that you can purchase at a store like Home Depot that encases the mold and kills it (try Zinsser Mold Killing Primer). The kitchen cabinets were also covered in mold, but we were able to salvage those by scrubbing them with the same bleach solution and repainting them.

We had originally budgeted 150 sheets of drywall, but once we discovered the other half of the property did NOT have the mold, we were able to cut that back to about 80 sheets.

Another big part of mold remediation is the HEPA 1000, which is an air purifier that you can rent or purchase to put into a mold damaged property. It sucks in air, filters it through and then blows the clean air back out. It's able to capture any of the mold particles that have become airborne. This is very important so that your crew is breathing clean air and for the future homeowners.

Watch this video to see the full walk-through of the property and how we remediated the mold issue:

Flipping a BIG House for a BIG Profit

As I mentioned above, from the mold house, we are estimated to make about $60k in profits. While this property is being renovated, we are also working on another property on Gage Drive that is set to make us about $60k in profits once it's sold as well

Let's run through the numbers...

Gage Drive in Cary, Illinois
Purchase Price: $200,000 as a bank-owned property (3,900 square feet)
Rehab: $110,00
Total Investment: $310,000
ARV: $425,000
Gross Profit: $60,000

How would you like to have $120k coming in of pure profit off of just TWO flips!?

Here is my advice to you - don't be afraid of larger houses - there isn't much of a difference between putting in 800 square feet of tile versus putting in 1,800 square feet of tile. It's doing the exact same thing, just with more tile. The length of the renovation will probably be about 8 weeks, but what does that time really matter?

Yes, larger houses are a little more money, a little more material and a little more labor up front, but it adds up to the same amount you would spend on two or three smaller flips.

The only problem with flipping higher end, luxury homes is that they may sit a little longer on the market because the buyer pool is not as big, but the end profit is worth it.

Watch this video to see the full walkthrough of Gage Drive here:

5 Steps to More Huge Profits

These case studies aren't just good luck - these are the types of deals that are sitting in your market right now, waiting for someone to uncover them. When you implement Josh's system into your business, you'll see how everything can be automated and doing 2-3 deals a month will be easy.

This isn't too good to be true, when you invest in your education and your business, and put in a little hard work, you can have those same profit checks rolling in.