One House I Wish I Hadn't Sold

In the fall of 2010, I was looking for a house to flip. I viewed several different options and settled on a cottage in East Nashville. It was a bank owned foreclosure that needed cosmetic updates on every surface and a re-imagined floor plan. But it had a lot of profit potential, so I closed the purchase in November, 2010 for $67,500. I was optimistic while preparing to embark on a four month renovation. Even though the real estate market was struggling all across the country, I liked the location of the property a lot and thought it would have sufficient demand that would result in above average appreciation. Little did I know, the house would sell for nearly five times that amount three and a half years later.

S. 11th Street. Nashville, TN 37206

At that point in my real estate investing career, fix-and-flips were the fastest way to make money. By adding physical improvements to a structure, I could make a sizable profit. It was what I knew how to do, and I could do it pretty well. The house on S. 11th St. in East Nashville needed new bathrooms, an all new kitchen, refinished floors, new windows, and 1736 square feet of new paint on every ceiling, wall, and trim surface. The renovation went well, and the project stayed on budget at just under $25,000. My realtor listed it for sale in the early spring, and I accepted an offer within two weeks. Factoring in the uncertain economic conditions, I was very pleased to sell the house for $172,000. After paying commissions and closing costs, I walked away with about $65,000. Not too shabby.

I quickly moved onto my next deal, which was another fix-and-flip, and didn’t think much about the 11th St. cottage again.

Fast forward to the spring of 2014, just three years after I sold it, and the 11th St. house was for sale again. The owner I sold it to was relocating. I looked at the MLS photos, and everything looked the same. Other than a fresh coat of paint on the back deck, it didn’t appear that the new owner had made any upgrades to the house at all. The listing price? $329,900. I was amazed. I knew when I bought the house the location of less than one mile to Five Points and three miles to downtown Nashville was poised for higher demand, and thus rising property values. But I had no idea that the value would jump that much. It closed for $315,000 in June, 2014, which was an 83% increase in three years. I had toiled during a renovation to make $65,000, while the owner made $143,000 (not deducting closing costs and commissions) just for living there. Who was the smarter investor on that deal?!

The truth is, a number of Nashville properties made similar gains in value from 2011 to 2014. I don’t think the 11th St. house itself is that special. It is a case of being in the right place at the right time. The philosophy of “buy low, sell high” is a good one. It is commonly used in financial markets and real estate. But we don’t know when the bottom of the market has been reached until after it has risen again. Likewise, the peak of the market isn’t really a peak unless, by definition, it descends again. Trying to perfectly time those market fluctuations is a difficult science.

I have adapted my investing strategies since 2010, and my approach includes a lot more buy and hold property. I can’t help but be impacted by what happened with the 11th St. house. What if I hadn’t sold it? My basis in the property would still be the same, about $93,000 (purchase price: $67,500 + improvements: $25,000), but the value would be $315,000. Additionally, I could have been renting it for the past three plus years with excellent cash flow. In fact, the rental rates in that area have experienced incredible growth as well. Regardless, I would be up over $220,000 on that property, not counting any rental income. I know it is only a paper gain until it is a closed transaction, but I could have sold it this summer, just like the owner did.

I don’t have deep regrets about selling the 11th St. house when I did. The profits I made were plowed into the next deal, which was the biggest money maker I’ve had to date. But I wonder if I will ever see a value jump of $140,000 in three years on a property in that price range. It really stands out because I already found the house, purchased it, and renovated it. The hard work was totally done. The $140k came from simply owning it. I didn’t know the value would jump that much. No one did. It was an unstable market at the time, and whether it had reached the bottom or not was still unknown. That being said, I didn’t have to sell that house. I could have managed to go on to the next deal and chosen to keep 11th St. as a rental. Unfortunately, I wasn’t thinking that way at that time, and it is one house I wish I hadn’t sold.