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Posted almost 9 years ago

Flipping Houses – A Case Study

Late in 2014, while driving around Austin, TX, I noticed something you don’t see every day. Two houses next door to each other listed for sale - by the SAME AGENT! On a lark, I called the agent to find out what was going on? What I learned was good for me but very bad for the current owner.

8 months earlier, the then current owner (an investor) purchased fire-damaged house #1 as a planned fix-&-flip. It looked like a great deal. There was even an unfinished garage apartment in the back yard. But issues foreseen by this investor would haunt him.

With the advice of “experts”, no repairs were permitted. Tens of thousands of dollars were invested to bring this project to a close quickly. Then the unthinkable happened…

The first buyer’s title company required a recent survey (~$500) which showed a major incursion into the neighboring back yard. To rectify this, our intrepid investor bought that house facilitate moving the fence, dramatically reducing the size of the back yard. Buyer #2 moved on.

Buyer 3 mortgage company needed proof all work was city permitted. To save the sale, our investor opened a city permit and called for inspections. Problem: the inspector wanted to see the work behind the walls, and much more. Suffice it to say, that buyer went away too.

After a month passing inspections. A new buyer appeared with great interest. The mortgage company would not fund unless the garage apartment was removed. 

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WHAT! The survey showed the garage was built over a drainage easement making the entire structure illegal. To sell this property the owner would have to pay to demolish the garage apartment.

By now, our investor became so discouraged, he put BOTH properties on the market (the day I was driving by).

Lesson learned: Use the Option Period Wisely!

  • 1.Take the time to understand the market where a property is located
  • 2.Use trustworthy experts to advise on likely actual costs and pitfalls

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