Whew.. My long, first year as a full-time investor
I am closing in on my first year as a full-time investor and wanted to share some of my ups and downs with fellow investors. I got funding last September and subsequently purchased my first house to flip then quit my full-time part-time job. Dumb?? Maybe so because I did have to live off credit cards for a while as I waited for the house to close, fortunately I love peanut butter and it's relatively cheap. I also agreed to purchase a package of 4 houses for $250k whilst my first flip was still on the market and I could only come-up with $120k. Thankfully they didn't require me to provide a POF letter. At the end of the day I purchased 5 houses, 3 more than my intended 2, I flipped 2, "wholetailed" one, converting 1 to a triplex with 3 storage units, and am looking into subdividing the last parcel into 3 parcels, selling 2 and then lease-optioning the house after remodel. Below is a summary:
Deal 1, my first flip: 2500s.f. 50's ranch in historic community.
Purchase price: $28k
Rehab: $105k (includes holding costs)
Commissions/Fees: $13k
Sale Price: $212,500
Profit: $66k
- I could have made $10 - $15k more I feel. I overpriced the home initially which caused it to sit on the market longer and foolishly cut some landscape finishes out at the end of the project which hurt my curb appeal. Overall, a great learning experience and nice profit for my first flip.
Deal 2 (and 3, 4, 5), my package deal: Went to view 1 and it turns out to be an estate with 4 separate properties, I drive to each property immediately that afternoon and make an offer for all of them even though I hadn't even been inside 2 of them, crazy? Maybe I've got plain dumb luck, but a disclaimer: don't do this if you've never purchased a property before.. actually you might not want to do this even if you have. I didn't have enough funds due for all 4 so at the end of the day I decided to sell off one of the houses instead of taking on more debt and putting me and my investor in a bad position.
House 1: 2700s.f. A-frame on 4 acres in rural community 15mins outside city. Home needed updating but livable. I sold , or "wholetailed" this property to the next door neighbor for $130k, used funds to close other 3 houses. I'm confident if I had the funds to close all 4 I could have sold the home for $150k +/- and made a bit more on this deal.
House 2: 1400s.f. ranch. Just finished remodel on home on Friday, showed home on Sunday and have a full-price offer, no agent. If deal closes I'll do a bit better than expected on the home which is very exciting.
House 3: 1800s.f. ranch with 650s.f. detached, 2 bay garage with apartment on top. This home lends itself very well to a triplex conversion, the home will receive a full remodel with conversion to triplex done to code. The building is located in a blue collar area, I'd call it a C or C+ area between a brand new, high-end for the area apartment complex on one side and retirement home on the other with new construction brick condos behind it.
Purchase: $40k
Rehab: $100k
Gross Rents: $2330
50% rule $1165 - $709 mortgage (going to live in a unit for a year, finance 30yrs at 4.5%)
=$456/month
I underestimated some repairs on this that have really driven up the remodel budget more than I thought it was going to be but I like the area and am being conservative on rents.
House 4: 2/1 800s.f. on 1 acre lot. I am looking into subdividing land into 3 parcels, selling 2, and then doing a lease purchase or renting it, have not decided on this house yet as the numbers are good if I pay cash but not with financing and I need to retain capital for continued growth.
Purchase: $10k
Remodel: $30k
Rent: $700
50% rule $350 - $316 (15yr at 5%)= $34, if cash I'll cash flow $350/month with a 10.5% CoC.
That was a long post but I wanted to share a little about my journey, it's been a long year with 14+ hour days when working on the flips. I've made a lot of mistakes but have gained valuable knowledge and developed good connections. Honestly, there have been some tough moments, but I love this business and am looking forward to what the future holds. If you're still reading I welcome any feedback and/or questions, happy investing.