Follow Us on Social Media

email icon rss icon linked.in icon google plus icon twitter icon facebook icon

Case Study: How Flipping the Same House Twice Gave Me A Free Duplex

by Brian Burke on May 30, 2014 · 23 comments

  
Post image for Case Study: How Flipping the Same House Twice Gave Me A Free Duplex

I’ve been in this business over 25 years…buying, rehabbing, and reselling distressed property.

When you’ve been at it this long, once in a while the opportunity will arise to purchase and rehab a house that you’ve rehabbed and resold before. In recent years, I’ve had this opportunity about a dozen times. I have never actually done it, until now.

Related: Anatomy of the Grand Slam: How I Made $800,000 on One Flip

The First Time Was Worth Forgetting

It’s not that I was particularly ecstatic about doing this house again.

Things didn’t go as planned the first time around. It was 2003, the house was an old piece of junk in a small northern California city, and this was my 49th flip. I had enough experience that you would think I knew what I was doing.

The house was nothing special, but it was located on a large corner lot. My purchase price was $59,000 and I planned on spending about $20K on rehab. I bought the house on the courthouse steps so I never saw the inside until I owned it.

The house turned out to be in worse condition than it appeared from the outside. Floor joists rotted, wiring was bad, plumbing was bad, you name it.

Final tally: $75K in rehab and a lot of heartache. To add insult to injury, selling the house took longer than I had planned. That meant $16K in holding and exit costs. I finally sold it two years to the day later for $155,000 and made a measly $5K.

I even had to carry back a small second to get the deal done, so I didn’t even get my tiny profit for another year. This was hardly a success story, but it could have been worse.

Good Things Come to Those Who Wait

About a year after I sold property, the new owner refinanced for $240,000 (how they did that is beyond me!) and paid off my seller-carryback note.Then, they totally rebuilt the house (yes, even after I had just spent over $75,000 on it myself) and converted it into a duplex.

Last year, the duplex fell into foreclosure. The opening bid on the courthouse steps was $61,875. I saw the address pop up in my database on the morning of the auction and I immediately recognized the address. I thought to myself, “oh, no, not THAT house again”.

I guess I’m a glutton for punishment so despite the bad taste in my mouth from round one, I thought I’d see if this house was worth round two. Besides, I’ve done hundreds of flips since the first time I bought this place so certainly I could do it better this time, right?

But Wait…Something Is Weird Here

Successfully buying foreclosures is all about due diligence, so stick with me.

Before bidding on the property, I began my usual routine of examining the title and estimating the value. This usually involves a look at Google Maps and Street View before going out to the property to see it in person.

Looking at the aerial, I discovered that the deep corner lot wasn’t so deep anymore. There was a structure in what used to be the back yard! Because I owned this house before, I knew that the lot used to go half-way down the block.

This got me to investigating. What I learned was that the owner split the lot into two lots and built a new duplex on the second lot in 2007, presumably using the proceeds from the refinance.

When the foreclosing loan was originated, the property had one single-family dwelling on it. So it makes sense that the lender only had the original address on record.

The lender had approved the change in legal description when the lot split was performed, but obviously wasn’t aware that there was another structure subsequently built on the second lot.

My guess is that when the BPO agent visited the property, they drove by the one address that was given to them and assigned a value accordingly. The opening bid was likely based off of that value.

My prior knowledge of this property gave me a huge advantage because I knew the size of the lot and knew that it had previously encompassed the area where the second duplex was built. A methodical analysis of the legal description proved that my intuition was correct.

Free Duplex, Anyone?

No one else caught this, obviously, because I was the only bidder at the auction. I bought it for one cent over the opening bid. Less than $3K more than I paid ten years prior, and this time its four units!

So what was the end result? I got two duplexes, in near perfect condition.

Adding the purchase price and some light rehab, I’m all-in on this property for $68,000. I rented out the four units for a total of $2,700 per month. The current market value of both properties is over $180,000. I’m keeping it this time!

Sometimes A Failure Is Setting You Up For A Success

There is a lesson in every failure.

If a deal doesn’t turn out as planned, it might be a learning experience. Or it might be a set-up for you to win big later on. Perhaps this story will serve as a reminder to look for the hidden piece of information that gives you a tactical advantage. If nothing else, I hope it motivates you to keep turning over every stone, knowing that every deal you do is setting you up for higher levels of success later.

Have you ever flipped the same house twice?

What was the outcome?

Be sure to leave your comments below!

Email *
  



{ 23 comments… read them below or add one }

James Pratt May 30, 2014 at 9:30 am

Great story Brian, been there, done that. I’ve got over 45 years of experience, bought, resold houses several times. I don’t particularly like rehabbing a place twice, but the profits and prior knowledge does give one an advantage.

Reply

Brian Burke May 30, 2014 at 11:42 am

I agree, James! There have been several times that I’ve had an opportunity to buy a property for the second time. Most of the time my knowledge of the property was fundamental in my decision NOT to buy it again. Sometimes once is enough. Sometimes not, as in this case!

Reply

Giovanni May 30, 2014 at 9:55 am

Great due diligence Brian, and a great story. I’ve been in real estate my whole life practically and while I’ve known a number of people who’ve bought and sold commercial properties multiple times your duplexes is the first time I remember it being done on the residential side. If they’ve been in the business long enough everyone has a ‘the one that got away’ story but it’s great to hear that yours ends with ‘… and got it back’.

Reply

Giovanni May 30, 2014 at 9:58 am

… your duplexes *are* the first time…

Reply

Brian Burke May 30, 2014 at 11:47 am

Good point on the commercial replays, Giovanni. I know a guy that sold a bunch of office buildings to a large REIT in 2005 for over two hundred million dollars. In 2012 he bought most of them back for 50 cents on the dollar! Talk about a big win!

Reply

Brandon Turner May 30, 2014 at 3:08 pm

I love this story Brian! We may have to talk about this on an upcoming Podcast… ;)

Reply

Brian Burke May 30, 2014 at 3:44 pm

Right!

Reply

Dennis Lanni May 31, 2014 at 1:49 am

I have fliped a house in Oak Park 3 times in a period of about 10 years. But your story is epic!

Reply

Brian Burke May 31, 2014 at 10:07 am

Three times?! That must set a record. Maybe in a few years you can make it four!

Reply

Dennis Lanni June 2, 2014 at 8:55 pm

Four would be sweet, I met an investor who provided seller financing who foreclosed out more than a few of his buyers on the same house (not for me but I think his record was 4 or 5 times if I remember).
– Hey did you ever pursue the deceased life estate deal in Santa Ros, if not let me know I would be happy to help.

Reply

Brian Burke June 4, 2014 at 10:14 pm

The seller finance and foreclosure five times over sounds like a great example of a strategy to avoid, I’d bet that with todays predatory lending laws a history like that would be used as evidence against the seller by buyer #6’s attorney!

Life estate deal is tied up with the remaining survivor’s attorney. I need to circle back to see if there is something we can do to move this along, I think the thing is bottlenecked!

Ben Leybovich May 31, 2014 at 4:45 pm

OK – I got some things to say here. Ready…

1. You can write too? Get outa here. What the hell can you not do…
2. Are you bored? Don’t have enough going on? We need to work on this…
3. There’s going to be a Burke Podcast ? Why am I the last to know these things? That’s not cool – I tell you EVERYTHING…!

Welcome to the blog Brian! If you actually manage to stick with it, this is a HUGE benefit to BP blog! You’ve got style indeed. In fact, I can only think of one writer who has more :)

Reply

Brian Burke June 1, 2014 at 12:01 am

HA! You have something to say? Since when? LOL

1. I can’t cook. Well, maybe spaghetti and pancakes but that’s it.
2. A whole day went by without you calling me. As a result, I had so much extra time that I read War and Peace, wrote an article, and created an investor presentation. Ok, the reading part is an exaggeration.
3. If I told you I’d have to…well, you know the rest. You’ll just have to watch the podcast schedule, or call your “girlfriend” Brandon!

I actually wrote a couple of articles several months ago (or a year?). Apparently it takes me six months per page. I don’t possess your knack for thoughts spontaneously appearing as written word. :)

Reply

Ben Leybovich June 2, 2014 at 9:14 pm

Hahahaha – this is just lovely Brian. Touche…
War and Peace…Oh my – you make my heart sing…

Brandon, are you reading this? You got competition bro!

Reply

Shaun June 5, 2014 at 10:59 am

Hahaha…

A Bro-Mance love triangle?

Dan June 2, 2014 at 5:51 am

Awesome Brian! Always appreciate your posts

Reply

Brian Burke June 2, 2014 at 2:24 pm

Thanks for reading, Dan!

Reply

Vik d June 2, 2014 at 8:51 am

How do I get a database that auto populates foreclosures?

Reply

Brian Burke June 2, 2014 at 2:25 pm

Hi Vik,

I’ve never seen one, so I built my own. Spent thousands of hours over ten years perfecting it and still use it to this day.

Reply

Michael Blank June 2, 2014 at 12:06 pm

Brian – good to see you writing again -;) I like “Sometimes A Failure Is Setting You Up For A Success” … great story, thanks!

Reply

Brian Burke June 2, 2014 at 2:25 pm

Thanks Michael! I appreciate the comment.

Reply

Shaun June 5, 2014 at 11:02 am

Great story.
Shows what time and experience in the business can bring you.
Doing the deal the first time and knowing the property, and how to investigate those signs that caught your eye.
Congrats on a(nother) killer deal

Reply

Brian Burke June 5, 2014 at 4:57 pm

Thanks Shaun! I wish I could do these every week, but this type of thing only happens rarely, unfortunately. If I were a guru, I’d say that the other way around. :)

Reply

Leave a Comment

Comment Policy:

• Use your real name and only your name in the field designated for your name.
• No keywords allowed as anchor text in the name or comment fields.
• No signature links allowed under your comments
• You may use links in the body of your comment, but it must be relevant to the discussion at hand, and not merely be some promotional link.
• We will have NO reservations about deleting your content if we feel you are posting merely to get a link without adding value to our discussion.
If you add value, but still post keywords, we'll use your comment, but remove your link and keywords.
• For more information about acceptable practice, see our site rules.

Want your photo to appear next to your comments? Set up your Gravatar today.

Previous post:

Next post: