Rehabbing and re-selling in central Florida

So I just bought a property from an online auction site, for the first time. It was surprisingly, painless. Thank you Auction.com. 

Just so you know this is not my first time at the rodeo. I've been building and remodeling homes since I was in my mid 20's ( long ago and far away). I bought my first rental properties in 2003, three in one fell swoop (but that's another story), I bought my next rental in 2006. I then decided to try my hand in rehab and re-sell with minor success. I made about $7500 on the first re-sell, then about $7000 on the second and on the third property I finished rehabbing the same week they announced the big crash in 2008. That property has been a steady rental since 2009. After the crash my home inspection business went from steady 2-3 per week down to 3 for the year in 2009. In 2010 we moved to Florida where I am building a new home inspection business and just bought my first rehab and resell (whew).

So back to buying from an online auction site..... In order to buy from these sites you have to register giving them the usual identity information and a little more on financials, so they can decide whether you can actually buy. They love cash deals but on some properties you can arrange financing, sometimes (rare) from the bank that is selling it.  Once you are signed up the fun begins. 

You start searching for properties. You can spend hours and hours and hours and days......... doing this. On most of the sites you can set up your own search parameters. There are numerous choices such as:  the whole country, by state, by county, by town, by zip code. Other parameters can be single family, townhouse and condos, mobile and manufactured, and multi-family (and commercial). For accuracy's sake I think by zip code is your best bet if you are targeting a specific area. I don't know all the zip codes within a 50 mile radius of me or for that matter all of the towns. I set up my parameters using pricing in the state of Florida. My purchase budget was up to $50,000 so I asked the search engine to find me all of the single family homes in Florida with starting bids of $100 to $60,000, and then I would sit and scroll. When I would find a home in my price and driving ranges I would save to my favorites then go back to scrolling until my eyes were bloodshot and I started losing my will to live. There's that many foreclosed homes just in the state of Florida! Afterwards I would go to my favorites list and start weeding out houses based on details.

My current criteria are 3/2, or 2/2 with bonus room (in FL you can't call it a bedroom unless there is a built in closet), concrete block, with stucco or not, on slab. Basements are as rare as unicorns in Florida and I'm avoiding crawl spaces for three main reasons: venomous snakes, scorpions and wood frame construction which quite often includes termites. The last of the three being the most important, although the first two really scare the bejeezus out of me. Side note: If you want to see and older, man sized person scream like a small child you should see me come eye to eye with a rattle snake cooling itself under a house during a home inspection. (twice now ).

Once you have targeted a house you can start the bidding process. You can register to bid on a property by placing a deposit, which is typically $2500. This is a pretty easy process with a credit card. I believe most sites will accept direct money transfers from a bank account but this takes time for the money to clear so leave your self a cushion of a few days before the auction start date. When the start date arrives the fun begins. There are usually multiple bidders and strategies apply, think Ebay only with higher prices. Do you bid early or hold out? Do You wait until the last minute? There is also usually that old wet blanket "reserve price". Where do these banks get off setting reserve prices at a few dollars below current retail market value? I mean come on! They're the ones who gave out "bad" no doc loans at the height of the boom!

There is also another way to bid which leads to my purchase. Some of these sites, on certain homes will allow you to make an offer before the auction starts. Not all homes, I guess it depends on the seller. In a month I had bid on five different homes and was either out bid, bid past my budget, or could not match the reserve (within my budget). Frustrating! About a month ago I found a home 35 miles from my home that met all my other criteria, with an auction start date in five days. I called a local RE Agent to see if she could get me into the home. You should do this as early as possible as it took her 24 hours and a lot of hoop jumping to get the key code from the auction company. As soon as we entered the house I knew I would be bidding. It is a very solid home in a desirable neighborhood. The great news is it only need a thorough "cosmetic" rehab. New paint, new flooring, new counter top and new modern lighting, nothing major. Hooray!

I hustled home and logged into auction.com thinking I would register for the auction and found a "make offer" button. Hooray, again! By the way I had already done my due diligence, comps, etc.... I opened the make offer window and followed the instructions. They had the reserve price listed ($45.3k) but informed me that the sellers would often consider and accept lower cash bids before the auction started. I put in a bid of $40k and was informed that it was an unacceptable bid and that I had 5 more chances. I tried $41k, unacceptable! Three bids later I thought " Hey let's try the reserve price." $45.3K, cha-ching!!!!  congratulations your offer has been accepted.

The next step was to use they're online doccusign service to sign a purchase contract and forward proof of funding. Easy peasy! I then received a congratulatory email stating we could move forward to closing on July 22nd. That was four weeks away. I thought " Hey the bank owns this house and its a cash deal, lets speed this up." I contacted auction.com and said "Hey this is a cash deal let's close in two weeks." Three people told me "no problem, we can make that happen." So we proceeded to move forward and ended up closing on the magical date of ................. July 22nd? Sigh......

Auction.com has a closing/title company that they set up to complete the closing for you, but encourage you to hire your own title company if you so desire. The listed fees came out to $2k. I went shopping. I found two local companies that would do the work for $1.3k and $1.5k respectively. I called auction.com's closing company to inform them of my decision and they said "That's fine just remember to add in our $700 fee for handling the bank's paper work."  Sigh........

Anyway, I am excited and in possession of a new project, which should bring me a sizeable profit when sold. $47.3K purchase price. I will be doing most of the work myself with one hired helper and estimate rehab costs of under $10k. Resale in that neighborhood should be between $86k and $95k with potential profits of $28.3k to $37.7k.

So here's an update on this rehab. 

We sold the property and made a solid profit. Not as much profit as I had predicted but a profit. Here are some details: My costs ran higher than my original estimates. I mi-spoke earlier when I stated rehab costs at $10K. That was for materials without labor added in and did not include an 11th hour re-roof (and we still made profit).

Let me explain the roof. When I did my initial inspection the roof looked fairly new and in great condition. There were no permits filed with the county for re-roofing, so I went to my special home inspector only top secret source for info: retired neighbors. They said "oh yeah the guy who lived there paid some of his buddies to put those shingles on about four years ago, right over the old shingles." Mind you, as a home inspector I knew there was two layers because of my "from the ladder inspection" before I purchased. In Florida a second layer re-roof meets code if "permitted".  About two weeks after listing we had a solid offer , which fell through after a home inspection. Apparently the HI saw a suspicious lump and pried up the leading edge of a few shingles which revealed a third layer of shingles hidden. Deal Breaker! Apparently the guys who re-roofed knew a third layer was against code so they cut the top layer of shingles back 1 foot from all the edges so only two layers would show.  So $4500 and a week later my buddies and I had stripped the old roof and installed a new fully "permitted" roof. sigh. 

Then three weeks later another solid offer, SOLD!

Selling price $92,000, costs including materials, labor, permits, realtor commissions, and seller's closing fees, $78,000. Net profit $14,000. I have two silent partners (they better be) who are invested at $10,000 each. I just sent them checks for $2,000 apiece. A nice twenty percent return on their investment, way better than they were making on CDs sitting at their banks.  I put $10,000 profits in my account. Now some of you are doing math in your heads and saying that's not so much for all that work. But wait, in my labor cost there are slightly over 720 man-hours. Over half of those hours are mine from which I paid myself $8,400 dollars, bringing my total take on this deal to $18,400. A much more satisfying figure. PAY YOURSELF! PAY YOURSELF! PAY YOURSELF! I can't stress that enough. PAY YOURSELF! If you don't you will become discouraged with an aching back , sore muscles and a sore mind! If you can afford it, budget to PAY YOURSELF each week, during the project. If your budget doesn't allow, after selling PAY YOURSELF before profits are divided. You deserve it. You earned it. So, PAY YOURSELF!

By the way both of my investors were thrilled with their checks and have called to say, "when are we gonna do it again?" I've had and offer accepted and should be closing within two weeks. I'm buying directly from the bank this time, no auction company, so a quicker closing.

I hope some of you find the information here useful in your future endeavors. 

Matt C.