Buy and hold success story (was: my first flip)
If you have read any of my posts on Bigger Pockets, you would know that I am 100% buy and hold. However, I had decided to try my hand at a flip property and although there was a bit of a rocky start and a few mistakes made, it turned out to have a happy ending and I wanted to share this story.
In July 2012 I purchased a 4 bedroom, 1.5 bathroom foreclosure property from Bank of America with a partner (non-BP member). The purchase price was $63,000 (the list price was $68,000) less a credit for property taxes. I put down the $1,000 earnest money deposit and paid $250 for the inspection. My business partner put up the rest of the money for the purchase.
For rehab and holding costs, my business partner put in about $8,000 and I put in just shy of $19,000. We did quite a bit of work on the property:
- Every light fixture replaced including new ceiling fans
- Took everything out of the kitchen and bathrooms and redid them including new cabinets, new flooring, and new granite counter tops, plus added a stainless steel dishwasher and over the range microwave
- Landscaping
- New garage doors (3.5 car garage) and new garage roof
- New central air
- Plumbing and electrical repairs
A couple "before and after" pictures of the kitchen:
Total cost in was $87,332.40. (This include rehab costs, and holding costs which include property taxes, insurance, and utilities.)
We held on to the property far longer than expected before listing it due to some health issues with my mother that I was taking care of. We listed it but then after doing some market research on what we could get in rent, we determined that the property would make a very good investment as a high-end rental.
We listed it for rent at $1,595 per month and found a well-qualified renter within 3 days.
We did a cash-out refinance on the house and received a check for $82,000. The majority of that will go to my business partner who put up most of the funds. After the division of money, we will each have invested $2,666.20 out of pocket on this house.
Out of the rent we are paying the mortgage, property taxes, insurance, and a healthy amount into a "reserve" account for potential repairs and vacancy. (Although we anticipate the repairs to be minimal with all the work we put into the house, it's never a bad idea to plan for the unexpected.) After all of these payments, we are each netting $260/month.
I can't say I did everything 100% right on this property, but I believe that a lot of what was done was pretty good. (P.S. You see those new cabinets? I hung and installed those myself -- with some help hanging the ones on the wall.)
Bonus: My business partner was so impressed with what I had done on this property, that he fronted me $9,500 at 0% interest which I used to purchase another property. I repaid him out of the cash-out refinance money.