Wow! Where to begin!?!
A quick background on how I got involved in real estate investing. I started a new job a couple years ago. About a year in, my boss asked me if I was interested in retiring in 10 year. I obviously said yes! He started talking to me about real estate investing. He has 3 duplexes in an upscale neighborhood of Cincinnati that cash flow very well. So I started digging around and found Bigger Pockets. I spoke with the wife about this and she wasn't really on board with the whole rental thing. So I brought up fix and flips, which she was a little more cautiously open to due to the "short term" nature of owning the property and not dealing with tenants. Now that the first flip is done, I think she's more on board with fix and flips or rentals. ;-)
Looking back on the last 6 months, I really didn't know what I didn't know! Thankfully I have a good realtor that has worked with investors and knows what's needed to buy a house at the right price in order to make a profit. They say you make money when you first buy a home - well without him, I probably wouldn't be writing this success story!
We put together a search in suburbs on the north side of Cincinnati primarily in 3 good school districts - Lakota, Mason & Sycamore. It probably took us about 2 months to find the right property because it was my first 1 and I really didn't want to deal with a "train wreck" for my first property. The house had been sitting on the market for about 8 months and was extremely overpriced - starting at $109k and had slowly fallen to $90k. We took a chance and put an offer in at $60k. After a little back and forth, we agreed on $62,750. We closed on the house on 2/25/14. I used a construction loan for $84k and borrowed $20k from a good friend to fund the down payment on the loan.
Over the next 3 months, with the help of my parents and my father-in-law we rehabbed the home. As with any first time rehab, I completely whiffed on the budget! I had $21k budgeted for the rehab. Once it was all done, I came in at $27,637.94. Taking a step back to look at what happened, I really only whiffed in 2 areas. I had a new roof, gutters and soffits put on the house. I had budgeted $6k for this. Ended up being almost $9k. The other item was windows. I wasn't planning on doing windows as they didn't look horrible - just needed a little work. Well that didn't work out and we ended up replacing the windows for $3k. The rest of the budget items weren't way off - saved here and overspent there.
Put the house up for sale on 6/9/14 for $139,900. Had 5 showings in the first week and received an offer for $135k after 7 days on the market. Had a few minor things come up in the inspection that were taken care of and that was about it. They had some issues on the loan that delayed closing. But ultimately closed on 7/31/14.
Purchase Price - $62,750
Rehab - $27,637.94
Carrying Costs - $3,098.39
Commissions, fees, etc - $8,316
Seller paid closing costs - $1,000
Interest on hard money loan - $5,000
Total Expenses - $107,802.33
Sale Price - $135,000
Profit - $27,197.67
It was a pretty grueling 3 months of work, but in the end it was a great learning experience and I have a degree from the School of Hard Knocks! I've learned that in order to grow this business, I need to get out of the rehab part of it. I'm already in talks with the contractor that did the roof to do the whole rehab. We've looked at a couple houses together and his prices are inline with where I think they need to be.
Sorry for being so long winded and thanks for reading!
Random before and after shot of the hallway.
Nice! Congrats on the first flip @Tim G. Hopefully I'll be sharing a similar success story in the next 6 months
You did an awesome job Tim. Great looking house and even better looking profit. If you need free labor help on your next flip then fill free to contact me.
Thanks @Kevin Hart ! Sorry for not getting back to you on your questions....been slammed with work and this lately. Hopefully I answered a lot of them above. If not, let me know and i'll be happy to help.
thanks @Cody Brownfield ! Free labor is the best kind! Ha!
Great job! The house looks fantastic! Very inspirational story!
My wife talked me out of buying investment properties for years - with the same concerns you had to deal with.
I did my own rehabs with some support from hiring day laborers and a few contractors. It does keep the costs down, but you lose nights and weekends.
Looks good, Good inspirational story. Thanks for sharing.
nice job bro you broke down the begining step and after! what a tremendous profit
Great job! It looks like you did a fantastic rehab and I'm glad it worked out so well for you.
That's awesome! I wish you more success.
Congratulations on your first flip! Keep up the good work.
Great job! Very inspirational!
keep up the good work...
Nice! Love seeing successful rehabs
Thank you for sharing, Tim. I am in the process of looking for my first property and this has been an extra bit of motivation!
How exciting! I really appreciate that you shared all the numbers. It is a great reminder of all the $$ that comes out of the profit.
You said, "I've learned that in order to grow this business, I need to get out of the rehab part of it." Can you talk about this some more? Is it because doing the work yourself delayed the process, or because your time would be better spent elsewhere, like finding the next deal? Any idea what the additional cost would have been to have a GC? I am new here, so sorry if these questions are rehab 101! From what I've observed so far, most don't seem to do the work themselves, just wondering your opinion.
@Tim G. great job on the rehab and thanks for posting the numbers. I am looking to do my first, but my market is super expensive and super competitive, so i looking else where.
Question: Since you did some of the rehab yourself that obviously saved you some money ..do you think that your profit margin would be that high if you had contracted the whole job out? Also, you used a HML, how come the interest was so low?
awesome job, and definitely agree with pulling yourself out of the rehab, it is the only way to have a sustainable flip biz!
Looks really nice, good job. How did you find your good realtor...haven't had great luck with them...I do all the work...they provide the keys to the houses!
Thanks everyone for all the kind words! Its been a lot of work these last few months but seeing the check has made it all worthwhile!
@Raven Parmer you have some great comments and questions. You are spot on with your comments. The GC that did the roof said he could have done the complete remodel on this house in about 3 weeks compared to the 3 months it took me and my helpers (family). So instead of 5 months of holding costs, I would only have 3 months. That saves me $1500. As for the costs, obviously there will be additional costs using a contractor to do the work. The key is finding the right contractors. Again, talking to my GC, I said I used mostly Lowes and HD to buy materials for the rehab. His response was "oh, I can get a lot better deal on materials than going there" So while you do spend more on the labor side, you save on the materials side. We looked at another house together and he gave me a bid of ~$25K to do the rehab. Using my knowledge from this flip, I was in the $20-23K range doing it myself. I also don't have the time to devote to being on-site all the time like I was with this flip. My day job suffered during those 3 months and now I have a wife that's 8 months pregnant with our first child. It's literally a full time job on top of my full time job.....days, nights, weekends. I was over there during any free time I had. I was kicking myself because I took a Saturday off to be in my friend's wedding! lol
@Charmaine M. see above about using a GC. I think my GC could have done it for under 30K and cut down my holding costs. The interest on the HML from my friend was 25%. Not sure I consider that low. I see a lot getting HML's on here in the 10-20% range. Being my first deal, I really wanted to sweeten the pot to get him on board with the investment.
@Joshua Springer He was my parents realtor about 10 years ago and then I used him when I bought my personal house 4 years ago. Just got lucky I guess!
Great job now that you got a taste you wont look back and you will find that investor capital will start finding you. First it will be friends and family, then strangers. Continue to share your success and failures. People will see you are the real deal. Keep it up.
One bit of advice is always always always look for indications of a turn in the market. If your market is approaching 2006 highs you should be even pickier with the deals you purchase. Another thing to be mindful of is changes in lending practices and interest rates. Both can be a problem and stifle a market.
Markets tend to turn around at former highs. Another thing is not to over extend yourself by picking up more deals than you can handle.
@Tim G. you and your family did all the work? On the next one try to bring contractors in on the job and price in that.
Good work @Tim G. ! I recently bought an investment property in Cincinnati too. Unlike you, it's in a C class area and I bought it for Cash Flow. I closed on it last month and have owned it for a couple of months. Tenants already in tact. A few minor repairs so far from the inspection. Let's keep in other posted on our deals.
Looks great @Tim G. Interesting that your boss is the one who told you to get into the REI game. Does he not like you?!? Congrats on the great house and best on finding #2.
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