How My $30,000 Disaster Turned a $30,000 Profit

27 Replies

Keep positive and keep looking, possibilities are not finite...they broaden with optimism.

My real estate partner Mike and I jumped into a house we saw on hubzu.com, an online real estate auction. I'll never forget how green I was when I made the decision to buy the house. I fetched some hard money at 18% and another investor took care of the 20%...wow, what was I thinking...?

Our Intentions

As real estate investors we seek opportunities to purchase low and sell high...at least higher than what we paid for. In a nutshell that was all I knew. My partner was very savvy as he has had many years in the business. The drawback? He lived 200+ miles away and wasn't able to check out the property...it was up to me.

Inspection

Since we were unable to go inside the property, I decided to rely on Google maps and the county assessor's book online. My thoughts were, "What homes like this one sold in the past six months? For how much? How long did it take? Is there money to be made?"

That was it...

I should have asked myself, "What are the maximum rehab costs for a property like this one? Who is my buyer?

What We Dicovered

So we bought the property at $110,000 and entered the home as soon as we could. To our surprise it looked great! Even the carpet was in decent shape (rare). The walls looked newly painted, the kitchen was updated recently, and there were little updates in the light fixtures around the house. And when we walked into the air conditioned garage (that's right, full AC), we were floored to discover that the two garage doors opened and closed automatically! You could fit 4 cars in there! It was deep! But there was a let down right around the corner (always will be)...and it was going to cost us over $30,000.

The Dagger

We prepared the property to resell by minor touch ups and extensive marketing. We found an interested buyer who was FHA approved. During the inspection period we received a phone call from the buyer saying that the home was not on a sewer line...it was septic, and it's broken. I said that it was no problem at all and that we would have it fixed. I called our contractor, who called his septic repair guy, and we were told that the septic was too old and the City of Phoenix would not allow it to be repaired because it was close enough to the city sewer line. The septic repair man also added that he would lose his licence if he fixed it and a later inspection failed...this was turning into a nightmare.

Cost

The resolution was to sell the house for cash, which we were a little too invested into the property to do so...it would be like selling my problem to someone else, or we could buy the permits, hire some formen, dig over 100 feet through solid mountain block, add a sewer line, clean it up, then hire a plumber to adjust it and prepare it for use...AKA $30,000. NOPE...there's no way.

Saving Grace

My partner Mike called me a couple days later after we called 50-60 septic repair men that said "No!" He said he may know a guy where he lived that would pass the septic inspection if we simply rebuilt the lid (concrete...it would cost us about $200). We were ecstatic! We had it fixed and the angel inspector passed it! YES! Now we just need to sell the darn thing!

Selling the Home

This was one of my more challenging homes to sell, but we eventually found a buyer willing to pay the retail price of $145,000. She also sold us her home at a deep discount. We were making pace in our wholesale real estate business, and we closed the deal.

Many times in business we see that there is no 'end' of the disasters that we encounter. Keep positive and keep looking, possibilities are not finite...they broaden with optimism. 

Originally posted by @Jonathan Makovsky :

Cool story @Andrew LeBaron! Congrats.

 Thanks! Love the commeraderie on this site. 

Thanks for the story Andrew!

As a newbie, your positive attitude is something that I want to adopt!

I agree, this is a great success story.  Perseverance wins again.  Congrats!

Wow that's pretty amazing! Congrats on the profit! 

That's exciting to hear Andrew. Just when you think you've got a big mess, it turns around into a great investment with perks.

Thanks.

Many congrats to Andrew and Mike...

Kudos,

Mary

Great post thanks so much for sharing!

So you got a shady inspector to pass the work of a shady plumber? And then sold it to a unsuspecting "victim"? Maybe I'm out of line, but the way that was put doesn't sound good at all. I'm happy that you got your money back but I hope you did everything up to standard.

@Andrew LeBaron

@James Barnes

Andrew, how is it that the 61st inspector was willing to pass in and no one else was?  Have you had anyone else look at the work?

Could you explain the actual nature of the issue that was causing the septic tank to fail inspection?  Your story went from "the septic was broken" to "hooray, I bought a bag of quikrete and saved on a $30k repair" ... pleeeeeeeease fill in the gap!  I want to believe ;)

Originally posted by @James Barnes :

So you got a shady inspector to pass the work of a shady plumber? And then sold it to a unsuspecting "victim"? Maybe I'm out of line, but the way that was put doesn't sound good at all. I'm happy that you got your money back but I hope you did everything up to standard.

 James, I can totally see how that looks and sounds when reading that. The reality was that the lid of the septic tank was cracked and falling apart. Most of the other septic repair men and inspectors assumed that the whole tank would be in terrible condition because they saw the lid which was in bad shape. In fact, the leach field was intact and working properly as well as all other parts of the tank. The lid was the only part in disrepair, and you are right I should have disclosed that in my article. Now that I read it it does sound like a shady bribery lol, but I assure you that after dumping 200 gallons of water through the line and pouring a brand new lid, and constant testing it was finally passed. The Angel inspector did his job and went above and beyond because he decided to take the time to solve a problem, and not just walk away like the others. He was also much more experienced and knew that it would properly function with the new lid. Good point though, I should disclose that next time lol.

I am licensed for septic systems and there's nothing wrong with repairing the lid. Usually you need to get a permit but no big issue. Glad it turned out well for you. 

@Andrew LeBaron

There is always something that is unexpected with real estate investing!  Congrats your the deal working out in your favor!  Go's to show it is always important to get a second opinion!  How much money did you spend on rehabbing the property if you don't mind me asking?

Originally posted by @Jeremy Pace :

@Andrew LeBaron

@James Barnes

Andrew, how is it that the 61st inspector was willing to pass in and no one else was?  Have you had anyone else look at the work?

Could you explain the actual nature of the issue that was causing the septic tank to fail inspection?  Your story went from "the septic was broken" to "hooray, I bought a bag of quikrete and saved on a $30k repair" ... pleeeeeeeease fill in the gap!  I want to believe ;)

 Was it the same guy doing the repair and inspection?

Originally posted by @Ryan Billingsley :

@Andrew LeBaron

There is always something that is unexpected with real estate investing!  Congrats your the deal working out in your favor!  Go's to show it is always important to get a second opinion!  How much money did you spend on rehabbing the property if you don't mind me asking?

Thanks! 

 it was approximately 200 dollars to fix up and $500 to inspect. 

@Andrew LeBaron

Wow!  You really lucked out considering you never set foot inside before you acquired it!  

Congrats!  I bet if you tried that 10 times the other 9 times the house would turn out to need thousands in renovations!

Ok. Figured you didn't want people labeling you "Andrew, that dude who jipped the woman on _______ lane" lol. Good deal though. Glad you lucked out on this one!

Originally posted by @James Barnes :

Ok. Figured you didn't want people labeling you "Andrew, that dude who jipped the woman on _______ lane" lol. Good deal though. Glad you lucked out on this one!

 The home was a foreclosure and was in very good shape, we touched it up to make it spectacular and the septic tank is fully functioning. Not sure how I jipped her, she was happy and we were happy, it was a win-win.

full disclosure: I had more opportunities to win the Powerball then score on this deal. I was a lucky duck, I will never deny that. I'm glad with the knowledge I have now I won't repeat what I did before. 

Every problem is a opportunity some are harder to find the opportunities then others. It's great your partner was there with his experience to help you make the deal work. A lot of lessons were learned from this deal.

I didn't mean you jipped anyone. I was saying from your OP it sounded like that until you gave clarification on what you did. No worries :)

And this story exemplifies the beauty of real estate, perseverance and not relying on one opinion paid true dividends. As for buying the house sight unseen, that was a gamble that paid off. Thanks for sharing your experience.   

Awesome perservence! Before and after photos on the house?  Can you talk a little bit more on how you structured the backend of the deal and how you would do it differently now? 20% per year? Just trying to understand what's going on...

Cheers!

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here