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Real Estate Deal Analysis & Advice

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Bill Muchow
  • Flipper/Rehabber
  • Oviedo, FL
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18
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Our Story-Rough start, an Awakening, a Rental and a Flip ($+pics)

Bill Muchow
  • Flipper/Rehabber
  • Oviedo, FL
Posted Jun 27 2018, 11:32

Our start wasn’t easy, fell into our first rental – it was a failure…however the learning experience helped get us to where we are today. Reflecting, we’re very thankful for the learning experience (and work to never be in that position again).

My wife and I purchased our first home back in 2004 just before the bubble in Avalon Park, FL (suburb of Orlando). It took 5 months to complete (thanks to 4 hurricanes that year). It was a 3/2, 1700 sqft. Purchase $195,000. We were the last buyers before builder “auction’s” began (demand was that crazy). Appreciation was out of control – the builder was selling the same model for $300,000 before we closed! We contemplated selling, and should have….6 months after closing, the market crashed and with it, the value (+/-$130k is where it settled). As we celebrated the birth of our first born, and I worked from home, the walls closed in – so we went in search of a larger home and decided to rent it (we got just enough to cover the mortgage, but the taxes went up and before long, the difference was $100+/-month) …..and we took the first tenants who showed interest with $ in hand….which, unfortunately, were college students (The largest school in the nation , UCF, is 10 min away). BIG MISTAKE.

Those horror stories you hear about houses getting destroyed…that happened. We didn’t know what we were doing, just jumped in with both feet, we self-managed, and basically, as long as the check came in the mail (thankfully it did…late, but it did), we were happy….until I got a call from a neighbor that water was running down the driveway from the garage. In 10 months, they beat the snot out of a 2.5 year old house. Kitchen Cabinets with fist sized holes, an overflowing AC drain that went unreported for lord knows how long, causing standing water & mold growth along the entire back half of the house (hence the water issue), and we found a nice pit bull puppy (no pet policy) that conveniently ate carpet + pad, chewed window casings and doors in EVERY room. I was so infuriated I started throwing their possessions in the front yard before they came home (illegal I know, but didn’t then) and ran them out of the house in 3 days.

I filed an insurance claim for the water/mold, still spent $8,000 on repairing items the adjuster stated were not part of the original call (another lesson learned). We tried to sell, but we would have taken a +$40k haircut….so I rented to my brother for 2 years (with the threat I’d kill him if even a scratch happened) and waited out the market, selling at break-even back in 2014.

Many. Lessons. Learned.

RENTAL - Fast forward to March 2017, I was listening to a financial podcast (cannot recall which) and the hosts kept mentioning that the wealthiest people on the planet have a significant real estate portfolio. I chuckled and thought “good for them, tried that, no thanks”….but I kept thinking about it, read the richest man in Babylon, and then found BP. By May, we were submitting offers on MF duplexes, lots of them. Finally, in July 2017, purchased our first “on purpose” Triplex in a trendy area called the Milk District in Downtown Orlando! Numbers = $280k purchase, 25% down (required for MF investment properties), total mortgage all-in with Taxes = $1,500/month. Spent approx. $2k on updates. Rents were WAY under market at $2,400/month + the previous landlord was paying their electric up to $300/month (which, not surprisingly, the tenants made sure to maximize monthly). Brought true rental income = $2,100/month. A year later and we’ve turned tenants and rightsized the rents to market rate for a monthly income of $3,400 (and, obviously, utilities are on the tenants) . With moderate increases this year, we’ll be at a positive cash flow of over $2,000/month ([$3,500 income - $1,500 mortgage] - Taking into account Cap-X, vacancy, etc. and cash flow is still over $1,500 which meets our goal of $500/door).

Fitting that its in the "Milk District", because its certainly a cash cow for us!

FLIP – On February 14 of this year, we closed on our first flip- conveniently in our neighbourhood in Avalon Park (which doesn’t happen often). Honestly, it kept me up a lot of nights, but reflecting, it shouldn’t have. Deal overview;

Purchase price = $350k. 4,000 sqft, 5/4 that had an in-law suite above the garage, complete with a tar-pit (I mean pool, but you couldn’t tell the difference), hurricane damaged roof with inside water damage, two kitchens that needed appliances/updating, 2,300 ft of flooring needed replaced, $45k in city fines that we had to navigate (settled on $1,500 in fines, title company assured me that would be the case, but I was still apprehensive, glad we listened) and lots of granite, paint & fixtures! I took out a conventional mortgage because it was the only access to cash I knew how to get (but I’m not sure if I can keep doing that honestly, lender was pissed I sold in less than 3 months), all in (repairs, closing costs, holding costs, new roof, etc) = $78k. Hired contractors for 95% of the work (we changed out fixtures and did landscaping). Total renovation time = 5 weeks. Accepted offer at 7 weeks. Closed on April 30th for $492,500 - netting just over $60k in profit, which we’re actively looking to re-invest in another flip or rental, whichever offer happens to get accepted first.

On top of all this, my wife got her real estate license in September (to help with costs, speed, etc) and has helped 13 families and counting purchase their dream homes…many who see properties with changes they want to make, she now has the knowledge to give design ideas & approximate costs and her clients LOVE that!

Sitting on the sidelines and not taking action would have cost us $83K in income (and counting) this past year ($60K in income on the flip, and about $23K on the rental). Don't make the same mistakes we made in not taking action, if we started 4 years ago, we'd be $100k wealthier on the rental alone!

TO say we've been bitten by the REI bug is an understatement. We are hooked! Investing for returns has become a family affair as our kids (10 and 6) are taking active roles. It's become "normal" for us to walk properties Saturday morning's, and be on the beach by 1PM with offers in play. Our goal is to build a sizeable portfolio to gain financial independence, while teaching our children along the way. REI a fantastic way to build a family's generational wealth, and we would love nothing than to pass along the properties and knowledge to them…with the hope they do the same.

We sincerely hope our story and success motivates others!!!! Thank you BP and community for providing the knowledge, tools and motivation to act!

-Bill and Suzanne

Pics of our first Flip;

Before:

After:

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