From Flop To Success
Hey Guys,
I wanted to post a win here and see what other people thought.
A couple years ago I had bought a property in the Chicago area. It was meant to be a flip and connected myself with a broker. We ended up purchasing a property at $145,000 with a $45,000 rehab budget. The ARV was expected to be about $250,000. We felt fairly comfortable since the broker was doing flips himself in the same neighborhood we were in.
Long story short, the rehab went $3,000 over budget which didn't seem to be a big deal. We used a hard money lender and credit card builders in order to float the rehab costs. The lender financed the purchase price and then gave out distributions for completion of the project in a 4 phase approach. We used the credit cards to pay the contractor up front and then reimbursed ourselves with the distributions.
The last distribution we received, but the rehab was done and was expecting 45-60 days on the market before we received an offer, so we kept the cash from the distribution, kept $13k in credit cards since they would be paid off at closing. To our dismay, a year went by and we lowered the price from $250k down to $225k which would be breaking even. We have over 30 showings and no offers. So we decided to rent the property.
This was very scary for us, since our hard money loan was coming due and if we weren't able to refinance we wouldn't be able to sell the property with a renter inside. So a lot of networking happened, and in the end we refinanced the hard money loan but held on to the credit card debt.
The success comes after. We learned of a placement company for insurance companies that need housing for people displaced due to flooding, fires etc. Their leases are normally 6 months, with a first right to go month to month for a total of 1 year. The great thing about it is, since it is short term rental, and furniture is provided by the placement company, we are getting approximately $800-$1000 more per month than we would on the open market. We are receiving $2700/month with a mortgage of approximately $1700/month. It hasn't come without its challenges and repairs from a lot of turn over in the house but we have been doing this for 18 months and has worked out wonderfully.
This project has slowed our growth since we do have some debt and didn't get the lump sum of cash we were expecting to get from selling it, but through hard work and determination we were able to find a solution that still put cash in our pocket and salvaged the equity we have in the property.
I write this not to brag, but our investment career has been somewhat of a challenge while my business parter / brother and I are both in the military and work on average 10-12 hours per day. I hope this can be an inspiration to other people to keep pressing and solve the problems in order to add value to whatever you are doing. You will be rewarded in the end!
Cheers!
-Doug