MY FIRST FLIP!!! COME FOLLOW MY JOURNEY!
I did a post about my first rental purchase here (https://www.biggerpockets.com/forums/223/topics/67...) which took place last month. During the time of acquiring the rental property I also came across an opportunity to purchase a property in my hometown. I really wanted to make this a BRRRR property but it would not have worked due to numbers. This thread will follow my journey. I will try to update as much as possible. Enjoy!
HOW DID I FIND IT?
I started a side handyman business several years ago to bring home extra income and have my wife stay home with the kids. One of my customers asked me to meet her at another home to give a bid on stopping some water leaks. When I walked into the house I could not believe what I saw! It was a disaster! The entire kitchen floor was bubbled up due to water getting into the particle board.. No one lived in the place and unfortunately she had allowed some homeless folks to set up camp in the back yard. My gears started turning immediately that this house could be BRRRR or flipped.
I began to ask questions about the place and its story and her plan with the place. I learned that it belonged to her husband and 5 other heirs through a trust. No one had lived in the place for several years but was still full of everything her inlaws had owned. Homeless folks were using it for cooking and bathing. Place smelled wonderful J. She let me know they planned on selling it and were talking to a realtor about placing it on the market. I let her know right then I would be interested in purchasing it and would like to entertain owner finance if they were up for it. I assumed since they were heirs that there was not a mortgage on the place at this point.
PARTNERSHIP:
Since this would be my first flip and learning from the podcasts that most people loose money on their first flip I decided to reach out to a local investor. I wanted to make sure I made something on this deal. I asked if they would be interested in partnering in this deal if it were to materialize. They would help guide me through the process in exchange for part of the profit. They agreed and walked the property with me to give a ballpark rehab number of around 40K. Using this number I learned that trying to use the BRRRR method and pull my money out would not pencil out. Local rent to price ratios are too large, I would have had to keep substantial amount in the deal after Refi for rent to cover mortgage payments. So that was out the door.
THE DEAL:
I learned from my customer that her brother in law was the trustee of the trust. She had talked to him and they indeed were willing to do owner finance. SCORE!! I would use my HELOC from my personal residence to fund the rehab. ARV is 245,000. The Terms were:
Purchase price: 155,000
Down payment: 5,000
Interest rate: 4% (interest only)
Loan to be paid in full within 1 year
No prepayment penalty
Purchased as is
I was stoked!! Creative financing on my first flip! We opened escrow and were on our merry way. UNTIL, I received a phone call from Title Company stating that the trustee did not have the power to make a loan with this trust. There was no language on the trust that allowed business to be carried out in the trusts name and so title would not issue title insurance for the property. DANG!! I would have to get signatures from all 6 heirs stating that they were ok financing the loan to proceed. I talked to owners about this, they were on board but unfortunately one of the heirs had been MIA for several years and no one knew where he was at. Last they heard he was living on the streets or on a farm somewhere. After two months of asking questions and looking around we finally found him. His family members tracked him down and I got a notarized signature. THANK GOD! Couple weeks later we closed escrow and the place was ours!
JOB SCOPE:
Home is located in a C or C+ neighborhood. With the low price point we planned to do as little rehab as possible. Job scope included:
Haul off all trash on the place
New kitchen
New bathroom
Laminate floor in kitchen/dining room
New carpet in bedrooms
Complete interior paint
Complete exterior paint
New vinyl windows
Clean up shady electrical work
GETTING STARTED:
Being handy myself I thought about doing as much of the work myself to save money. However I also know time is money and the market is slowing down here. I want to get this thing on the marked ASAP. I work full time and run a handyman business on the side so my time is limited to Sundays. I decided to let go of the reins and let the contractor do what he does best.
I hired two friends and within 2 days time 90 percent demo was complete and the house was pretty much cleared out. I hauled three 16’x8’ trailer loads to the dump to start with. By the time its all said and done I will have 10 trailer loads of garbage between inside demo and cleaning up the homeless camp outside. I enjoy doing clean up jobs, beats sitting behind a desk for 8 hours a day and I am a neat freak. Just watch out for those drug needles!
WHAT IT LOOKED LIKE: