Second "Deal" in the Books - Photos and Description Included

161 Replies

It has been a few months since I have really been active on BP, but my wife and I just came to the conclusion of our second “deal” and I wanted to jump back on to share some of the details and transformation photos with the community. The first deal we did was in 2018 and that project (which can be found here: https://www.biggerpockets.com/forums/223/topics/582168-my-first-flip-with-numbers-and-photos ) was met with a lot of good feedback from the community. I always welcome the opportunity to share information and learn from experiences of others through collaboration. If you have any questions for me on the “why”, “how”, etc. with respect to the details of this project please feel free to ask! Sorry in advance for the long post, if you’re not interested in reading it all, I completely understand!

Coming off a bit of a high from having successfully (and profitably) flipped our first house, my wife and I were eager to jump into our second investment right away. Of course, finding a deal would prove to be harder than just opening up Zillow and boom there it is! I worked very closely with an agent here in Pensacola who I’d like to give a shout out to. Thanks to @Matt Jones  for working tirelessly for us and finding us a great house. Matt was instrumental in the negotiations of this house and I would absolutely recommend him to anyone (especially investors) looking to buy a home in the Greater Pensacola area.

So we found the dilapidated house in the photos below which featured a floor plan that everyone desires in 2019, the rare 4 bed / 4 bath 1400 ft2 home! Just kidding, obviously. This place was the eye sore of the neighborhood, and referred to by multiple neighbors as “The Drug House”. Not sure if there was any truth to those rumors or not, but we bought it from the father of the seller who was acting on the seller’s behalf as they were incarcerated, so it’s not out of the realm of possibility.

We walked through the house (on the same day it was listed – thanks again Matt for being so proactive) and I basically told my wife I wouldn’t want the house unless we got a ridiculously good deal because of the completely unusable floor plan. She, being the design guru she is, didn’t bat an eye and began telling me which walls were going to get removed, where new ones would go, and all the other things required to bring this 1952 dud into the modern era. I hated the house and she fell in love with the potential. With her unbelievable ability to do top-notch design work on investment budgets, she is definitely the secret sauce that I believe will help us stand out in this market.

We successfully negotiated the asking price from $95,000 (ish – going on memory) down to a purchase price of $72k. The projections for this flip were as follows:

Acquisition Costs: $73,000
Rehab Costs: $64,000
Holding Costs: $3,500
ARV: $165,000

So we closed and began to move forward with the rehab. We ran into a number of issues including permitting challenges, contractor disagreements and of course, additional unforeseen rehab requirements that drove our budget up. We really took it down to the studs and didn’t skip any corners. This house taught us an incredible amount about the level of detail that MUST go into your contractor agreements and rehab process planning in order to successfully manage a project. 

Okay now to the good stuff.  Here are the before/after photos... Some of these are better photo quality than others, so I apologize.

Before:

After:

The reason this “deal” was a little unconventional is because during the rehab, the monthly payment on our primary residence increased significantly. We knew we didn’t want to be paying the amount we were having to for a house, so we decided to sell our primary and move into the house we bought to flip. This has cut our housing expenses significantly, allowing us to better position ourselves in our personal finances. The house was bought with cash, though so it was time to try our first ever cash out re-fi deal.

Here’s how the numbers actually shook out:
Acquisition: $73,000
Rehab: $70,000
Holding Costs: $8,000
Appraised Value: $182,500!!

Ultimately, we bought a dilapidated house with an unusable floor plan and reputation as being neglected by the accounts of neighboring residents, and completely upgraded the house to make it quite possibly the most modern designed and nicest properties, with an extremely desirable floor plan, anywhere in the Greater Pensacola area around its price point. It is now a super cool open concept, mid-mod design that really stands out against other inventory available in the area.  The appraiser agreed! I think a lot of that had to do with a report I generated for him that explained (much more succinctly) the story I am sharing with you all today, along with a list of all the improvements made to the property. He really appreciated having this report to reference and I recommend doing it to anyone out there who is trying to get a rehabbed property to appraise as high as possible! In fact, he told us the only other real upgrade that would have helped would have been new windows and the value would have been around $200k. The window quote we got was $19k though, so we decided not to do it at the time.

And for those wondering, we didn't take shortcuts on essentials for the sake of design.  We put a new roof on, upgraded plumbing, electrical, sub-floors, moved laundry indoors, new hot water heater, removed load bearing walls, framed in new walls, New beams and columns for carport, etc.  This was not a lipstick project by any stretch. 

With this instant equity in our primary, and stronger personal financial position, my wife and I will be on much more solid footing moving forward with our investing ventures. Further, she has finished her coursework to become a real estate agent and is beginning to study for the state test now. Because we have been living solely off of my income for the last 6 years (she has stayed at home with our 3 young kids), we will be able to use income generated from her work as an agent to invest in our real estate efforts.

Beyond the lessons learned with respect to project management, we really learned how to look at our financial position as a whole in order to make sure we are on the right path for our family’s future. Anyway, if you made it this far into my post (more like a blog), I really appreciate it and hope you found it enjoyable or even a little helpful on some level. Thanks for taking the time to read and good luck to everyone out there in their endeavors!

Sorry for the sideways photos of the two bathrooms we demoed and the master bath.  No idea how to get them straightened up lol.

And not sure why the @mention didn't work, but wanted to shoutout @Matt Jones for all the help and hard work he put into helping us get this done!

Absolutely amazing job Ben!  It is fantastic to see how it turned out knowing what it looked like before, and the pictures don't show quite how rough it actually was!  I'm glad the market was there for a higher end renovation as we thought it would be and I'm blown away by the design & finish of the work.  You and Chandler do great work and have a bright future in this business.  

Side Note:  One of the amazing things about real estate is that this is your second deal, you mention having trouble with permits & contractors and despite those challenges you are still able to create over $31k in equity with this project!

@Benjamin Ervin

Hi Ben,

Incredible job, working with that much dark and pulling if off so well! Wow!

The light over the dining table is very memorable too.

It's obvious that job didn't just fall off the back of a Home Depot delivery truck.

That took some talented planning.

Did you work with a design professional, or did you come up with plan for this yourself?

Scott...


Thanks, @Dane Collier .

Hey, @Scott Mac .  No we didn't use a design professional; my wife actually did this design entirely on her own.  She is getting ready to take the state exam for her real estate license and hopes to parlay that into more interior design work for retail clients as well as for our investments.    

ben, are your house in Pensacola? If you spent 70K on this 70K property but only sells for 185K. I have to say your are doing many high end upgrades than the house deserved. I think you put some real hard work on it and work this like your own home.... Honestly, your buyer should feel hitting gold by buying this property. Next time, I believe you may just spent 20-30K on renovation to do a cosmetic renovation than this kind of lavish one...

Originally posted by @Maurice George :

ben, are your house in Pensacola? If you spent 70K on this 70K property but only sells for 185K. I have to say your are doing many high end upgrades than the house deserved. I think you put some real hard work on it and work this like your own home.... Honestly, your buyer should feel hitting gold by buying this property. Next time, I believe you may just spent 20-30K on renovation to do a cosmetic renovation than this kind of lavish one...

Maurice, I appreciate your line of thinking here. We have been strategic in our approach to rehabs so far with our properties. Yes, we may not be getting as high of a cash on cash return as possible (in a vacuum), but we have separated ourselves from the competition by miles in terms of quality of product at a similar price point. In our market, there is nothing available anywhere near the level of rehab we have done for a similar price. We believe this approach will be a viable one long term. Of course, I am not advocating for spending more than needed for the sake of spending; however, in some cases going the extra mile makes fiscal sense regardless of the dollar to dollar ROI. Thanks for offering your perspective.

Originally posted by @Ben Boyd :

@Benjamin Ervin Well done! I'm a recent BP disciple, and I'm looking to get my feet wet with exactly this type of project. I live in Milton, so thanks for the tip to work with @Matt Jones

When you were sizing this deal up, did you come up with your own ARV? Or did Matt help you ballpark that?

Ben, I grew up in Pace so very familiar with Milton. You'll enjoy working with Matt if you get the chance. I ran my own numbers and analyzed the deal through my own spreadsheet, but yes Matt was helpful in offering his assessment, too. I found his analysis to be more accurate than mine which is good because I am highly conservative in estimating ARV.

Originally posted by @Jack Hurdle :

great work! are you going to be able to get all you put in, back in the refi?

Jack, not quite.  If I wanted to fudge the numbers a bit to say I got 100% of our investment back from the re-fi, I probably could.  But after factoring in every expense (including re-fi fees, additional money we put in after deciding to move into the property, etc.) we are leaving about $4,500 - $5,000 in it. 

Originally posted by @Benjamin Ervin :
Originally posted by @Jack Hurdle:

great work! are you going to be able to get all you put in, back in the refi?

Jack, not quite.  If I wanted to fudge the numbers a bit to say I got 100% of our investment back from the re-fi, I probably could.  But after factoring in every expense (including re-fi fees, additional money we put in after deciding to move into the property, etc.) we are leaving about $4,500 - $5,000 in it. 

Thank you for replying. When doing BRRR leaving that in is acceptable right?

Wow, very very stylish and well done!  You are your wife are naturals at this 👏

I appreciate the fact you didn't cut any corners and it looks like your extra effort paid off in a higher appraisal!  

I am SOOO Loving your rehab!!

Excellent pull together of interior and exterior colors and textures!!

Everything just ties in so well.

Wonderful job!!

I very much appreciate the your efforts.

Thanks for coming back to share and enjoy your home.

Originally posted by @Jack Hurdle :
Originally posted by @Benjamin Ervin:
Originally posted by @Jack Hurdle:

great work! are you going to be able to get all you put in, back in the refi?

Jack, not quite.  If I wanted to fudge the numbers a bit to say I got 100% of our investment back from the re-fi, I probably could.  But after factoring in every expense (including re-fi fees, additional money we put in after deciding to move into the property, etc.) we are leaving about $4,500 - $5,000 in it. 

Thank you for replying. When doing BRRR leaving that in is acceptable right?

It depends on who you ask, I suppose.  For us, it made plenty of sense to trade a few thousand for that much equity and a mortgage we can comfortably cover for our primary residence.  This house would have been profitable as a flip or cash flowed as a rental.  We decided it had a much bigger impact for us to build the equity, move in, and better our personal financial position substantially and immediately.  And, we can keep this house as a rental when we decide to move.  To me, 4-5k is worth leaving in this deal.  For some, 4-5k is a significant loss considering that could amount to (potentially) years of cash flow to make back on a rental.  Especially if that same person doesn't have reserves.  

So your question requires a different answer depending on your personal situation and investment goals/requirements.  You'll want to consider several factors when answering it for yourself.  The last thing I'll add is that if leaving a few thousand in a deal is going to be a major hindrance in your investing or personal financial position, then you'll want to really evaluate whether or not you're ready to do a deal at all yet.  

Sorry for droning on a bit...

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