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