Barely a sucess but lessons learned in Ann Arbor Michigan
Just finalized the sale of a 3 bed, 1 bath flip in Ann Arbor, MI with my wife. House was a hair under 1000 sq ft. It was the least profitable deal we've done by a decent margin but it was probably my favorite because (1) it ended up looking good, (2) we were hands off on all manual labor (I did the paperwork and my wife selected the key finishes), and (3) we learned some valuable lessons without actually getting hurt much by them. One thing that helped keep anxiety levels lower than usual is the fact that Ann Arbor is an incredibly strong/stable market, so if everything went south we would've had no qualms about holding on to the property long term.
Acquisition - I came across the listing on Craigslist. It was a FSBO and the owner was asking $245k-ish for it IIRC, which was under market but didn't leave much room. I looked at the house from the outside and it looked fine. The tenant wasn't home and the owner didn't want me to go inside without her there. So we made him an offer that day for $220k. He declined and didn't counter. A month or two later I received an email from him saying he was willing to negotiate more. Turns out, the tenant had been behind on rent and he eventually got her to leave. But she left behind a huge mess, thus his change of heart. She wasn't quite a hoarder but not far off. There was stuff in every room and the basement was full of junk. The house had great bones though - a good roof, functional windows, and well-maintenanced HVAC. It just needed a face lift. We ended up settling on $225k. I regret not sticking more firmly to the original offer. I think we would've still gotten the deal.
Financing - We were going to do a conventional mortgage, but decided to ask the seller to do a land contract (to avoid having to take out a full mortgage for a 3 month flip) and he was totally fine with it. We put down $100k, and he agreed to finance the $125k with a 3 month land contract at 5% with no payments. Never hurts to ask if you can demonstrate financial stability.
Rehab choices - We decided to do a full refresh. New kitchen cabinets, floors, and appliances. All new bathroom tub, vanity, fixtures, and floors. Redo the hardwoods throughout the main floor, paint the whole house, put on new doors, and replace all the light fixtures. New doors are totally underrated in terms of bang for your buck on renovations. Not as expensive as you'd expect.
Uh oh - About 3/4 of the way through the rehab, contractor gives me a call and asks we stopped by the house over the weekend. "No, why do you ask?" Apparently there's a small pile of dog doo doo on the newly sanded floors and some footprints in the kitchen that weren't theirs. Turns out, the lock on the sliding door in the back wasn't working. Someone had gotten nosy and decided to take a look at the place during the reno, brought their dog in, and the dog dropped a few logs. We changed all the locks immediately after closing but didn't double check whether the lock in the back was working. We had thousands of dollars in tools, cabinets, fixtures, and appliances in the home. They could've vandalized the place or stolen the stuff. Luckily that didn't happen. Disaster averted. Whew.
Reno - The reno ended up turning out great. Only hiccup there was when I bought the wrong diverter for the shower multiple times until I finally got the right one. I went with the Amazon suggested option for the diverter to pair with the shower hardware, didn't double check, and it was incorrect. Then I did it again. Don't buy things online without checking to make sure they're correct.
Listing - Unfortunately, during the first few months we owned the property, a few bad comps popped up. A house 4 doors down, literally the exact same house with fewer updates, sold for about $20k less than we hoping to list for. So, eventual list price drops by $5k.
Regardless, house goes under contract the first weekend. Inspection is basically fine. We make a $1,200 concession for some small items. We're thinking it's smooth sailing to closing. Appraisal comes in and....it's $12k short. We thought it was a crappy appraisal for a variety of reasons, but challenging an appraisal is generally a losing battle. Luckily, Ann Arbor is a super competitive market and the buyers didn't want to continue to compete for a house in the spring so they went to a different lender. This time, we got an appraisal at asking price from a local appraiser who understood the area better. Right as we were going through the appraisal nonsense, though, another house popped up in the neighborhood. The finishes weren't as nice or stylish, but it was a clean house and for only $10k more it had an attached one car garage. My house had no garage. It doesn't go under contract immediately so we're worried the buyers will terminate the agreement and make the same offer on the new listing. Thankfully the buyers followed through and we closed on time.
Numbers:
-$225k purchase price
-$33k rehab ($13k labor and $20k materials...cabinets were nice and we put in quartz counters)
-$17.5k holding and closing costs (closings costs, taxes, utilities, insurance, etc)
-$1,200 seller concession for a few miscellaneous items
-$290k sales price
Profit of just over $13,000
Lesson #1 - Always make an offer, even if it's low, and stick to your numbers. The seller might come back later.
Lesson #2 - If you can show you're a good buyer, it doesn't hurt to ask about alternative financing.
Lesson #3 - New doors are underrated in terms of making a house look great.
Lesson #3 - Always change the locks immediately and check all of them.
Lesson #4 - Buying in strong markets can clear potential roadblocks.
Lesson #5 - If you get a good off-market deal in a high demand area, strongly consider just immediately relisting on the MLS. The house did need to be cleared out and definitely needed a new kitchen and bath, but I think I would've made the same margins in a smaller time window had I just listed it as-is. Something to think about in the future.
Btw, the wet spot in the last picture is due to the cleaning ladies mopping right before the photographer came. No basement water issues. Was dry as a bone down there.