First FLIP = another base hit
Just a short post on my first dabble in flipping, with some lessons learned for other first timers.
Find: Flipping was not my focus, and I didn’t have an active search. However I had toyed with the idea, simply to test and see if it would work to bridge the gap between my full-time job shift. So when my Realtor (@Claudio) asked me if I was looking for a flip, I said yes!
Analyze: Analysis below, using market ARV's and a rehab of: paint, carpet and minor repairs.
Offer: With that I offered 86k, and settled at 89k. The property was a bank REO.
Purchase: For financing we used a PML at 9% interest only for 6 months, $563/month and the rest of the purchase and rehab was paid for with cash. Just before we closed (august ’19), an exact property match (flipped) sold one street over for 150k. At this point we decided to match that flip and hope for the same. We closed in September, this will be a factor that we will come back to.
Rehab: Relationships are everything. The rehab started very slow as 2 of my usual contractors were busy, and the newest one I had working on a different job I was not impressed with. So I reached out to my realtor, and he reached out to the flippers he knew to see if anyone’s crew was available. Luckily for me there was and I used them for the entire job. They did a fantastic job and completed it in 2 months (late November)
Sell: Lesson learned, not a lot of people want to buy a house between Thanksgiving and Christmas. There were plenty of showings, but no offers until mid-february which we accepted at 145k. Back end analysis below:
Overall: 9k profit at 20.7% COCROI with leverage annualized.
Lessons:
1) Stay in your lane, but if an opportunity comes you way, get help and find a solution. Flips were not my concentration, however I did want to try one. This was a small enough flip that I decided it was worth the risk to break from BRRRR and give it a try. I would not have been nearly as successful without the help of my realtor/contractor team. In the end everyone benefited! The only regret I have is not having the cash available when a great BRRRR came my way. I was still able to get it, but it was stressful and I had to get extremely creative with the financing and rehab until this flip sold. The Obstacle is the way! I found more ways to creatively finance, not having cash = more financing costs (HML) which I could have avoided if I wasn't tied up in a flip. This opportunity cost was essentially half of my flip profit.
2) Consider market timing for ARV. We decided on a 150k ARV, but that property sold in August. If your flip is going to hit the market in the winter months, plan on a slight reduction for the slower months, at least in most northern markets.
3) Pre-inspect! I had to use a plumber none of us had used before. They work was not that great and required multiple fixes after the inspection. It would have cost me a lot more if the buyer requested to pick the plumber. Luckily they didn’t specify, so I was able to use a more competent plumber to fix the mistakes. If I would have pre-inspected (~$300-400 cost), the mistakes would have been fixed sooner, and without the risk of the buyer picking the plumber.
After pictures:
