Duplex Under Contract - Flipping, Karma, & A New "Toy"

Buying & Selling Real Estate
9yFollow

Duplex Under Contract - Flipping, Karma, & A New "Toy"

Austin Fruechting
Investor · Kansas City, MO · Member since 2017 · 791 posts · 1k+ votes

I have a duplex under contract to close April 28th, and I'll be flipping it for a new toy. 

The toy is an expensive one, and WAY more than I could justify spending. So I thought "What if I flip a property to pay for it?!" That way at the end of it all I have the same cash in the bank AND my expensive my toy. I'm just trading some time running a project in exchange for my toy. I've only flipped a property twice, but I have BRRR'd 4 homes, one duplex, one 4 plex, and a 6 plex... so I'm no stranger to projects.

I notified some realtors I know in different areas that I was looking for a flip. The market is fairly hot. Nothing was available and rare for any good values to hit the market right now. They'd been looking for a few weeks with not even a single possibility. 

KARMA: Well, after my Financially Free at 32 post , I received about 50 private messages/emails with congrats and questions.  I took the time to respond to all questions in the post as well as all messages/emails.  A younger KC guy trying to get started wanted to meet up.  I invited him to my house, shared a cigar and some fine bourbons with him while talking real estate and trying to provide some guidance.  Towards the end of our time there I get a text message from someone I hadn't even talked to about looking for a flip.  It was this duplex opportunity.  I thought it was cool that I had been looking and not finding anything.  Then after all the time trying to help people by answering their questions, and while I was meeting with a beginning investor, the opportunity came to me. 

1Reply
113 views

Most Popular Reply

Jeff Sprunger
Lockport , NY · Member since 2014 · 265 posts · 124 votes
9y

can't believe no one has asked, what's the toy?

1Reply
See this reply in the discussion

34 Replies

Jump to latestLatest
  • Austin Fruechting
    OP
    Investor · Kansas City, MO · Member since 2017 · 791 posts · 1k+ votes
    9y

    THE PLAN:

    • 2X new HVAC systems
    • 2X new hot water tanks

    EXTERIOR

    • replacing rotted trim and siding where needed
    • paint entire exterior
    • gutter work where needed
    • deck repair

    INTERIOR

    • New flooring where needed
    • 2X Reglaze tubs/showers
    • paint cabinets white, new hardware
    • paint all brown trim/doors white
    • replace some light fixtures
    • sheetrock bonus room in bottom level
    • install garage door openers
    • redo a staircase

    Roof & carpeting are very recently redone.

    TIMELINE: 2 weeks (depending on weather, it may bleed into a 3rd week)
    COST of WORK: $19,000

    Duplex: $66k

    Carry/Closings: $5k

    TOTAL: $90k

    Post Reno Value: ~$110,000 ($700 rent per side, with all new HVACs, roof, water tanks, and updated interiors going rate 1.25%-1.3%)

    I'll close Friday April 28th. $40k my money, $50k private lending at 12%. We'll start work Monday May 1st. Targeting the 12th for completion. Hope to have one or both sides rented for June. Then will look to sell to another investor.  

    0Reply
  • Austin Fruechting
    OP
    Investor · Kansas City, MO · Member since 2017 · 791 posts · 1k+ votes
    9y

    Exterior is just google street view with the old roof. 

    0Reply
  • Matt Friedman
    Sherman Oaks, CA · Member since 2017 · 19 posts · 9 votes
    9y

    Sounds like a good plan.   That "new toy" definitely provides some good motivation.  All the best!

    0Reply
  • Austin Fruechting
    OP
    Investor · Kansas City, MO · Member since 2017 · 791 posts · 1k+ votes
    9y
    Originally posted by @Matt Friedman:

    Sounds like a good plan.   That "new toy" definitely provides some good motivation.  All the best!

     Thanks Matt.  And it sure does provide some motivation... going straight Kiyosaki (Rich Dad Poor Dad) to get it!  I'll update as things progress. 

    1Reply
  • Austin Fruechting
    OP
    Investor · Kansas City, MO · Member since 2017 · 791 posts · 1k+ votes
    9y

    Doing the cash shuffle today so that it's ready and cleared by next Friday to close the deal.

    The account I'll be using has some reserve balance, moving $50k from a private lender (12% interest), and $30k from a LOC (5% interest). That will cover all $90k.

    I could have pieced it together myself.  I have some cash around, and $85k between two LOCs available (60k @ 5% and 25k @ 8%).  However, the difference in using $50k from a private lender is just under $250 per month extra.  The whole process should take 2 - 4 months.  I will happily pay an extra $500-1000 to make sure I have large safety net for my other 107 rental units. 

    0Reply
  • Jeff Sprunger
    Lockport , NY · Member since 2014 · 265 posts · 124 votes
    9y

    can't believe no one has asked, what's the toy?

    1Reply
  • Austin Fruechting
    OP
    Investor · Kansas City, MO · Member since 2017 · 791 posts · 1k+ votes
    9y
    Originally posted by @Jeff Sprunger:

    can't believe no one has asked, what's the toy?

     I am flipping a property to fund a humidor purchase! Seriously... LOL


    I currently have a big humidor (4x6x2ft) that I've had for years. It was super cheap. Just a cabinet that I bought off craigslist and converted to a humidor. It gets the job done, but I really want temperature control. My wife has put her notice in and we'll be doing extended trips when she wraps up. My biggest fear is my HVAC will go out while we're gone and I come back to a humidor full of mold and every cigar ruined.  Too much heat & humidity = mold.  

    My options were 1) add temp control to this cabinet: $2,600 - I'm not putting that into a $250 craigslist find.  2) buy from the most well known cabinet humidor builder ~$6500-7k. They are awesome, but expensive and I don't like the traditional looks, so I wouldn't spend that and finally... 

    Option 3) crazy custom build.  I talked with an amazing custom furniture builder (modern furniture) that I know. He is a true craftsman and his pieces are works of art... but his work comes at a very steep price! For him to build me one and go all out to make the coolest thing he can, it will probably be about $10k +/-.  No way can I justify spending that either!  

    Then I thought "Hey, why not flip a property to pay for it. That way I don't actually spend any money. I'll just spend some time, and the proceeds can buy the most baller humidor ever." 


    Plus I thought it would be a cool thing to document the process for the BP readers and for my blog.

    So yes, I am flipping a property to buy a humidor. I don't know if that's the weirdest reason ever, but it has to be up there!

    At the end there should be enough profit to pay the short term capital gains tax, commission the humidor build, and the rest will go to boxes of Cubans.

    0Reply
  • Kerry BairdPro Member
    Rental Property Investor · Melbourne, FL · Member since 2011 · 3k+ posts · 2k+ votes
    9y

    I wouldn't have guessed humidor in a thousand years!  However, once you explained it, your strategy makes so much sense.  I suppose you could have set up a Go-Fund-Me deal:  Save Our Cigars.  LOL  Have fund with your rehab~

    0Reply
  • Chinmay J.
    Investor · Northern, VA · Member since 2016 · 1k+ posts · 904 votes
    9y

    @Austin Fruechting - Nice post. I had to look up what a humidor was. LOL. Now, I knew what a humidifier was, but humidor..no not really.. Great way to pay for your dream. 

    0Reply
  • Austin Fruechting
    OP
    Investor · Kansas City, MO · Member since 2017 · 791 posts · 1k+ votes
    9y

    @Kerry Baird @Chinmay J. - LOL... Yeah if it's not the weirdest reason for a flip it has to be close to it!

    As soon as I'm done typing this I am going to go: 

    1. Verify the exterior paint colors I chose last night
    2. Go to my flooring guy, select floors, and schedule install
    3. Drop off deposit with my contractor (as well as paint colors)
    4. Schedule the tub resurfacing
    5. Call my appliance guy, order washers/dryers, schedule install
    6. Make sure my HVAC guy has me on the schedule for 2 new installs
    7. Make sure the plumber has me on schedule for 2 new hot water tanks
    0Reply
  • Austin Fruechting
    OP
    Investor · Kansas City, MO · Member since 2017 · 791 posts · 1k+ votes
    9y

    TIME LOG: 

    I thought perhaps some people would find it interesting to see my time input as it goes along, and I thought it'd be interesting to know as well.

    • Tuesday April 11 (evening): Receive notification of property for sale (and a few photos). Do preliminary analysis: Did a tax search. Google street view to see what's around it. Roughly calculate renovation costs. Look at what other multi family are listed at as compared to rents and finishes. Estimate what I could sell for renovated. Decide I'm interested. 
      • TIME SPENT: 15 minutes
    • Wednesday April 12 (morning):  Drive to property.  Walk the exterior only & estimate repair costs.  Adjust renovation numbers.  Look for major issues (none).  Call and say I'll take it.  
      • TIME SPENT: 1.5 hours (1.25 of that was driving)
    • Thursday April 13:  Sign contract for cash purchase.  5 day inspection period, 15 day close.  Figure out where the money will come from.  Offer 12% to a private lender for $50k (who said yes). Then $30k from one of my LOCs, $10k +/- in the account I will use. 
      • TIME SPENT: 15 minutes
    • Friday April 14: Walk through interior of property. Make sure there are no surprises and nail down what work needs to be done. I have my property manager and contractor meet me there.  After we go back to property managers office, figure out what work will add value (both in rents and in resale value).  Put plan together.  Drive back.  Use drive time to get costs for plumbing and HVAC and schedule them.
      • TIME SPENT: 2.5 hours (about 1.5 was driving)
    • Monday April 17: Get official bid from contractor.  Discuss one of the optional items his cost to do wood treads.  Call my flooring guy, get rough cost on carpeting stairwell (decide to carpet).  Call my appliance guy for costs on 2 washer/dryer sets. Update excel with final numbers.  
      • TIME SPENT: 30 minutes
    • Wednesday April 19: Receive check from private lender. Go to bank A to pick up check from LOC. Go to bank B to deposit both checks
      • TIME SPENT: 1.25 hours (1 hour driving)
    • Friday April 21:  Drive to property.  Pick exterior colors.  Go to flooring contractor, pick out the vinyl and carpet.  Drop off check with GC & paint colors. 
      • TIME SPENT: 2 hours (1.5 driving)

    Total Time So Far:  8.25 hrs (5.25 was driving)

    Estimated time remaining: 12 hours?

    0Reply
  • Brian Garrett
    Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
    9y

    @Austin Fruechting So you are doing BRRRR with this property correct? Not standard rehab and flip? I saw you mentioned renters and then eventually selling to an investor.

    0Reply
  • Austin Fruechting
    OP
    Investor · Kansas City, MO · Member since 2017 · 791 posts · 1k+ votes
    9y
    Originally posted by @Brian Garrett:

    @Austin Fruechting So you are doing BRRRR with this property correct? Not standard rehab and flip? I saw you mentioned renters and then eventually selling to an investor.

     Hey Brian.  This will be a flip... or a BRRSH (Buy, Rehab, Rent, Sell, Humidor!)

    As soon as we have leases for both sides we will offer to other investors.   We aren't going to go to market with it. They'll offer it to their other investors that are looking and I have a couple people that may be interested as well.

    Our value add is coming two ways on this, obviously updating interiors to make units a little more attractive, but mainly from completing a lot of CapEx (new HVACs & hot water tanks, siding & trim repair w/ new exterior paint... and the roof is only a few years old)

    So increase rents, and have the majority of big CapEx stuff taken care of. That way buyer doesn't have to worry about that for a long time. Plus ~11 months left on leases for the investor that buys it with quality management in place.

    1Reply
  • Brian Garrett
    Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
    9y

    @Austin Fruechting Love the strategy it makes perfect sense. Go get em!

    1Reply
  • Austin Fruechting
    OP
    Investor · Kansas City, MO · Member since 2017 · 791 posts · 1k+ votes
    9y
    Originally posted by @Brian Garrett:

    @Austin Fruechting Love the strategy it makes perfect sense. Go get em!

     Thanks!  I was looking for a house to flip then this opportunity fell into my lap and was going to be a cakewalk. It's in the area where I have all my rentals, so all my normal crews can do the work (good prices and no babysitting!). 

    Should be an easy sale at 1.25% rent/purchase. We should get $700-725 per unit so we'll offer up $1400-1450 in rent with all the big CapEx taken care of for around $110-115k.

    0Reply
  • Brian Garrett
    Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
    9y

    @Austin Fruechting When an opportunity presents itself, capitalize!

    0Reply
  • Austin Fruechting
    OP
    Investor · Kansas City, MO · Member since 2017 · 791 posts · 1k+ votes
    9y

    Closed today. Had to go get the cashiers check then closed at the title company. Stopped by the property, then took the keys to the contractor and dropped off a couple checks. Work will start rolling on Monday. 

    Time spent: 2.25 hours (1.75 driving)

    0Reply
  • Linda WeygantPro Member
    Investor and CPA · Arvada, CO · Member since 2015 · 2k+ posts · 3k+ votes
    9y

    It just bears mentioning - make sure you keep enough back for taxes before you spend all the cash on your toy.

    Podcast Guest on Show #244
    0Reply
  • Austin Fruechting
    OP
    Investor · Kansas City, MO · Member since 2017 · 791 posts · 1k+ votes
    9y
    Linda Weygant - of course!
    0Reply
  • Austin Fruechting
    OP
    Investor · Kansas City, MO · Member since 2017 · 791 posts · 1k+ votes
    9y

    These may look like keys to a duplex... but they're really keys to a baller custom humidor at no effective cost to me... and several boxes of Cubans!!

    0Reply
  • Austin Fruechting
    OP
    Investor · Kansas City, MO · Member since 2017 · 791 posts · 1k+ votes
    9y

    Work started today.  The tub resurfacing is done - fantastic result for just $250 per tub. 

    0Reply
  • Austin Fruechting
    OP
    Investor · Kansas City, MO · Member since 2017 · 791 posts · 1k+ votes
    9y

    Interiors are almost done.  Appliances will be in next week. Just basic make readies for a $700/month rental.

    New hot water heaters installed, HVAC's are installed.... but my HVAC guy stole the toilet. 

    Exterior is being worked on right now.  

    0Reply
  • Austin Fruechting
    OP
    Investor · Kansas City, MO · Member since 2017 · 791 posts · 1k+ votes
    9y

    Exterior is fixed up and painted. Appliances, backsplash, and touch-ups/clean up is all that's left. 

    8 showings scheduled for next week. 

    0Reply
  • Austin Fruechting
    OP
    Investor · Kansas City, MO · Member since 2017 · 791 posts · 1k+ votes
    9y

    TIME LOG UPDATE: ~13.75 hours (7 of that driving)

    We are almost done with work. I would say I've spent approximately 3 actual doing some research on garage door openers (regular ones wouldn't work), on some calls, and making some other decisions. 

    Appliances and backsplash going in today.  

    0Reply
  • Jeff D.
    Kyle, TX · Member since 2017 · 12 posts · 1 vote
    9y

    Looking good, cant wait to see the humidor when its done too

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free