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

Buying & Selling Real Estate
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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. 

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

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

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

    Work is done. Leases being signed tomorrow for both sides. $750 per side, $1500 total. Asking price will be at $120k.

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

    TIME LOG:

    • 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)
    • 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)
    • Friday April 28: Closed on property. 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.  
      • TIME SPENT: 2.25 hours (1.75 driving)
    • May 1-16: Work weeks. It took two extra days then planned, but we added a few things.  I went to the property one time just because I had to pick .  I have good crews.  My time was just choosing appliances, backsplash, finding garage door openers that would work since normal ones wouldn't fit. 
      • TIME SPENT: ~4.5 hours (1.5 driving)
    • May 17: Work completed. Went and did walkthrough with contractor and paid him. 
      • TIME SPENT: 2 hours (1.5 driving)

    Total Time So Far: 19 hours (11.5 of it was driving) 

    I should just have 1.5 hours-2 hours whenever I find a buyer and close. 

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

    Initial COST of WORK estimate: $19,000

    Actual Cost of Work: $23,100

    What was the difference? There was an additional $500 in plumbing stuff we had to take care of and a few other little odds and ends. 

    But the biggest thing: I have never had this happen before, but the seller took the appliances!  So I had to buy all new appliances, and since I did that I decided to do the backsplash. The special garage door openers cost me an extra $570 total. 

    The good news is that I was estimating $700-725 per unit, but we were able to get $750 per side and got it pretty quickly.  Leases are already signed.  One person moving in Tuesday, the other June 1. 

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

    UPDATE:

    My property managers as well as myself sent this out to some investors to try to sell off market. There were no takers at this time so as opposed to putting it on the market, I am cash-out refinancing and BRRR-ing this (which was always my backup plan).

    APPRAISAL: $135,000  - BOOM!!!

    I'm getting an 80% cash out refi, so $108,000 out.  That's actually going to net about what I thought I would have after paying income tax on the flip proceeds.  So I'll get my humidor, some additional cigars to fill it, AND keep making money going forward.  

    THE NUMBERS (approx):

    Purchase: $66,000

    Rehab: $23,000

    Additional Expenses: ~$5,000 (short term interest/carry/closings)

    All in: $94,000

    Cash out: $108,000

    NET: $14,000 <- CASH IN MY POCKET!!!

    ...AND I'll cash flow every month going forward!

    0Reply
  • Jarrett C.
    Investor · USA · Member since 2016 · 22 posts · 10 votes
    9y

    You sir, are #winning. If I'm ever in the area I'll have to bring you some Gregorio's. 

     Why did you not want to market it? The decrease in profit margin?

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

    You sir, are #winning. If I'm ever in the area I'll have to bring you some Gregorio's. 

     Why did you not want to market it? The decrease in profit margin?

     Thanks man!  Yeah, I didn't go to market because of the decreased profit margin. With realtors taking 6% on a sales price that I'm sure would end up being a decent chunk below appraisal, and other concessions... then pay regular income taxes on the profit for a flip it doesn't make sense.  I would probably end up with around $14k in my pocket or less if I sold on market.  

    So since my bank would do 80% cash out on this one, I end up with about the same or probably even more cash in my pocket than if I sold on the market... and have another property and cashflow!

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

    The refinance happened today.  I have an additional $14.5k tax free cash in my pocket right now than I did before I bought it, and will continue to make some ok money going forward ($1500 rent on $108k mortgage).  

    Now I'm just waiting for the furniture maker to finish up designs and get started building!

    1Reply
  • Deshawn Lewis
    DHS/Investor · Bowie, MD · Member since 2015 · 149 posts · 65 votes
    9y

    Great read, sounds like a great project. You wanted to flip but ended up as a buy and hold or BRRR with you coming out netting 14k...

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

    Great read, sounds like a great project. You wanted to flip but ended up as a buy and hold or BRRR with you coming out netting 14k...

    Thanks Deshawn! It turned out really well. I've done a few BRRRR's that I net out additional cash. So this was always the back up plan, but I wasn't expecting quite this much. With the $135k appraisal I'm really glad no-one bought it when I offered it to some investors (as did my property managers). I would have ended up with less cash in my pocket after paying the short term income tax if I sold! And I'll make a few hundred every month going forward.

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