My first flip - story, analysis, and numbers
Acquisition
- Newly licensed agent with a handful of residential units (sfh and duplexes)
- On the market for about 6 months. Started 130, and sat for a while. When it dropped to 120 I made my offer and had it under contract for 100.
- Used my new credit line for the down payment 25k and got a conventional loan for the rest. The plan was to BRRRR.
Renovation
- Cosmetic only
- Refinished floors, all new kitchen appliances, new laundry machines, added dishwasher.
- Improved layout - Added a small wall to create a hallway on the first floor. This enabled people to walk from the kitchen to the back deck without having to go through the first floor bedroom.
- Did the same thing on the 2nd floor, so that people could walk up the spiral stairs and not have to pass through the 2nd floor bedroom. This created a master suite out of the 2nd floor with its own private bathroom.
- Eliminated a closet in the 2nd floor bedroom to make the room bigger. Added an 8ft closet to the walkway between that bedroom and bathroom to make up for the lost closet and make good use of previously unused space.
- Deep clean and fresh paint everywhere, upgraded a few light fixtures and fans.
- First time not doing all of the work myself.
Marketing
- Purchased in October 2016. Rehab complete in under 2 months. Now we’re in late December/January and the leads are coming in SLOW.
- I figure, what the heck. I’m licensed now, let’s put it on the market and see what happens.
First Contract
- FHA buyer, needs a lot of sellers assist. We agree to 158 with 8 in SA, so 150 net for me.
- Wants me to split the cost of the appraisal with him because he’s doubtful it will appraise. I agree.
- After inspection he wants to max out his seller’s assist, and perform some costly repairs (upgrading the old ungrounded electrical). I offer him another $700 in SA instead. He terminates the contract.
- My thoughts - this deal fell apart partly due to issues with the home, but mostly because the buyer didn't have enough money for closing costs.
Second Contract
- Cash buyer, another investor. We agree to 147,500 and I place a tenant. I already had a qualified applicant at that time.
- After the inspection he gets me down to 140,625. This kills much of what is left of my profit, but at this point I just want to get my money back and get into a new project.
Lessons learned
- Stay away from homes with small spiral staircases. This was a deal breaker for many of the potential buyers and renters,
- Stay away from homes with a lot of existing handyman work (unless you are going to re-do it). Inspectors can tell and it will hurt you on the back end in negotiations with buyers. This probably wouldn’t have hurt me if I had stuck to my original plan to keep this as a rental.
- Market timing is important. This property sat for several months without getting a qualified tenant or buyer. This made my holding costs higher than they would have been if the property was avaialbe in spring or summer. This was not a deal-breaker but it did cost me more money.
Judgments
- Success! - A 55% Cash on cash return isn’t bad! Especially for my 1st try at a flip.
- Failure! - Just over 10k in profit is far less than what I was expecting when I first listed the property for sale. I expected to get around 155k for it, with a profit just shy of 25k,
- More failure - if I was not a licensed agent I would have had to pay double commission. This would have pushed me down close to break-even... NOT good!
All the numbers: