First Flip. In California. Sold in 24 hours!
My wife and I have been analyzing wholesale deals we come across for almost a year, but the numbers never work out. We wanted to start doing quick flips, just in case the market took a dip. Our current project in Phoenix is a scrape/new construction, so there's a lot more market risk when you have to hold onto the property for a year. However, I've noticed that most wholesalers in Phoenix don't know how to price correctly, and a lot of them are even sending us MLS deals they get under contract. Wholesale deals don't seem to be 15-20% below market anymore.
So, we knew our two options were to start direct mail marketing ourselves, or look elsewhere. We decided to take a look at properties back in my hometown in California. It's about 90 minutes East of San Diego - a town called El Centro. The area made sense for us; we have people there that can manage the day to day, we know plenty of people involved in construction, and my parents still live there, so we have a place to stay. Plus, its only about a 3 hour drive from Phoenix.
After about a month of just getting to know the market better through looking on the MLS, I came across the cheapest property I had seen. It was listed for $115,000. It was listed as a 2 bed 2 bath, but I noticed that it had 1,500 sq ft. That was an alarm bell for me, knowing that most houses that were 1,500 sq ft had 3 bedrooms. I called my brother and asked him to go check it out for me. He did a video walkthrough of the property, and sure enough, there were 3 bedrooms. The listing agent had dropped the ball, and we knew this would cut out a lot of lazy potential investors.
The video also showed that there were some serious foundation issues with this house. The tub in the second bath had sunk 3 inches below the floor. The same thing happened to the shower in the master bath. There were actual holes in the floor, and you could see the dirt two feet lower. Walking through the house, you felt like you could fall through at any time. This was driving most investors away, and I loved it!
I reached out to a close friend of mine from high school, who is an entrepreneur and has some free time, to see if he was interested in partnering on the project. We would cover 100% of the costs, and he would manage the day to day of the rehab, and we would split the profit 50/50. He readily agreed. He met with his agent and contractor at the property, to determine the scope of the project, budget and an ARV. The contractor had just recently fixed a house with the same foundation issues, and was confident it wouldn't cost more than $5,000. He actually quoted us for $2,500. Speaking with the listing agent, most investors had priced this repair at $15,000+. Another edge over the competition. Our renovation budget came to $43K, and we set our ARV at $210,000. This was a very conservative ARV, mainly because there weren't a lot of comparables. Using the 70% rule, we decided that the most we could purchase it for was $116,900.
Through discussions with the listing agent, we learned that they already had an offer over asking; about $10K over. Knowing that our ARV was conservative, we decided we still wanted the property. We settled on an offer of $122,500, just under the other offer, but removed the inspection contingency. We were already replacing all electrical and plumbing. Plus, we were able to get a copy of an inspection report done 6 months prior, when the owner decided he wanted to sell. When my brother had gone to make the walkthrough video, he happened to ask the agent if he had one, so he sent it over. No one else was given a copy, apparently. We also said we can close in 7 seven days.
Offer accepted! Like mentioned in quite a few BP podcasts, you always wonder if you overpaid when your first offer is accepted. However, we are getting into this to create systems and do many deals per year, so we didn't sweat it too much. We needed to get our first deal started.
We set a renovation timeline of 45 days, 45 DOM, and 30 days to close, putting us at 4 months for the project. Holding costs would be around $1,500. Also, our agent offered a 4% commission, instead of the standard 6%, if we used him again to sell the property. He also offered to market the property throughout the renovation, doing a weekly video update.
A few items came up during the renovation that caused our budget to increase to $55,000. We pressure washed the stucco and tried repainting it, but it looked horrible. $4,000 for new stucco (which is actually a good deal) - ouch. The rest of the overage was spread around fairly evenly; $1.5K for bathrooms, $1K for doors (interior and exterior), $1.5K for demo, $1K for framing, $1.5K for painting.
The renovation ended up taking 60 days instead of 45. Our agent listed it on the MLS on 10/3/17 for $224,900, but didn't put it on lockbox. Instead, he set a two hour open house for the following evening, 10/4. We met up with the agent at the house to recap how it went. He had 27 groups through the open house, breaking his previous record of 24; and this was on a Wednesday! We pressed him for any constructive criticism, and he said he didn't hear a single complaint the entire evening. We received 4 offers that night, with the lowest one being our asking price! We countered the top two offers, telling them to submit their highest and best. We also declined the home warranty in one of them. The next morning, we accepted an offer for $7K over asking! We are set to close in less than three weeks from now.
If you want to see pictures of the renovation, as well as the initial walkthrough video my brother did, here is the link:
https://photos.app.goo.gl/T5wA0oXNlqxmFqWm1
Here is a before and after video our agent did to help market for the open house (even though there was only 24 hours):
https://www.youtube.com/watch?v=IdYGwjQ-3Vw
And here are the weekly videos our agent did to put on social media, creating a buzz throughout the 9 week project, that probably really helped get traffic to our open house. Pardon the dramatic music:
Week 1 - https://www.youtube.com/watch?v=jX5JGmmjz94
Week 3 - https://www.youtube.com/watch?v=l0D5Wi1eqks
Week 4 - https://www.youtube.com/watch?v=xCeNGmT_p-Y
Week 5 - https://www.youtube.com/watch?v=LkOhYYaJvAM
Week 6 - https://www.youtube.com/watch?v=j_OxfREcMWs
Week 7 - https://www.youtube.com/watch?v=_Ecx4i1xoOw
Week 8 - https://www.youtube.com/watch?v=Fh9S1nMAUEM
Additional Open House promotional videos:
https://www.youtube.com/watch?v=tydz6WQSlyY
https://www.youtube.com/watch?v=U7f2ekwkaV8
Lastly, the numbers.
| Purchase Price | $124,010 |
| Remodel | $54,990 |
| Holding Costs | $1,225 |
| Project Costs | $180,225 |
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| Sales Price | $232,000 |
| Commission | -$9,280 |
| Closing Costs | -$1,725 |
| Net Sales Price | $220,995 |
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| Net Sales Price | $220,995 |
| Project Costs | -$180,225 |
| Profit | $40,770 |
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Note that included in the purchases price is title fees, plus a $1K finders fee I gave to my brother for doing the video. He also helped paint, not knowing he would be getting the $1k.
And that's our first flip!
