First Flip. In California. Sold in 24 hours!

49 Replies

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! 

Congratulations. Job well done!

Nice, good on you for understanding your numbers so well you could adjust on the fly like that.

Wow you guys found a great nugget in knowing that a 1500 square feet house is probably a three bedroom. Very impressive and congrats!

sold in one day I would believe I listed too low

Also you probably could have listed it with a flat rate mls listing company and saved the $9,000

My estimate the next one you could make 50% more profit on the exact same type of deal 

Originally posted by @Ronny Tiburcio :

Wow you guys found a great nugget in knowing that a 1500 square feet house is probably a three bedroom. Very impressive and congrats!

 Thanks. I've actually even seen 4 bedrooms with 1,500 SF, so the 2 just really stood out. I guess I didn't mention it above, but it was listed as a two bedroom because the windows in the master bedroom weren't large enough. We replaced all of the windows anyway, so just enlarged the two in the master. Boom, 3 bedrooms. 

$39k profit split 2 ways with your partner before taxes. Curious if you set this up strategically to minimize short term Cap gains taxes? 

Did you consider BRRRing this instead? Could you have done a cash-out refi, and rented it out with positive cash flow? California is tough for BRRR strategy but you may have been able to pullit off.

Originally posted by @Michael Plante :

sold in one day I would believe I listed too low

Also you probably could have listed it with a flat rate mls listing company and saved the $9,000

My estimate the next one you could make 50% more profit on the exact same type of deal 

Agreed on being listed too low. Like I mentioned, there weren't a lot of comparables, so it's hard to know how high you can go. However, right before it went on the MLS, one sold 3 blocks away for $232K (our eventual sales price). I told my agent I wanted to raise the price, but he had already been pre-marketing it on social media for a few hours at $225K and advised against raising it. He just used the new comp in negotiations.

Regarding the flat rate mls, my business partner is actually going to take the test again to reactivate his old license. Should save us quite a bit, but not sure it would have saved us the $9,000. How would the buyer's agent get paid? . We'll still use the other agent on any deals he brings us, though. And my wife is licensed here in Arizona, for our projects in Phoenix. 

@Sam Grooms   You guys did such a great job on the project. Love the overall design!

Where did purchase your appliance and materials from?

Originally posted by @Patrick Anibaldi :

$39k profit split 2 ways with your partner before taxes. Curious if you set this up strategically to minimize short term Cap gains taxes? 

Did you consider BRRRing this instead? Could you have done a cash-out refi, and rented it out with positive cash flow? California is tough for BRRR strategy but you may have been able to pullit off.

It was only $20K each in profit over 90 days, but like I said, we're doing this to grow, 12 deals a year minimum. Almost all of the work was done by contractors, and not us. We documented each step we personally took throughout the project, to help create processes, so we can hire and train people quickly as we grow. 

I'm a CPA, so we did put thought into taxes before doing the deal. We are real estate professionals, and can use excess depreciation (tax losses) to offset this income. As we ramp up going into next year, we'll have to buy a few more properties to capture more depreciation. 

Regarding the BRRR strategy, we thought about it but felt it was too risky. El Centro has the highest unemployment in the country, at around 19% (Yuma, AZ has the second highest, and is 45 minutes away). There's not much population or job growth. So, this isn't the right location for us to hold. Also, we're more interested in midsize multifamily, than SFR, for rentals.

Originally posted by @Dennis L Lewis Jr :

@Sam Grooms  You guys did such a great job on the project. Love the overall design!

Where did purchase your appliance and materials from?

 Thanks, Dennis! Practically everything is from Home Depot or Lowes. This is a town of about 40,000 people, so there really isn't another option unless you're going to San Diego. We went into it thinking everything would be from Home Depot, however, we slowly started buying stuff from Lowes. Looking back, almost all of the big products you see were from Lowes. The appliances, kitchen cabinets, bathroom vanities, bathtub, medicine cabinets. The lights and door handles were from Amazon - half the price as Home Depot. The sink/cabinet in the laundry, sink in the kitchen, shower pan and doors in master bath, and flooring were from Home Depot. The doors were a mix between the two, depending on the size we needed and who had it in stock. Oh, we did get the granite from a wholesaler in San Diego. It was the same granite Home Depot had, we just found their supplier and saved quite a bit. 

We documented each purchase in a Google sheet, so going forward, whoever we have ordering the items will know exactly what we like. We'll make slight changes on colors, but that should save us a lot of time. 

@sam grooms your a smart man. I totally agree. Nice work, good luck on the next one.

Thanks, @Jo-Ann Lapin ! I only wish I started writing about it when we got the house under contract. There were definitely a lot of issues that came up during the rehab that could help educate people. It's just too much to go back and document at the end. 

Thanks for sharing @Sam 

@Sam Grooms . I invest in Calexico, so I know well the El Centro area. I know an investor that has been buying and renting in El Centro successfully for over 40 years, with minimum vacancy. I asked him what was his secret and he told me that all his properties were extremely well taken care off and extremely clean, so he didn't had a lot of competition since pretty much everyone else rents very low quality departments with too many issues. 

I agree with you in holding on a multi family property. 

@Miguel Rivera , wow, that's quite the investing career! You're absolutely right when you say most of the rentals there are very low quality. The house we purchased was actually from an investor, who had the same tenant in there for over 25 years. It looks like they didn't do a single repair in that time. I forgot to mention it above, but all of the foundation issues were due to a leak in one of the bathrooms that never got fixed. Rotted out the subfloor, then the floor joists, and finally even the support columns in the crawl space. I'd bet the leak had been there for at least a decade. 

On a side note, you're actually the first person I've met on here from the Imperial Valley. Do you know any wholesalers down there? I haven't been able to find any good off market leads. We just put in an order for our first set of direct mailers for El Centro. I don't know of anyone sending we buy houses letters in the area, so we'll see how it goes. Once we have a good lead funnel down there, our only issue will be financing. We're pretty much set with contractors to be able to do 3-4 at a time. We'll likely start reaching out to friends/family to get private financing, since we can only fund one at a time on our own. I really don't want to go the hard money route and have to pay points and do draws/inspections. 

Originally posted by @Sam Grooms :
Originally posted by @Michael Plante:

sold in one day I would believe I listed too low

Also you probably could have listed it with a flat rate mls listing company and saved the $9,000

My estimate the next one you could make 50% more profit on the exact same type of deal 

Agreed on being listed too low. Like I mentioned, there weren't a lot of comparables, so it's hard to know how high you can go. However, right before it went on the MLS, one sold 3 blocks away for $232K (our eventual sales price). I told my agent I wanted to raise the price, but he had already been pre-marketing it on social media for a few hours at $225K and advised against raising it. He just used the new comp in negotiations.

Regarding the flat rate mls, my business partner is actually going to take the test again to reactivate his old license. Should save us quite a bit, but not sure it would have saved us the $9,000. How would the buyer's agent get paid? . We'll still use the other agent on any deals he brings us, though. And my wife is licensed here in Arizona, for our projects in Phoenix. 

You pay $7 a day to be listed on the MLS and you will also be on Zillow Redfin etc

That also includes someone taking professional photos of the house, and a sign for the yard

For $35 they send post cards to all the local realtors

The contact person is you so you don’t have to pay any commission 

Of you like you can offer to pay a selling agent

If you don’t want to do your own open house you pay $200 to have one hosted by a local agent who also provides purchase cabinets Contracts.  Even if someone buys from the open house you pay no commission

I just sold a house like this and saved  $15,000

It sold for more than a number of real estate agents here on BP said the house would sell for 

@Sam Grooms

Awesome job doing your flip and thanks for sharing the detailed numbers. I know it's seller's market here in SoCal but 27 groups on a Wed and selling within 24 hours makes me wonder whether you could've gotten more for it? Getting $7k over asking though is fantastic. Then I realized that your agent is actually really solid, most people don't do the week 1-8 videos. Thanks for idea! They actually earned their commission rather than just list it hoping for a buyer.

Keep up the great work.

Thanks, @Ray Lai . I agree, I definitely think we could've gotten more for it. We might have to push the prices up gradually, though, since there aren't many comps. Our agent was concerned that it wouldn't be able to appraise. By our third deal in the area, we shouldn't have a problem. The agent absolutely went above and beyond what an average agent would do. 

Originally posted by @Sam Grooms :

Thanks, @Ray Lai. I agree, I definitely think we could've gotten more for it. We might have to push the prices up gradually, though, since there aren't many comps. Our agent was concerned that it wouldn't be able to appraise. By our third deal in the area, we shouldn't have a problem. The agent absolutely went above and beyond what an average agent would do. 

That is a very relevant fact. Sounds like you're selling to a first time home buyer so it does indeed have to appraise. When you do a few more deals you'll even be able to use your previous sales as points of the appraisal. Also, it does help being there and providing the comps you use to come up with a price to help your appraiser as they are appreciative and sometimes miss things. It ain't over until the appraisal lady sings. 

@Sam Grooms  , congrats!  Nice to see the before and after, very big difference! 

I was wondering , do you plan to work with the same partner on other deals?  If you have several flips going on at the same time eventually as you mentioned it might make more sense to hire a project manager type employeee rather than flip 50 percent of profit? 

That's a good real estate broker for making 3 promotional videos.  I know what to look for in the future.  

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