Stumbled into first flip

3 Replies

My wife and I bought a home in Virginia June 2017.We had intentions of living there for several years. We had moved to a suburb of Richmond from Texas for a "dream job." offered by a friend who had a start up business. The house we purchased was a fixer upper, it was the only way we could afford to get into a nice neighborhood. The sellers had inherited it and were out of state. It had been on the MLS for a few hours and we made an offer, our agent got it under contract by the end of the day, which was great, because the market was hot and we thought there would be some competition. Fortunately for us the pictures were terrible in the listing and that made it less appealing to other buyers. It was a 3 bedroom 1 1/2 bath 1232 single story in a planned community in Midlothian Va. It was listed at 163000. There was some concerns about foundation and we the got an engineers report. The final deal was 163000 with 3 in closing from seller and $5000 worth of foundation and mold remediation in crawl space done by seller. We did a conventional loan with 20% down.

Outside the home looked pretty decent. But inside was a time warp back to the 80s with old flooring, dirty ugly carpet and linoleum. Plus cracked walls, older roof in decent shape and over grown back yard. 

The foundation repair was a bit complicated. The work was done after we closed because the contractor was not able to get to it for several months. The Seller's got a contract signed with a foundation repair company with a guarantied quote, then wrote us a check for the amount needed. We then paid the company after the work was done.

We planned to fix up the rest of the house as we could.

After several months we realized the friend that had offered my a wife a "dream job"  was in financial trouble and not able to pay her. (FYI when working for a friend ask hard question first) So now we were broke living off my job alone, which was not a lot. Plus the climate was terrible for my wife's asthma, so we decided we needed to move to a better climate. In the meantime I had started listening to the BP podcast on my way into work.

 Eventually we knew we had to treat this like a flip to get our money back and try and move to a better area for our family

  We had torn out old flooring, I cut out and replaced some rotten subfloor next to doors. We lived on subfloor for a while. I cleaned up the back yard, cutting down old trees etc. I have been against credit cards my whole life, but BP taught sometimes its ok to do high interest financing. I got a credit card since it seemed like the best path forward for paying for repairs. I got with my Agent and went over some numbers and what to spend money on.

  We hired a flooring company. They put new carpet in bedrooms and hall way, laminate in entry, kitchen and living room for 5 grand. 

The living room had a vaulted ceiling and tons of cracked drywall seems, which were professionally done and then everything in living room professionally painted, drywall work and painting was $1600 We painted the rest of the house ourselves. We turned half bath into full bath for $2400 with a plumber. I got the roof professionally washed for $300, had some terrible stains on it. 

House could have rented for 1200 to 1400, my hoa fees and mortgage were about 945, so it did not make sense to rent and we knew we needed to list it.

We anticipated being able to make 5 to 10 grand on the house. I was thinking maybe we could list for 194000 and then get a higher bid, the market was hot, some properties were getting multiple offers. We listed the end of July 2018 for 194000. Market slowed a bit then. After about a dozen showings we got an offer two weeks in. It was for 190,000 with 5,000 in closing FHA, we countered with 193000 and then gave them 5 in closing. I had not thought about FHA buyers usually needing lots in closing costs. We lived in HOA and needed to pay several hundred to send out hoa disclosure package send a certification to buyer that property was in line with all hoa rules, another expense I forgot about.

 After home  inspection and appraisal we got hit with few things. About $1800 in random repairs, some missing cracked shingles, hvac drainage line repair, a few electrical items, minor mold in crawl,  drainage line on pressure relief valve of water heater 

The most annoying part was that the appraiser said the railings on the porch had to have gap less than 4 inches. There were many houses in that neighborhood with he exact same floor plan and porch railing, and for 3 decades that was never a problem with them getting bought and sold. 

Well we closed today, Sept 21st, and got the funds in our account. Learned a ton and now I want to try to flip another house, and this time I'll know what I'm doing.

At the end of it we put about 12000 into repairs. closing was 13000 with commissions, hoa costs, home warranty etc. Buying it we put 32600 down, 1500 in closing about 300 in inspections. We gave buyer 5000 credit I'm not counting holding cost because we were living there, so that was our cost of housing.

We lost about $400, but that's not too bad since going into it we weren't thinking about a flip. If I were to count holding costs it would be thousands lost. 

If you have any advice or feed back I would appreciate it. Thanks for reading!

@Caleb Jordan   No real feedback other than you picked-up a lot of experience on this deal that will carry forward to future deals.

Most folks out there would have over-spent on the house purchase, over-spent on repairs and then lost 10-20k on the sale side.  Losing $400 on such an unplanned quick buy/sell should be considered a big win.

"We lost $400..."

You actually lost more than that. How many hours did you and your wife work on the home? What is your time worth? 

It's common for beginners to fail to calculate their own time. You spent a lot of time to purchase the home, renovate it, and then sell it. Your time includes moving, painting, spackling, demolition, hiring contractors, finding a listing agent, staging, etc. 

Let's say a plumber needs to paint a couple rooms on his rental. He could hire someone for $20 an hour or he could do it himself and save $20 an hour, right? Wrong. A ten-hour job would "save" him $200 but he could also work ten hours as a plumber and earn $1,000 so it's a net loss of $800.

Here's another way of looking at it.

Give me $50,000 today. Over the next year, I'll require you and your wife to work a combined total of 200 hours with no pay. You will give me your labor for free. When the year is over, I'll hand you $49,600.

Would you consider that a $400 loss? 

Yeah, that is really good point. When you count our time it is certainly way over a $400 loss. Lets say we put in 200 hours of time (probably spent more) and my time is worth just a lousy 10 bucks an hour, that is a $2,000 extra loss right there. My time is probably worth way way more than $10 hr  if I use my time wisely.

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