Our 2900 sq/ft Ranch flip on 5 acres

9 Replies

We closed on our 2nd flip here recently. It is a 2900 sq/ft ranch style home on 5 acres in East Texas. The home was bought from the MLS. I noticed it after driving by it all the time and seeing a for sale sign on it for a very long time. It looked like it was dated so I went to Realtor.com and found it. It was all out dated on the inside. The home was listed for 190k. So my wife and I took a chance and had our agent put in a offer for 160k and seller paid all closing costs it was accepted. At closing we even received a check. I was figuring a 60k rehab.

Before putting in the offer I spoke with my lender whom we had done another flip with. We went over numbers and we talked about getting a appraisal. The bank would loan up to 80% of the appraised value. We talked to the person who had done our appraisal on the 1st flip to see if he would do this one since it was in a different market, which he had no problem doing. So we went ahead and ordered the appraisal and gave him a list of everything we were going to do with the property so it could be appraised as if it was already completed. My lender agreed to accept this type of appraisal. The appraisal came back at 330k and was submitted to the bank.

MISTAKE #1

When having an appraisal done the lender has to order the appraisal so there isn’t any conflict of interest. With us ordering the appraisal and submitting it to the bank that appraisal could not be used and another had to be ordered by the back by a different appraiser. By doing this another appraisal came back significantly lower than the first at 256k which only allowed us to borrow 204,800k for the purchase and remodel. Putting us short about 15k for remodel.

CREATIVE FINANCE STRATEGY

Our lender agreed to let us borrow up to 80% LTV based on the appraisal of the property as if the property had already been remodeled. Yes you may have to search a little bit out there for an appraiser that will do this but they are out there. This would allow you to purchase the property and have the funds for the rehab with no money out of pocket.

@Thomas Weidner

Very creative to get the bank to agree to loan based on renovated value. Most banks won’t do that.

On the appraisal did you try and challenge the second low appraisal using the first appraisal? Often if you have data to back up your challenge you are able to win. Depending on the appraiser they can have difficulty appraising a house + land. I had a situation with a 1600sqrft house on 58 acres. The 1st bank appraisal was dismal. I looked at his comps and he was using a “shack” on land. I found another lender who agreed to appraise just the house on the 3 acre parcel, ignoring the other parcels with 55 acres. The appraisal came in significantly higher without the land. The difference the comps changed from “shacks” to homes. The best part was after refi I now owned the land free and clear with no lien. My lesson was to make the deal look as cookie cutter as possible to the bank.

@Pete Harper no sir we did not challenge do to the timing of the deal. Our agent said we could but we choose not to. We needed to go ahead and close. That is pretty clever to cut the land out of the app rails to get something more comparable.

@Thomas Weidner

Here is a breakdown of what we intend to do with this flip. We are going farmhouse style because it is very popular in our area right now.

SCOPE OF WORK

Add a carport with a back porch

New roof

New a/c

Replace window glass and paint aluminum frames

Paint brick

Remove ornamental brick walls in front off house.

Replace front exterior door

Remove all paneling and texture walls

Remove popcorn ceiling

Add tub to master bath

Open up the living,dining,and kitchen

Paint, trim, and flooring throughout

Replace all fixtures throughout

Pictures will be coming soon!

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