14 Churchill St Sudbury Massachusetts (MA)
- Single Family
- Purchased December 28th 2020
- Purchased for $325,000
- Financing: a combination of hard money and private money
- Estimated time to completion 10 months
- Rehab Budget $300,000
- Selling price $1,000,000
How we found the deal
This was a lead that was brought to us from a local agent as a pocket listing. Agent got the listing from the homeowner but before putting it on MLS he reached out to us. Agent said that the homeowner is looking for $325,000 for this house but its in rough shape and it needs everything. Before visiting the property we did our due diligence by looking for comparable properties on the MLS in order to understand if this was a good deal.
Determining our offer price:
We use the 70% rule to determine our offer price on any property. We might go as high as 75% but that is usually the max.
70% rule explained:
70% x ARV (After repair value) - Repairs
It is extremely important to be able to identify the ARV correctly or get close to it because otherwise you will not have a successful project. The after repair value is determined by finding a comparable property that sold in the last 6 months, in the neighborhood where your subject property is located. Ideally you will be looking for a similar property and square footage (if the house you are looking to buy is a ranch of 1,000 sq.ft you want to find a similar ranch house that just sold and you can use that sale price as your comp to determine the ARV.
The other important number on the 70% formula is the rehab budget (repairs). It is difficult to estimate the repairs even before buying the property but you get better with experience and you can hire a contractor to help you in the beginning or get help from other investors.
How did the 70% rule work for us in Sudbury:
70% x $850,000 - $250,000 = $345,000 MAO (Maximum Allowable offer)
Since the seller was asking for $325,000 we submitted an offer for that amount and got it accepted.
Tip 1: Agents are a great source of deals for properties that need work. However agents need to know that you are a serious buyer and won’t waste their time. It also goes a long way to incentivize the agent with giving them the listing on the back end so he brings you more deals.
How we financed the purchase of the property:
Worked with a hard money lender and private lenders to borrow 90% of the purchase price and 100% of the rehab.
We paid 12% interest and 1 point which is 1% of the borrowed amount.
Construction funds are released in draws as we make progress with renovations. Sometime you will need to have cash in hand to pay the contractors as they don’t like waiting too long, and then you request a disbursement from the harm money lender.
Hard money lenders are easy to work with and quick to issue payment etc but the drawback is that they are more expensive as a traditional bank.
Renovations and scope of work
This was a full gut rehab. We also built a small addition to accommodate a better entrance door and curb appeal. We installed new windows, siding, roof, new kitchen and baths, new electrical, plumbing, boiler, insulation, drywall etc. We did not replace the septic system and that was a huge money saver (it would cost $30k for a new septic).
All in our rehab cost came close to $310,000 which is about $125/ sq.ft. We spent a little more then usual because we wanted the finished product to be hi quality and we spent on nicer finishes, design and staging.
In order for us to get a building permit to do the amount of work we described above we needed to do the following:
- 1. Get a surveyor to complete a plot plan showing the property line boundaries and setbacks
- 2. Get our architect to come on site and prepare as built plans and new plans showing the new floor plan layouts, elevations etc
- 3. Needed to hire a structural engineer to provide framing plans since we are moving load bearing walls to create the open floor plan.
- 4. Once we got the above plans then we filed for a permit with the Sudbury building department as a general contractor.
These are the documents we submitted:
- GC License and Workers comp affidavit
- Architect plan
- Structural plans
- Surveyor Plot Plan
- Permit Fee Payment
The town issued the permit in 10 days.
Profit and Loss Statement:
5 House Flipping Mistakes:
These are the 5 mistakes that we have done in our own business that has cost us thousands:
1. Not making enough offers (Most people don’t generate enough leads and they don’t make a lot of offers in order to buy a good deal)
2. Speculating (it is often done with the ARV / After repair value. The ARV needs to reflect a price based on local comps / Get really good at this!! We have speculated in the past and lost a lot of money like the property in Wayland where we lost $50,000 - Will discuss in another post)
3. Estimating rehab cost - You can use price per square foot cost or you can go line item by line item to estimate all the repairs needed. We used to do a full gut rehab for $100/sq.ft and now we are at $125/sq.ft
Managing the renovations in a timely manner and don’t get stuck. Speed matters a lot in this business
4. Paralysis by analysis (this happens a ton with new investors / Buy your 1st deal now)
5. Not pricing the flip correctly (we have seen a lot of flippers overpricing the property in order to set a new record in the market. Eventually, the house sits on the market and most buyers wonder what's wrong with the property since it's sitting on MLS when most other properties sell over the 1st weekend open house. Instead, our approach has been to price our flips slightly under market value to bring a lot of people to our open houses and create a bidding war and get top dollars for our houses.)
We shared the above content at our local meetup just recently. If you guys have any questions please let me know. This was a great project for us and very profitable. However it's important to disclose that during the 10 months that we owned the property this local town in Metro West Boston (Sudbury MA) appreciated significantly. As a fix and flip company we don't count on appreciation but it's a beautiful thing when it happens.
Nice work, looks great!
@Enis Shehu Great work! Looks really nice!
I can't stress enough about a couple things that you mentioned. First, finding deals and putting in offers (even if people laugh in your face) so many people I talk to rely on a couple deals that they try to "make fit" into their criteria, unfortunately some leads will just never turn into a deal regardless of how bad you want it!
Speculating works from time to time and people have gotten lucky, but ask many of the people who speculated before the last crash how that worked out for them!
Second, people who are once again emotionally attached to a deal and think that they can somehow "save money" on the rehab. If anything you should be pessimistic about the rehab budget and ALWAYS account for 10-15% extra.
Lastly, people not only speculate about the ARV but a lot of times they flat out don't know how to come up with the correct ARV. They rely on software or agents to tell them the ARV. This is NEVER something that should be outsourced, you should always run the numbers yourself and be able to identify what is a comp or what is not a comp; this will help you understand what is a good or bad deal and save you plenty of time!
Once again great work, sounds like some hard earned profit right there!!
@Dave Schmidt You are spot on with your comments. This wasn't an easy flip for us but definitely worth it.
@Corey Melkonian Thank you, buddy. Need to get together to catch up. Stop by the new office in Natick when around.
From the photos provided, your design, finishes, and exterior elevations are very impressive. I see a lot of investor flip that is crap and this one appears to be high quality, so congrats. YOu mentioned that your 70% rule was based on $850k exit and $250k in rehab. Looks like you went over $50k on rehab but got $150k in sales price (in part by your finishes I assume and in part by market appreciation over the last 10 months). Your numbers are fantastic on this deal.
I am working on a similar deal here in So Cal where the agent (a friend and colleague of mine) had a pocket listing prior to MLS just like your scenario. They were intending to list for $530k and I am quite sure had it hit the market, it would have gone for that or over ask. I told them I could not pay that much but could close in 14 days with all cash, no contingencies for $500k. AFter a day or two thinking about it, they accepted the for sure close deal for less money but did not have to wait longer, did not have to list and have many people through their property, did not have to deal with inspection contingencies, request for repairs, appraisal, etc. All of this was explained to them with my offer which is another reason why they took it.
Moral of my story, although you appear to have hit a triple on this one (great job again), I think you may have been able to come in slightly less on your offer with said explanation to see if you could have gained more cushion in your spread at purchase. For future reference, that may save you when you go over budget and do not have the gravy of market appreciation!
Yes, I definitely will...
I'm working with some HML's now on a project. Great to see a positive outcome!
@Will Barnard Thank you for the kind words and advice. I will definitely keep that in mind on the next deal. We won't always get lucky on the appreciation game so the emphasis should be on getting a good deal upfront.