First Investment Property Under Contract in Maryland

Real Estate Deal Analysis & Advice

First Investment Property Under Contract in Maryland

Investor · Pasadena, MD · Member since 2015 · 52 posts · 20 votes

After several months of preparation and searching I've finally got my first property under contract. My goal is to rehab and flip the property within 3 months. Any feedback would be greatly appreciated. Here are the particulars:

Property is a 3/2 rancher, just under 1400sq/ft, located in Pasadena, MD. The house is in Anne Arundel County, in a water accessible community, and in a good school district. It is a HUD property and was listed at $171k on HUDHomestore.com. I offered $150k with the help of my real estate agent, which was accepted. A $1k earnest money has been deposited in escrow.

Estimated ARV is $250-275k and repairs $35-45k depending on rehab and product. I'm working with a hard money lender who will loan 100% of acquisition at 15% and 4 points, interest only. The rehab will be paid for through seed capital I've acquired through credit card stacking.

I'm set to have the property inspected on Thursday (10/8) at which point I'll put together a final SOW. I've already had one contractor look at the property and I'll be scheduling at least two more after the inspection is complete.

Scheduled closing date is 10/28, but I have until the 16th to back out if the inspection is not satisfactory. Thoughts and concerns?

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Russell BrazilBusiness Member

Moderator

Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes

10y

@James Bowerman Congratulations! I do agree with @Marc M. that the deal does seem a little thin. I think I would have needed to target a price of $135k or less on this. Many locals in Maryland say that our rule should be the 65% rule as opposed to the 70% rule that most on BP espouse. We just have a few costs here that run absurdly high compared to some other locals such as the transfer taxes.

Also keep in mind it is almost a universal fact that whatever quote you get from the GC, the cost at the end is likely to be higher than the original quote. So that $42k quote, could easily turn into $48k or $50k.

Your real estate agent can give you the average and median Days on Market. If he can't, feel free to contact me for the information. Although also keep in mind the quote "There are lies, damn lies, and.....and then there are statistics." The stats on DOM only tell part of the story. You need to know how to interpret that data. Just because the average DOM is say 30 days, doesnt mean your property will take 30 days to get a contract. It could take more, or it could take less. You need to get a sense of how quickly the properties like yours are moving at. So other 3/2 rehabbed ranchers. They may move faster than the DOM or they may move slower. Also you need to understand how fast the market moves in different months in Pasadena. If you are listing in December, its going to take a lot longer to get a contract for instance (Thats pretty generally a rule everywhere).

Keep us all updated though, we have a lot of locals interested in project.

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Linval T.
Investor · Bay Shore, NY · Member since 2014 · 1k+ posts · 688 votes
10y
@James Bowerman - Congrats on your pending acquisition. Now the work begins.
Yes, there will be challenges, but, pay close attention to the costs. As a matter of fact there is an excellent spreadsheet by @J Scott that you can download at: http://www.biggerpockets.com/files/user/JasonScott...
Good luck and best wishes with your purchase and project.
Keep the BP community posted with regard to your progress and triumph on the rehab and flip!
1 Reply
James Bowerman
OP
Investor · Pasadena, MD · Member since 2015 · 52 posts · 20 votes
10y
Thanks @Linval T.! I've been following J Scott for some time now, listening to the podcasts and I did use his book on estimating rehab costs (along with the worksheets) to help me come up with an estimate on the repairs. BP has been an outstanding resource so far.
1 Reply
Linval T.
Investor · Bay Shore, NY · Member since 2014 · 1k+ posts · 688 votes
10y
@James Bowerman - You are welcome and I am delighted to see that you have taken steps to put a solid plan in place that will elicit success.
Great, you are on our way!
0 Reply
Lucas Kendrick
Investor · MontgomeryCounty, MD · Member since 2015 · 17 posts · 5 votes
10y
Congrats! The adventure begins! Did your real estate agent figure out what the ARV is for the place? Vet your general contractor now while you have the time instead of later on, when you don't. It might be worth asking your hard money lender for GC recommendations. They might not know a good one, but they probably have heard of bad ones. Take lots of before pictures. This is an exciting time, please keep us posted!
1 Reply
Jim Brown
Millersville, MD · Member since 2015 · 140 posts · 47 votes
10y
@James Bowerman Outsatnding! Way to jump in. I'll be following this thread to see your progress.
0 Reply
Sterling WhitePro Member
Rental Property Investor · Indianapolis, IN · Member since 2014 · 554 posts · 153 votes
10y
@James Bowermanwhat is the average DOM where you are selling the property? Also work towards finding a reputable contractor as you are aware this is critical. The rehab number 35-45k come from the contractor or walkthrough you did?
Some questions that came to mind
Podcast Guest on Show #308
0 Reply
Marc M.
Contractor · Rockville, MD · Member since 2014 · 423 posts · 135 votes
10y
@James Bowerman Congrats on getting your first property under contract, especially in a great area like Pasadena! Looking forward to following your progress on here. I have a good buddy that's really handy in the area so if you ever need a hand, feel free to let me know. He keeps asking me when we're going to get a flip going.
One question I did have for you: I quickly ran the numbers on my flipping spreadsheet and I came up with a total of ~$5k profit after all expenses were paid, with a $250k ARV and $35k rehab. I had to adjust my formulas since my hard money loans are structured a little differently than yours and I'm far from an expert on running numbers but I'm curious how yours compare.
1 Reply
James Bowerman
OP
Investor · Pasadena, MD · Member since 2015 · 52 posts · 20 votes
10y
@Sterling White I'm not sure what the average DOM is for the area. Is that something my realtor can tell me? I've done my own research on the ARV and had two realtors give me their opinions. My estimate came to $45k after creating a SOW and then using J Scott's book to estimate the costs. I've got a couple of contractors who seem reputable (one I've worked with in my full-time job) giving me quotes. I've already received an initial estimate for $42k from one of them. My goal is to negotiate to something around $35-40k and make up the difference myself. I'm handy and can do/would enjoy doing some of the work. Eventually, I'd prefer not to do any, but since it's my first I'm looking at it as an education. So, I don't mind getting my hands dirty, especially if I can turn it into some sweat equity.
@Marc M. my analysis came to a little over $15k profit with a three month flip. That's with $150k purchase, $45k rehab, $250k ARV, 10% or $25k selling costs, and holding costs of $2,432 per month. I'm using the low end of $250k for the sell price, but obviously hoping it goes upwards of $275k which would be a $40k profit.
0 Reply
Russell BrazilBusiness Member
Moderator
Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
10y
@James Bowerman Congratulations! I do agree with @Marc M. that the deal does seem a little thin. I think I would have needed to target a price of $135k or less on this. Many locals in Maryland say that our rule should be the 65% rule as opposed to the 70% rule that most on BP espouse. We just have a few costs here that run absurdly high compared to some other locals such as the transfer taxes.
Also keep in mind it is almost a universal fact that whatever quote you get from the GC, the cost at the end is likely to be higher than the original quote. So that $42k quote, could easily turn into $48k or $50k.
Your real estate agent can give you the average and median Days on Market. If he can't, feel free to contact me for the information. Although also keep in mind the quote "There are lies, damn lies, and.....and then there are statistics." The stats on DOM only tell part of the story. You need to know how to interpret that data. Just because the average DOM is say 30 days, doesnt mean your property will take 30 days to get a contract. It could take more, or it could take less. You need to get a sense of how quickly the properties like yours are moving at. So other 3/2 rehabbed ranchers. They may move faster than the DOM or they may move slower. Also you need to understand how fast the market moves in different months in Pasadena. If you are listing in December, its going to take a lot longer to get a contract for instance (Thats pretty generally a rule everywhere).
Keep us all updated though, we have a lot of locals interested in project.
[email protected]301-893-4635 Podcast Guest on Show #192
District Invest Group546 Reviews
Website View Page
3 Reply
Russell BrazilBusiness Member
Moderator
Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
10y
Also I think @Lucas Kendrick suggestion of asking the hard money lender for a GC recommendation is a fantastic idea.
[email protected]301-893-4635 Podcast Guest on Show #192
District Invest Group546 Reviews
Website View Page
0 Reply
Sterling WhitePro Member
Rental Property Investor · Indianapolis, IN · Member since 2014 · 554 posts · 153 votes
10y
Great insight @Russell Brazil. As he stated your margins are pretty slim so I would try working that negotiation with GC as low as you can.
Either way you are at a win-win even if you break even at least you got the education in the process.
Podcast Guest on Show #308
1 Reply
Marc M.
Contractor · Rockville, MD · Member since 2014 · 423 posts · 135 votes
10y
Originally posted by @James Bowerman:

@Sterling White I'm not sure what the average DOM is for the area. Is that something my realtor can tell me? I've done my own research on the ARV and had two realtors give me their opinions. My estimate came to $45k after creating a SOW and then using J Scott's book to estimate the costs. I've got a couple of contractors who seem reputable (one I've worked with in my full-time job) giving me quotes. I've already received an initial estimate for $42k from one of them. My goal is to negotiate to something around $35-40k and make up the difference myself. I'm handy and can do/would enjoy doing some of the work. Eventually, I'd prefer not to do any, but since it's my first I'm looking at it as an education. So, I don't mind getting my hands dirty, especially if I can turn it into some sweat equity.
@Marc M. my analysis came to a little over $15k profit with a three month flip. That's with $150k purchase, $45k rehab, $250k ARV, 10% or $25k selling costs, and holding costs of $2,432 per month. I'm using the low end of $250k for the sell price, but obviously hoping it goes upwards of $275k which would be a $40k profit.
I wish you the best of luck. Hopefully nothing unexpected comes up and you can sell for the upper end of your range! Looking forward to following the process.
0 Reply
James Bowerman
OP
Investor · Pasadena, MD · Member since 2015 · 52 posts · 20 votes
10y
Update: After careful consideration and evaluation I decided not to go through with purchasing the property. My bids for the rehab were coming in too high (around $45-50k) and the ARV was more realistically around $230k. This made my spread too thin and would have most certainly resulted in a loss.
The $1,000 lesson; when purchasing a HUD property as an "investor" you forfeit the return of your earnest money. Although there are contingencies for an unsatisfactory inspection and such (and we tried to use them) it's pretty clear in the contract that an "investor" gets null. Of course my goal wasn't to back out, but nonetheless, it was a good learning experience. Shame on me for not reading every line.
Some good news; I've just put my "second" property under contract as of yesterday. It was also a HUD property and very similar numbers to the first, only I was able to get it under contract for $132k. The numbers look much better on this one and I'm confident it will be a good deal. I look forward to sharing my progress with everyone!
1 Reply
James Bowerman
OP
Investor · Pasadena, MD · Member since 2015 · 52 posts · 20 votes
10y
Settled on the "second" property on December 8th and rehab has begun! Here's a little before video I put together.
1 Reply
Jim Brown
Millersville, MD · Member since 2015 · 140 posts · 47 votes
10y
@James Bowerman
Cool video. Best of luck on the flip!
0 Reply
Marc M.
Contractor · Rockville, MD · Member since 2014 · 423 posts · 135 votes
10y
Very cool, James! I'm digging the video. Where is this one located?
0 Reply
James Bowerman
OP
Investor · Pasadena, MD · Member since 2015 · 52 posts · 20 votes
10y
Thanks guys! @Marc M. it's in Pasadena in the Green Haven community.
0 Reply
Marc M.
Contractor · Rockville, MD · Member since 2014 · 423 posts · 135 votes
10y
Originally posted by @James Bowerman:

Thanks guys! @Marc M. it's in Pasadena in the Green Haven community.
Awesome man, looking forward to following your progress!
0 Reply
Frank Eimiller
Rental Property Investor · Fond Du Lac, WI · Member since 2015 · 261 posts · 78 votes
10y
You said you've allotted 3 months for the project. Do you have a team in place already?
I saw hard money and credit card in the same post, sounds dangerous--
That all being said, I hope you crush it and make out great on your first deal!
0 Reply
James Bowerman
OP
Investor · Pasadena, MD · Member since 2015 · 52 posts · 20 votes
10y
Happy to say that my first flip is wrapping up and will hit the market tomorrow! I'll come back and post the final numbers once it's sold, but for now, here's some eye candy. Let me know what you think.
0 Reply
Stephen Chittenden
Rental Property Investor · Gambrills, MD · Member since 2014 · 372 posts · 88 votes
10y
Originally posted by @James Bowerman:

Happy to say that my first flip is wrapping up and will hit the market tomorrow! I'll come back and post the final numbers once it's sold, but for now, here's some eye candy. Let me know what you think.
Nice work. I'm not sure I'm crazy about the layout of the laundry room, but it looks like you made the most out of the space available. Kitchen looks nice. Is the closet in the master bathroom? Is it open without any doors or were the doors just open? Great first project. I look forward to seeing the numbers.
0 Reply
Jarred Sleeth
Investor · Austin, TX · Member since 2014 · 144 posts · 85 votes
10y
Congrats! The 1000 dollar lesson is nothing compared to bigger losses incurred from a bad deal. You did great recognizing the risk, evaluating your numbers and finding a better deal! Good luck on the sale!
0 Reply
James Bowerman
OP
Investor · Pasadena, MD · Member since 2015 · 52 posts · 20 votes
10y
Originally posted by @Stephen Chittenden:

Nice work. I'm not sure I'm crazy about the layout of the laundry room, but it looks like you made the most out of the space available. Kitchen looks nice. Is the closet in the master bathroom? Is it open without any doors or were the doors just open? Great first project. I look forward to seeing the numbers.
The laundry room is a little awkward, but it's functional. It's one of the only areas of the house we didn't change. Because it was on a concrete slab it would have been difficult and expensive to rearrange everything. The closet is in the master bathroom. It's definitely a unique open concept. Everyone seems to like it, so hopefully the buyers do too. It allowed us to really maximize the space and make it functional. Thanks for the compliments!
0 Reply
Jim Brown
Millersville, MD · Member since 2015 · 140 posts · 47 votes
10y
@James Bowerman Congrats man, the rehab looks great. Good luck with the sale!
0 Reply
James Bowerman
OP
Investor · Pasadena, MD · Member since 2015 · 52 posts · 20 votes
10y
So the first flip was a success! Settlement went through without issue on March 30th and it's officially off my hands. Here is the timeline and all the final numbers:
Listed for sale in Pasadena Maryland on HUDHomestore.com for $156,800. This was a 3/1 rancher with 1,128sq/ft of living space.
Offer placed for $132,000 on 10/30/2015 which was accepted the next day.
Paid earnest money deposit of $1,320 and put under contract.
Settlement took place on 12/8/2015. I used a hard money loan for 100% of the purchase price at 14% and 4 points. Total buying costs were $14,507.
Improvement costs came to $54,781 which was primarily done by the general contractor I hired. I borrowed $20,000 from a private lender to help pay for the rehab and closing costs. The rest I paid for using credit cards with 0% interest rates (promotional rates for one year).
The property was listed for sale on 2/4/2016 for $250,000.
I accepted an offer on 2/11/2016 for the full asking price of $250,000 plus 3% help towards closing.
**Typically there is a 90 day seasoning and I wouldn't have been able to put it under contract before that 90 days if the buyer was financing using an FHA loan. However, this buyer was pre-approved for and using conventional financing, so the 90 day seasoning rule didn't apply.
Settlement took place on 3/30/2016 and closing costs plus commissions came to $23,716.
Holding costs came to $6,538 which includes the mortgage payments, taxes and utilities.
Total cash invested in the property came to $49,288.
Total profit came to $18,458 which is a 37% ROI.
***ROI is actually much higher since most of the money I contributed was actually the banks money and will be paid back to the credit cards.
Right now I'm taking what I learned over the past year and finalizing a business plan. I'd like to flip a couple more this year, but I need to find other means to finance it since the credit cards will need to be paid off in June. If anyone is interested in partnering up on some deals I welcome the opportunity.
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