First REO....Felt like a Flip......Turned Into Cash

[Adam Giles]

I've yet to post a success story on BP so I figured I would now since my partner and I have some sweat equity in this one. I will say that our market is small and margins are tight, we typically look to make 7-10% CoC ROI and net >$100 per month. We buy and hold. We stay in the $25k-$75k range and average 70% LTV on new deals to keep debt service reasonable and cash flow existent.

We picked up this property from an out of market agent. I was looking at a piece of personal land and he happened to mention that he had another REO property in my town and I , of course, smiled like the Grinch in whoville. We went over that day and looked at it. It was gutted, sprayed white, floors pulled, winterized, etc, etc....but the bones were good. C neighborhood but in our small town that's relative. I made an offer at 12k, they had multiple bids and asked for best and final, I offered 15k, and we got it. The cynic in me wonders if that was unethical agent work (which is why I only went 3k) but....I digress. My bid was based on the work we thought it would take to get to 70% LTV because we knew we would want to refi and pull out gained equity for additional deals. We ended up putting just over 20k into the property. We did a lot of the work ourselves but did hire out drywall (you know why), painting, and flooring. At refi it appraised just over 50k, so we realized a 15k gain in equity. We ended up effectively using that new equity to purchase a new turnkey property via a blanket loan against both properties. We paid off the original note on the REO property and refi'd it and the new turnkey property into one loan at 70% LTV.

So we turned an REO rehab into two cash flow properties.

Just to give an idea of the original state at purchase:

Bath Room

Master looking out into LR

Kitchen..this was the day we started...that's our drywall...

This is the end result:

Bath (same angle as above)

LR and DR

Kitchen (same angle as drywall pick above)

LR toward heated front porch

Front Porch toward LR

Overall we are very happy. I know we all try to avoid emotional attachment to a property but my partner and I did a lot of this work and we cant help but favor this property. It was ur first deal producing deal. Up to this point we just rely on our incomes to produce deals. This one was a great learning experience from a banking/leverage standpoint, and a remodel management standpoint. The best lesson I can pass on to people behind me on the path is....relationships. Talk to your lenders...your agents. Through the process of completing this deal and just talking about it with our team, we learned our reliable 70% LTV lender would do 75%. Our primary in town agent started talking about more potential deals. And we started logging progress and availability on a company FB page, cross promoting to local swap pages, and now we have people asking when our next property will be available. Great experience all around. Don't be afraid of the ugly ducklings if the deal is good. Build good numbers and trust them. Execute.

Adam