My Very First Flip Just Went Live on MLS
Craig DrummondPro Member
Shingle Springs, CA · Member since 2017 · 24 posts · 119 votesHello investing friends! My very first "flip" went live on MLS today. What a great learning experience and it was definitely very different than what I've seen on HGTV. :) Nonetheless I LOVED the process.
Before/after pics attached. It was A LOT of work but the home cleaned up real nice. Now I'm hopeful for a quick sale!
https://www.redfin.com/…/P…/2801-Darr-Ct-95667/home/22299722
A shout out to Brandon Turner for his book on REI that inspired me to understand the seller's motivations and concerns and then put together a creative offer to address them. That piece of advice helped me to land this deal despite several higher cash offers that were submitted.
Here are some pics along w/my before & after collage.
I love the authenticity of your story. Its so practical. very encouraging as I pursue my first deal. Thanks for sharing!
Amazing! I also love your "not like HGTV" reference. I love HGTV and it has fostered my love for real estate lol.
@Craig Drummond Congratulations on a beautiful job.
I too have a few questions like the others, did you finance the whole thing? Hard Money? How much of your own $ is invested in the project?
Did you talk to the contractors and the people doing work to estimate the work load? How were you able to calculate the work needed on this project.
And last question, since its on the market now. Im sure you want to sell it ASAP hopefully in days or a short few weeks. But whats the longest it can stay on the market before it starts cutting in on your margin?
Also love the color, amazing.
Ok, I apologize in advance for the long post. My W2 job has kept me very busy lately and I have not had time to do the fun stuff, like responding to my BP post.
@Joseph M. @Chris Green @Marvin Ong This was how my financing journey played out. First I called several HML (Hard Money Lenders) and got their terms being that I thought I was going to go that route. Being I had no experience I received the "newbie" quote which typically looked like this. 70-80% financing for buy & rehab costs. ~10% interest only amortized over 30yrs. 2-3 points and some charged additional fees of $1k-$3k. I was told by several that the terms would improve as I got more successful flips under my belt. Needless to say this financing was very expensive. After researching 401k loans and private lending I figured that I had to at least try. I put together a detailed proposal which covered the why I wanted to do this, my 1, 2, 5, and 10 year plan, the "Rehab Cycle", the due diligence process that I would follow, and most importantly to the investor how their investment is backed by a real asset, that they would be 1st deed of trust, and the 3 exit strategies that I would employ to ensure the repayment of their investment. Those looked like this 1) rehab & sell, 2) refinance & rent 3) capital injection by myself (I gave a list of my assets & values that I would draw from - savings, stock, home equity, retirement account) & refinance to pay them back.
I started asking around friends, family, coworkers, and pretty much anyone who would listen and ended up pitching a few folks that showed interest.
At the end of the day it was a family member who took the plunge. They said that they have actually been pitched to several times for similar investments and turned them down. The difference in my pitch was the level of organization & detail provided, thought process for how I am approaching it (thanks to several REI books for this!), and the guarantee I was offering them by showing them I could still pay them back if things went sideways on me.
The terms we agreed to was 100% financing @ 10% interest only due on close. These are REALLY incredible terms! I was fully transparent in the presentation and showed them what the HMLs offered me. Then I offered the terms above, showed them how much they would earn on their money and told them that this was the starting point and that all of the terms were negociable. I was thinking we would negotiate from there but was shocked when they accepted.
@Luke F. The flooring I used is manufactured by Republic Flooring and is called Michigan Avenue. I purchased it from a local Carpet One shop. I paid $1.49 sq/ft + 0.20 sq/ft for underlayment. My contractor installed it.
@Marvin Ong Thanks! See my financing story above. Unfortunately, given the very short turn around on this deal I did not have time to get a contractor to look at it and had to estimate the repair costs 100% on my own. This was definitely scary since there were some big issues in the master bath & decking. I triangulated my repair costs by doing research on BP (I found a repair est sheet that someone put together), I downloaded the House Flipping Spreadsheet which is helps to put together a HIGHLY detailed estimation, and then I used the output from those to come up with my best estimate and added 15% for contingency costs. As you can see in my #s I STILL underestimated the costs. Because I knew I could likely be off I was intentionally very conservative with the ARV. I read somewhere that when figuring your ARV you should consider your "sell by a week" price. The essence of the concept was what is the ARV that would sell that house in one week? Use that and then anything above will be bonus. Anyway, being my first go at this I intentionally tried to be very conservative in my ARV, timeline, holding costs, and rehab. If the #s still all worked out then I felt comfortable going for it.
Regarding how long I'm willing to hold.... I have budgeted to the end of June. Being that I have a decent margin I feel like I have some room to move the dials a bit on price and timeline. I think this will be needed since it is a tough location (remote) and will require the right buyer.
Thank you so much @Craig Drummond for taking your time and sharing the details with me. You mentioned you read a bunch of books before jumping on this project. What were the books you read? Could you please share it with us?
@Marvin Ong - Here is a list of the books that I read or listened to via audio book in preparation for my journey. Some are not Real Estate related but were great for getting me into the right frame of mind. Many of these books are sold here on BP. One thing I'll point out is that many of the REI books that I've read do a great job of giving you just enough information to get you thinking on the right track but can also lack specific actionable advice. I think Brandon's book below was great about giving very specific how to advice and the book and The Real Estate Rehab Investing Bible gave VERY specific how to instructions and also provided all the excel & word templates that they use online for you to download. I used & modified many of these in my own practice.
Rich Dad's Cashflow Quadrant - This was the book that got me incredibly motivated towards setting financial goals and real estate investing.
The Richest Man in Babylon - Great book for getting your head straight regarding personal finances & goals
The Book on Rental Property Investing - Great all around book. I made my offer based on the advice given here.
The Millionaire Real Estate Investor - Again, great book for getting into the frame of mind of thinking like an investor.
The Real Estate Rehab Investing Bible - GREAT book that goes through every step of the rehab process in extreme detail. Even how to manage and group the accounting. This one resonated with me the most and I've now been through it 3 times. I used many of the principles in this book in my rehab. I followed this process for creating my SOW and the contractors that bid my project were blown away with the detail provided and all said that it would make the project much smoother. Too bad that I chose the contractor that kept forgetting to refer to the SOW!! ;)
Long-Distance Real Estate Investing - I'm on my 2nd listen now. I want to take this leap in the not too distant future.
The Book on Flipping Houses - Good book with some actionable advice. Personally I gravitated towards the Rehab Investing Bible as my guide through my flip.
The Book on Estimating Rehab Costs - Good overall book for what to look for and how to estimate the cost of repairs. This book reads more like a checklist for the various areas of a home which is the intent of the book. It was a good reference while I was evaluating different properties. I found this to be the most difficult part of the process since it felt to me that the costs in California don't really align to the books I've read.
Finding and Funding Great Deals - good book with many creative ways to find & fund deals. Ultimately I found my deal by chance through Zillow so I have not tired the marketing and SEO strategies yet.
@Craig Drummond, thanks for the detailed response! And yes, I think we did meet not too long ago, we might cross paths at one of the local meetups :)
Again, great job on the house!
@Craig Drummond Right on man, the place looks killer. I'll keep it in mind if I come across any Swansboro buyers. And good job on making the leap on your first deal. I dig the creative offer that you came up with. Anymore around here it seems the best deals go fast with multiple offers... A LOT of Bay Area money being thrown around.
You ever think about investing in small multi-fam locally for buy and hold?
Great Job! I particularly like the format you have presented your before and afters in. Fantastic improvement, I would love to see your next flip!
One last question, @Craig Drummond. So you have a full time w2 job, did the research and study before you were ready to choose the property then do the presentation to get financing? OR did you get the financing first than hunt for a property?
And also how long did you study and do research before pulling the trigger and going in?
@Marvin Ong - My timeline before taking the plunge on my first flip went something like this. The company I work for went through a huge round of layoffs ~2 years ago. That was a wake up call and I decided that I had to do something to help supplement my income. I've always love the idea of real estate investing so I started reading....A LOT. I read a lot of BP forums, articles, books, audio books for the car, etc. It was very overwhelming at first since there are literally 100s if not 1000s of ways to go about investing in real estate. I found myself in analysis paralysis mode. I decided to take a step back and document very clearly & specifically my short-term and long-term goals. This helped tremendously to give me focus. Short-term I wanted to generate capital and longer-term cash-flow & wealth. I looked at the options for short-term capital and flipping and wholesaling seemed to be the most feasible for me. That's when I began researching financing for these endeavours and talked to several HMLs and then decided to try and pitch for private money and ultimately found a friend of the family who said yes. I did that before searching for my first deal. The deals move VERY fast so you must ensure that you have the money ready to go at a moment's notice. It took me ~3 months of searching and evaluating properties to find my deal. So, all-in-all it took me ~18 months from the time I decided I wanted to learn more about this to the time I landed my first deal. This can definitely be done MUCH faster but I didn't feel pressured since I have a good paying job, maintain a low overhead lifestyle, and could afford to move at my own pace.
Now that I'm starting to see the potential in this I'm getting more excited about moving faster....much faster. :)
Good luck!
Oh no, back on the market.
@Craig Drummond any update? Hoping for good news!
@Jessica Wygal - thanks! I'm in contract (again). This is the 3rd time. The previous 2 fell out because they decided the drive was too much.....it is quite a drive so I knew it would take the right person. Finger's crossed that this one sticks! I'll be sure to post the final #s.
Good luck, sending positive thoughts! You are still in June, your goal month...good news.
Well, my very first flip FINALLY sold! What a journey!!! Ultimately the project went much too long and had many cost overruns. Fortunately for me appreciation vs. my initial estimate helped to offset much of the overrun. My biggest challenge was managing the contractor. He started out very motivated but as the project wore on his motivation waned. It turned out that he really enjoys decking, framing, and rough-in but despised painting and finishing work and it showed in his work towards the end of the project. My key areas for growth are definitely in this area. Some ideas I have are to implement an incentive in the ICA for completing the project before the completion date. I was thinking a 5% bonus. Along with the incentive I will add a fee for going beyond the project completion date. I'm not sure if that would be a flat weekly fee or a % of the project total, similar to the incentive. I'm open to recommendations. I've also added a few additional questions to my contractor interview sheet such as "what work do you typically enjoy?" and "what types of tasks do you dislike?" I figured this will give me an idea as to which areas a contractor may excel in and which areas I'll need to keep a closer eye on.
The other key learning I have is specific to the process I used to create my SOW and my material list. Because of the way I structured my Excel file it started to become difficult to track material purchases and the area of the SOW they were associated with. I spent WAY too much time reconciling what was delivered to the home vs. what was on my material list vs. what I had planned for in my SOW. I have already begun work on a new and improved Excel template. :)
Thank you for all of the support and comments! I hope that posting my experience has helped other 'newbies' better understand the process. I thoroughly enjoyed this process and am excited for the next project (TBD)!!
Below is the final report that I've prepared that shows the final totals for the project.
Excellent job Craig, good to see that you still made a healthy profit. Doing this thorough lessons-learned immediately after the sale will definitely help you on the rest of your projects.
Great idea to ask the contractors up front about the work they enjoy and what they don't because you'll know when and what to pay attention. In David Greene's book he promotes incentivizing early completion with a bonus, and also late completion with a penalty, written into the contract. For example, 5% bonus if completed xx days ahead of schedule, 5% penalty if over 1 week late, etc. This should ensure that you get an accurate time frame for completion and keeps the contractor motivated, even if they don't like the finishing work.
Thanks for sharing your story and I look forward to reading about your next success!
Congratulations!!
What sort of technology do you use for the printouts you're putting on here? (before and after pictures, analysis comparison, etc
Thank you for this case study, really awesome to see the progression!
@Jay Kadlec - Hi Jay - Thanks for the comment! I use MS Office daily for my W-2 job so that's what I'm comfortable with. All of my analysis was done in Excel. The final property report & before/after was PowerPoint.
@Jay Kadlec - Hi Jay - Thanks for the comment! I use MS Office daily for my W-2 job so that's what I'm comfortable with. All of my analysis was done in Excel. The final property report & before/after was PowerPoint.
Professionally put together! Look forward to seeing the next post!