My First Deal

     In December of 2012 I decided I was going to be a full time real estate investor and give up my day job as an appraiser.  

     My initial strategy is to raise cash by doing 'chunkers' which is better known as 'flipping' these days.  That's stage 1.  The more cash I can raise the bigger the deal I can do or the more deals I can do.  Larger deals and more numerous deals are stage two.  I don't wish to disclose stage three yet.  Anyhow.....

     As an appraiser I've gotten use to researching the market and having a strong opinion on values.  Good appraisers are hard-headed to a certain degree and will have good data to back up their opinions.  Funny thing how when it's your own money at risk how you can second guess yourself.   My advice, which I follow, get another opinion.  

     To avoid a misstep I phoned a terrific real estate agent to see what his opinion was on markets that were ripe for flipping.  He named a neighborhood that was on my short list and was negative on another neighborhood I was considering.  

     My next step was simple.  I'd look in the neighborhood he recommended.  If I couldn't find a deal there then I'd consider the other neighborhood.  

     That's how I came across my first deal.  I found two properties in that neighborhood that were selling for their site value.  Both were bank-owned and listed on the MLS.  The houses were rough but far from worthless.  I immediately recognized that they were mispriced.  They were near another neighborhood that was cheap and blighted but their area was in good demand and buyers pay good prices for remodeled houses.  The dividing line between the good neighborhood and bad one, no kidding, are rail road tracks.  It was obvious to me that whoever had priced these properties had crossed the railroad tracks into the bad neighborhood for comparables.  I could smell profits.  Yummmmm.  

     The house I preferred already had two investors bidding on it.  The listing agent wouldn't even give me the lock box code.  It was too late to get into the bidding.  I drove by it anyway on my way to go look at the other one.  It was a dump but just a block away from a very popular restaurant.  

     On to the second choice.  It didn't have anyone bidding on it yet.  It was the same style, size, and build quality but in better condition and only 1/4 mile away from the 1st property.  It also had a garage and a basement, features lacking in the other property, and it was $10,000 less.  Did I mention it was $10,000 less than the 1st property????   I could only attribute it to dumb luck that no one had bid on it yet.  I got my offer in as fast as possible.  I was worried that whoever lost the bidding war on the first house would be likely to bid on this one.  

     So I bought my 1st property for $24,000.  About the value of the lot or even a little cheaper.  

     I got an estimate to rehab the property from a young talented and eager contractor.  He was laid off from the union and specialized in drywalling but had extensive experience in several construction trades.  His ambition is to be a general contractor.  I had sold him a bank-owned house a couple of years earlier and saw first hand that he did a very nice remodel on it.  

     I loaned him the money to pay for his contractor's insurance and to get incorporated, and hired him to rehab the property.  His work ethic is terrific and to my satisfaction he's a good problem solver and consistently demonstrates good judgement.  It was a risk to hire him but it worked.  

     He initially estimated $25,000 for rehab.  There were two unforeseen major expenses, the roof needed to be replaced and there were wiring problems that were revealed when the walls were taken back to the studs.  

     The numbers thus far $24,000 purchase price and about $31,000 rehab (I upgraded to the flooring to hard wood)  for a total of $56,000.  

     The estimated value after fix up is conservatively $90,000 but it is more likely to be about $100,000 to $110,000.  Again, I'm too close to the deal to be objective so I'll tap a good agent to help me set the price.  Estimated profit between $34,000 to $54,000.  

     I'm hooked.  Totally hooked.