Here is a brief summary of the deal. I will try and keep it short and to the point, but if there are any questions, please let me know. And to any other new investors reading this, I just wanted to add that neither my wife nor I have any prior real estate experience (although my wife received her real estate salesperson license last June to help with our investments), but we knew that we had to take the plunge at some point. If you do your homework beforehand, don’t be afraid if you don’t know the answers to everything as you will find them out as you go.
Property details:
1216 sq ft, 2 bed, 2 bath, located in Oxnard California
Original Analysis - Purchase Price 500K, rehab 66K, ARV 724K
Final numbers - Purchase Price 500K, rehab 93K, sold price 820K
We got the lead from our absentee owner direct mail campaign. My wife fielded the owner's phone call and we made an appointment to view the home at the tenant's earliest convenience. I don't remember if it was a scheduling conflict or what, but I was the only one who went to view this house initially. If my wife was there, she probably would have caught a mistake or two that I made in the repair estimate. Using a repair estimate spreadsheet that comes with our CRM software, I came up with 66K in rehab costs. Using this number, we presented the seller with 3 different offers of varying purchase prices and terms using hard money, conventional loan, and seller financing (he owned the house free and clear). He chose the offer that we presented using the price and terms from us getting a conventional loan, which was $500K. At this point, we did not know where we would find the rehab costs, but I explained to the seller that one of our contingencies would be a financing contingency to confirm that we would be able to obtain the appropriate financing, and he was okay with that. From speaking to lenders previously, I was pretty sure that we would qualify for bank financing, so all we would have to do is find the rehab costs. At this point, our exit strategies in order of preference were to fix and flip the home ourselves, find another investor to form some sort of JV agreement, or to wholesale the property. Fortunately for us, since the seller and the tenants were good friends, the seller asked us to delay the closing date for 6 weeks after whenever we would get the thumbs up from the bank to give his friend time to find a new place to live. Obviously we agreed to that, since we would not be losing any money in holding costs prior to closing and that gave us more time to find the rehab money. Long story short, our lender approved our loan and during the 6 weeks we gave the tenant to find a home, my wife's broker's dad heard about our deal and approached her to see if he could get a piece of it somehow. He said that he would either lend us 75K for repair costs at 8% or he would offer whatever amount the rehab ended up being, as well as pay all our holding costs and have access to him as a mentor for 50% of the profit. In the end, we chose the latter because we were not sure if we would be able to stay under 75K and that our bank account might end up cutting it close if we ended up holding the property for much longer than 4 or 5 months. We negotiated him down to only receiving 40% of the profit, as he was not coming out of pocket the entire purchase price and we felt like obtaining the bank loan in my name stood for something.
As far as the rehab is concerned, we only collected bids from 3 contractors as it was difficult getting people in the home with the tenant still living there (he took the entire 6 weeks to move out). We ended up choosing the contractor that our money lender had done business with for decades as we felt their relationship provided some level of credibility. Based off of our original scope of work, his bid was $62K. Between the 2 or 3 months since the seller initially contacted us and us actually closing, there had been some good activity in the neighborhood and we deiced to finish our rehab near the level of a bigger model that had sold down the street for 930K. The upgraded finishes along with us missing a few things on our scope of work increased our final rehab number to 93K, but we believed the comps would support an ARV of around 800K by doing so. We did not follow some of the lessons that we had learned beforehand when it came to developing a schedule with a contractor, so our 6 week rehab somehow became 9 weeks, which seems kind of ridiculous on a 1216 sq ft home to me. In the end, everything worked out and we were able to overcome the little hurdles as they came up. As I said to begin with, we knew that we did not know what we were doing, but we had confidence in our education and believed that we would solve the problems one at a time as they came up. This post was much longer than I initially intended, so I will end it here and answer any questions as they might come up. For those asking for pictures, since I cannot post links on this thread, if you google "Dream Home Property Solutions," you should be able to find our website pretty easily. Go to "Recent Projects" in the top menu bar and you'll find a link that will take you to pics and videos of our progress throughout the project.
