Investment Info:
Single-family residence fix & flip investment.
Purchase price: $281,000
Cash invested: $78,614
Sale price: $404,000
This was my first deal using hard money, and of course this was the flip that just about everything that could have gone wrong... did! My contractor did not pull the permits for construction like he said that he did, no to mention that I paid him for. We were shut down by the city for 4 weeks and to top it off, my contractor tried charging me an additional $17,000 worth of change orders after the city inspector made them change out work that was completed before permits were pulled.
What made you interested in investing in this type of deal?
This was not the typical location that I typically invest in, however this was just south of a very popular, high-end shopping center and the entry price was affordable. There were a few renovations that were completed in this neighborhood, and I saw potential.
How did you find this deal and how did you negotiate it?
I found this deal on Zillow. It was an all original 1955 home that really needed a lot of work! It turns out that the owner passed away and her daughter was selling the home. She came down a bit on her asking price, however since there were other offers from investors she did not come down much. I got it for $10,000 under asking price.
How did you finance this deal?
I put 20% down of my own money, and used hard money to finance the rest of the house. I use my personal money for the renovation. I was nervous to use hard money due to the high interest, however my contractor was confident this would be a quick flip.
How did you add value to the deal?
I completely updating this 1955 home and giving it a modern makeover. I removed the wall that divided the kitchen and the living room to create an open concept kitchen. I used polish concrete floors, new soft close cabinetry, plumbing and lighting fixtures, designer tile in the kitchen and all bathrooms. I poured a new concrete slab for the driveway, a walk way on the side of the home and a patio outside of the new master suite. I turned a patio into a new large master suite with walk in closet!
What was the outcome?
The project took 7 months from the purchase to the sale of the home. We went way over budget in hard money interest, labor and materials costs due being shut down for a month after the contractor did not pull the permits that he said were pulled. I know hire out my own draftsman to pull permits and check the city website to this never happens again. I ended up making $24,000 on this house which at the time was my second highest profit. I was thrilled!
Lessons learned? Challenges?
There were so many challenges with this property, but I learned more on this property than I ever could have if everything went right the first time. The biggest lesson that I learned on this was to verify your contractor pulled the necessary permits, do not just trust they did so. Be at the job site when the city inspector is there - he will point out things that you should be aware of and to make sure the contractor addresses them properly.
