How I Got to Closing on a Million Dollar Fix & Flip Project [With Real Numbers!]

by | BiggerPockets.com

[Editor’s note: Featured image above is of actual flip project.]

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The Numbers on My Million-Dollar Flip

I posted a while ago about my first million dollar fix and flip, and many of you asked me to put up some NUMBERS on this deal, so here you go! In this video, you will learn about options for structuring large renovation projects, along with how we evaluated this project. I hope you enjoy!

[We are republishing this article to help out our newer readers.]

I look forward to hearing your thoughts and questions on this. We will be sure to post more updates when the house is finished!

Leave all your questions and comments below!

About Author

Matt Faircloth

In 2005, Matt founded The DeRosa Group along with his wife, Elizabeth. At the time, the two person company owned and managed two assets – a single family home and a duplex. Over the last nine years, they have grown the company to a 12 person team owning and managing over five million dollars in residential and commercial assets throughout the central NJ and Philadelphia area.

One of DeRosa’s mantras is “to make money while making a difference.”

35 Comments

  1. Ashley Pimsner

    Nice post, just goes to show even when presented with a great deal, it still takes hustle and sacrifice to make it happen i.e. partners and local bank + 2 payoffs.
    Did local bank actually appraiser the property to confirm 70% LTV…I assume that LTV was based on the ARV of 800k+?
    Might be interesting to see before and after pictures, scope of work, and the comps you used to determine ARV, as I assume you just didn’t rely on attorneys word.

    • Matt Faircloth

      Hi Ashley,
      Glad you enjoyed, and you got the point. Finding a good deal is a part of the battle. Once you find it you have to “reel it in” – figure out deal structure, financing, and rehab strategy are all necessary steps that can be just as challenging as finding the deal.

      It’s funny you bring up the appraisal as that is another story that I left out of this post. The bank did send an appraiser. When he came out he asked me the question almost all appraisers ask – what do YOU (me) think it’s worth? AKA, looking for some guidance or an idea of what we need to get for our loan. Typically I don’t mind sharing this information as my sale or refinance hinges on getting a certain valuation but in this case I really wanted to know what the appraiser’s value of the property was. I made the mistake of answering him, saying “at least $750,000!”. Of course, the appraisal came in at exactly that, $750,000. His comps were off also – our house is 7000 SF, he used two houses that were in the 4000 SF range with less bedrooms. He gave us a “premium” above these houses but not by much, $20,000 if I recall.

      I do think the house will sell for $800,000 to $900,000 as I ran comps in the area. Unfortunately the only things selling in that price range currently are new construction homes of less size and acreage. We did run plenty of comps and found that the house is a bit of an outlier in size. Houses of this size in this school system did sell in the past and for numbers north of a million, but those sales were 18 months ago.

      We will definitely do some before and after pics or a video once we are complete with a rehab budget versus actual also. Stay tuned!

      Matt

  2. I would like to see the final numbers when you close out the the deal with your partners

    Are you saying also that if the bank had not stepped in you would have walked away from the Deal ?

    On final closing when you and your partners get the BIG check If you had gone Hard Money what would the end check been reduced to ?

    • Matt Faircloth

      Hey Bob,

      We will be sure to do a post when all the dust settles with numbers and pics!

      I probably would have bitten the bullet and gone with a hard money lender. The hard money lender wanted 15% plus 4 points, the bank took 5.5% interest plus 1 point. the total loan amount is around $500,000, so we saved $15,000 in loan points. For interest, I project that the project will take 5 months from closing on purchase to closing on sale. The difference in interest is 9.5% so over 5 months that’s just under another $20,000. Total savings of $35,000.

      The bank gave us two other benefits that are hard to quantify in hard numbers. First, they are not charging us interest on money that they are holding in escrow for construction draws. The hard money lender was planning on charging his 15% on all the money, what had been disbursed and what was in escrow waiting for us to ask for a distribution. Second, the bank was willing to include one year’s worth of interest in his loan. That means that he took a year’s worth of payments and set them aside along with the construction money. Each month when our interest payment comes due he draws from that account and adds it to our outstanding loan amount. The hard money lender wanted monthly payments and was not looking to get creative.

      Thanks for the comment!

      Matt

    • Matt Faircloth

      Hi Darron,
      Well you aren’t giving me much to go on, LOL. Since you didn’t give me any more on what you think was “misleading” in the article, I can only make assumptions. I will assume that you are talking about how we called this a “million dollar flip” and the ARV I showed in the numbers was less than that.

      Although I showed numbers in the $800 -$900K range, we have been told that there is a chance that the house will sell above a million, and there are comps in the area to prove it. We have tweaked the scope of work a few times mid-stream, adding things like a full bar in the basement, kitchen upgrades, and other add-ons that will increase value. We really won’t know our asking price until the house is finished and we interview agents to list it.

      I find that shooting on the low side for projections allows us to prepare for the worst and expect the best when it comes to profits. I hope that adds some clarity! If you have the time I would love to hear back from you with some more detail here in the discussion thread!

      Take care,

      Matt

  3. Scott Schultz

    I am curious about the pay off to the seller? im assuming this was not a short sale? because if it was it would be mortgage fraud if not disclosed to their mortgage company, that part seems shady to me, but i dont know the whole story, please enlighten me.

    • Matt Faircloth

      Hey Scott,
      Believe it or not, this was not a short sale. The house was worth much more than the payoff to the bank meaning that if the seller had had enough foresight he could have listed the house for sale and made a profit. Unfortunately he waited till the last minute and needed to close the sale in a few weeks, which took the potential to sell through traditional methods off the table. In order to get him to “play ball” with us we agreed to pay him a fee at closing which was legal as it was above the payoff to the bank.
      I hope that makes sense, but please leave an additional comment to confirm!
      Matt

  4. Donald Capwell

    Great update, @Matt… In addition to the merits of the deal on its own, I’m sure your also excited about the residual benefit of finding a lender that can help you on future deals of this size. Huge win! Looking forward to future updates!

    • Matt Faircloth

      Hi Donald,
      Thanks for the comment! I actually had worked with this bank before but had no idea that they would take on a fix and flip, or one of this size. Although they require a sizable amount of equity in the deal (skin in the game from the flipper), I can see myself working with them on more deals!
      Take care,
      Matt

        • Matt Faircloth

          Hey Austin!
          The bank was a local one in South Jersey. First Colonial Community Bank. I recommend that all investors get friendly with their local small bankers as they have less red tape and will work with investors, but all will require some “skin in the game” from you.
          It was a rehab loan, with a 70% loan on the purchase price plus 100% of construction with a cap of 65% loan to after repair value. Construction was issued in draws with us paying for the work up front and then getting reimbursed by them afterwards.
          I hope that helps!
          Matt

    • Matt Faircloth

      Hi Oliver,

      We plan to hold for a total of 5 months from closing on purchase to closing on sale. We had a conservative estimate of $100,000 on construction, so far we are tracking to come in less than that but you never know till all the work is done.
      Matt

  5. Ashley Wilson

    Matt this is awesome and I am so pumped for you! I have been following your videos and watched the first post. Numbers look great, and I liked your perseverance to keep finding the deal that worked for you. Best of luck with the homestretch. I hope you can share before/after pictures. Would love to see your team’s vision for the project/transformation at that price point too!

    • Matt Faircloth

      Hey Percy,
      Thanks, it was a heavy couple of weeks going back and forth with lenders, partners, etc… But we stuck with it and got the deal.

      The attorney did not represent either party, but he did help by filing a motion for a 3-week stay on the foreclosure filing. He came across the lead from a mortgage broker friend of his that was contacted by the owner who was trying to refinance the house last minute. I find that attorneys are the best sources of leads for these types of deals because they can get first wind of estate sales, foreclosures, and otherwise distress sales.

      Matt

  6. Mike Dmuchoski

    Great story, Matt. Congrats on the deal and such a good example of creative financing. You kept plugging away and ended up with excellent terms and no extra back end fees. Were you working with a local bank to get those terms? How did your partner develop such a relationship with the bank? eg several previous deals

    Looking forward to seeing the final product.

    • Matt Faircloth

      Hey Mike,
      Thanks for the congrats! We did end up using a local bank on this deal. They had done several other projects with me so we had an established relationship. I don’t think they would have done something this large out of the gate on our first deal with them.
      I will see if I can post some pics of the completed house on here the blog, stay tuned!
      Matt

  7. Dan McLaughlin

    In NC when a property goes to a trustee sale, the surplus funds, the amount over the opening bid, is dispersed to lien holders. When all of those are paid, or in the case of this house you are describing, there were no additional lien holders, then the surplus funds would go to the home owner being foreclosed upon.

    This attorney screwed the homeowner to pad his own pockets. A house with an ARV of $800k would easily sell for $600k at a trustee sale. If only $400k were owed and no liens to pay off, that would leave a $200k surplus that the owner would have claim to.

    With your house, the attorney failed to tell him about surplus funds.

    Maybe that’s not how it works where you are, but I suspect it does work in a similar way.

    Shame on that attorney.

    • Matt Faircloth

      Hey Dan,
      I’m sorry you feel that way. Although we were able to sell it for much more once we repaired it, I can assure you that it wasn’t worth any more than what we paid for it in its condition at closing. I also think your statement that a house worth $800,000 would easily sell for $600,000 at a foreclosure sale is a bit too general. It really depends on the property condition and most importantly, on the buyer’s capacity to purchase a home of this size and price. Not everyone can assemble a half million dollars on short notice on a property that would not qualify for standard home owner grade financing. The buyer pool is very limited at that price range and condition, and quick closing time requirement.
      On top of all that, the owner benefited from this sale. He got paid at closing, did not end up with a foreclosure on his credit report, got to live in the house without paying a mortgage for 2 years (do the math on how much money that saved him), and on and on.
      I do appreciate your point and do think that some attorneys can be unethical, but in this case, I think it was a win all around.
      Matt

    • Matt Faircloth

      Hey Douglas,

      We sold the house about a year ago. We ended up selling it for $780,000. Net profit was around $120,000 as I recall, split 3 ways. All in the project took 8 months from purchase to sale, so each owner made 72% on our initial investment of $55,000 in 8 months. It wasn’t a passive investment, of course, we put plenty of blood sweat and tears into the house to get there. In retrospect, I don’t know if I would readily take on something of this size again. I lost a lot of sleep over this house. I prefer the smaller flips that I can get in and out of quickly, and sell faster (this one was on the market for about a month until we got an offer, which I hear is common for larger homes). It was a great learning overall, profitable, and fun (most of the time).
      Take care,
      Matt

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