My buddy Joshua is on a mission to flip his first house. Read all about how it went down in his guest post below!
After years of thinking about it, I knew it was time for me to take the chance. I’ve always wanted to flip a house but the timing was never right. It seemed like I could never come up with the funds when I needed them or find the right deal when I had funds available. This time I was determined to find something that fit my criteria. Last week I finally purchased a home with the plan of flipping my first house in just a couple of months. First let me tell you a little bit about myself and why I was looking to do a flip.
The Years Prior to Flipping My First House
I’ve been a real estate agent for the last five years and have quite a lot of experience in dealing with home renovations. I started buying homes in 2008 and my overall strategy was simple:
- Buy a home that is in really bad shape but in a good neighborhood
- Purchase it for way below market value
- Spend 3-6 months renovating the home
- Spend money on features that students (my target market) would enjoy, like a mini bar, backyard bonfire pits, mounted TV’s, etc.
- Rent the home out and then repeat.
This was a very easy strategy from 2008 to 2011. It seemed that every home was listed below market value, there were tons of homes that banks were trying to get off their books, and I could just sit back and make low offers knowing that eventually a bank would accept one. In 2012 the market started to change. I started getting more competition when I made offers. The bank would come back and tell me that it was a “highest and best” situation, which means I needed to put my best offer forward. The prices I paid to purchase homes started to rise, my good contractors wanted more money, and my margins began to fall. Today I can still find a good deal here and there but the occurrence is rare. Some people are paying crazy prices for homes and this has forced me into acquiring rental properties at a much slower pace.
The Mental Shift from Renting to Flipping My First House
Last June I decided that it was time for me to take advantage of the other side of the real estate market. Since I could no longer make the same profits or find as many deals with rentals, I knew it was time to take advantage of people paying higher prices for homes. I spent weeks learning about different neighborhoods that I never invested in before. I would go out for a Sunday drive around the city looking at areas in which I felt might be a good area to invest in. I checked the MLS (the program Realtor’s use to list homes) multiple times a day to see if there were any good deals out there, but for months I came across nothing that caught my interest.
The Diamond in the Rough
Then, one day in October my luck changed. There was a home listed that dropped from an asking price of $58,000 to $38,000. This seemed to be a good price so I quickly researched the neighborhood. It seemed that most homes located within a half mile were selling in the $60,000 to $110,000 range. I called the listing agent to see what the story was with the home. She told me that it was an estate home that has been on the market for over four months. It was now owned by the three children who lived in Florida, and they are tired of waiting for it to sell.
So then I quickly called up my contractor and gave him the key code to the house. When he arrived we did a video walkthrough of the house. The home was in bad shape to say the least. First he walked into the living room and there was mold on the carpet, holes in the drywall and sagging ceiling.
In the kitchen there were old cupboards, torn up linoleum floors, and broken pipes. Editor’s Note: Joshua, what is up with those huge kitchen cupboards?? That’s hideous!
The bedrooms had old carpet, wood paneling, and little closet space. And the weirdest thing of all was a layout where the bathroom could only be accessed from two of the bedrooms.
On top of that the roof was going to have to be replaced as well as some of the soffit. Gee, no wonder no one wanted to buy this home at $58,000, it was a piece of crap!
However, the home did have some potential. First of all, it was located on a half-acre lot. This was very rare for the area; most homes have a tenth of an acre lot or less. Second, the home was a good size for the area. Most homes in the area were 2 bedrooms, 1 bath and between 750-950 sq ft. This home was 1200 sq ft. plus it had a good sized entryway. Third, the home had new windows and siding, which was something I could use as a selling point in the future. Finally, the home had a one-stall garage and a long driveway which could park three additional cars. So that afternoon I made an offer but I knew it probably would not be accepted since it was so low. I figured it was time to go back to looking for the next potential deal.
The next morning I got a call back from the Realtor. She informed me that the family accepted my offer. I actually did not believe her at first. So I confirmed again and this time mentioned the price as well. She said the deal was all set at $28,000! We were supposed to close in 30 days but immediately hit a snag. When I ordered title insurance (always buy title insurance!) they found out the title was not clear. The home needed to go to probate and the earliest date they could get was the end of December. This was disappointing, but actually worked out well in the end. I spent that time getting a more exact estimate, finding cheaper funding, and finding better deals on materials. After everything I was finally able to close on the home in the last week of January.
My goals for flipping my first house are to:
- Complete the repairs and have the home show-ready in 8 weeks
- List and close on the home in less than 45 days
- Make a profit of around $10,000
To date, my final purchase costs were $28,150 and my final estimate was $37,200. I have $1,500 built into the estimate for overages, so hopefully nothing else large needs to be replaced (we’re replacing almost everything anyway so I hope not!). If all goes well that means I will have a total of $65,350 invested. Right now my plan is to list the home at $84,900. I just started the renovations for this project and I am sure there will be a few surprises in store. I plan to keep you updated every couple weeks on how everything is going.
Yup, I’m flipping my first house – Have you ever thought about flipping a house?
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.