First Flip! A base hit
Updated: Aug 31, 2020
A short post on our first dabble in flipping, with some lessons learned for other first timers.
Find: Flipping is not our focus, and we were not actively searching. So when my Realtor Claudio Valdivia asked me if I was looking for a flip, a quick analysis showed profit with a second exit strategy of a BRRRR, so we went for it!
Analyze: Analysis below, using market ARV's and a rehab of: paint, carpet and minor repairs and fixtures.
Offer: With that we offered 85k, and settled at 87k. The property was a REO.
Purchase: For financing we used a combination of the following:
-70k PML at 9% interest only for 6 months: $563/month
-Cash
**We closed in September, this will be important later**
Rehab:
Just before we closed (august '19), an exact property match (flip) sold one street over for 150k. At this point we decided to match that flip and hope for the same.
Main differences being: an open concept living and kitchen area.
Relationships are everything! The rehab started very slow…
2 of my usual contractors were busy.
A third (new) was working on a different job for me… and unfortunately not doing it well.
So I reached out to my network, and got lucky with an available crew from another flipper, very generous!. They did a fantastic job and completed it in 2 months (late November).
Sell:
**Lesson learned, not a lot of people want to buy a house between Thanksgiving and Christmas.
There were plenty of showings, but no offers until February which we accepted at 145k. Back end analysis below:
Overall: 9k profit at 12.81% CoCR, with leverage, annualized.
Lessons:
Stay in your lane.
But, if an opportunity comes your way, get help and find a solution.
Flips were not my concentration, however I had enough exposure and a solid analysis to venture in. This was a small enough flip that I decided it was worth the risk to break from BRRRR and give it a try.
I would not have been nearly as successful without the help of my realtor/contractor team. In the end everyone benefited!
The only regret I have is not having the cash available when the next great BRRRR came my way. I was still able to get it, but it was stressful and I had to get extremely creative with the financing and rehab until this flip sold. The Obstacle is the way! I found more ways to creatively finance, not having cash = more financing costs (HML) which I could have avoided if I wasn't tied up in a flip. This opportunity cost was essentially half of my flip profit.
Consider market timing for ARV.
We decided on a 150k ARV, but that property sold in August.
If your flip is going to hit the market in the winter months, plan on a longer days-on-market (DOM), at least in most northern markets and possibly a lower ARV.
Pre-inspect!
This is right out of How to Sell your house by Mindy Jensen.
I had to use a plumber none of us had used before. The work was not perfect and required multiple fixes after the inspection.
It would have cost me a lot more but luckily the buyer did not request to pick the plumber. So I was able to use a more competent plumber to fix the mistakes. If I would have pre-inspected (~$300-400 cost), the mistakes would have been fixed sooner, and without the risk of the buyer picking the plumber.
Overall we are happy we did it! We got our feet wet in flipping, found some great new sub-contractors and can't wait for the next deal!