How poor market timing turned a failed Fix and Flip into a profitable BRRRR

[Alan Asriants]

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $250,000
Cash invested: $90,000

We purchased this property at first to Fix and Flip. We acquired it for $250k with cash and put in about 90k into it to list it for 420k. There were multiple comps that supported this sale at 435k and 445k. We figured we would list aggressively to attract as many Buyers as possible to get better terms. We listed the property the first week of October 2022. Crickets. No showings. Rates just peaked at 7% and the market was in shock. Over the course of 2 months we lowered the price to $400,000.

What made you interested in investing in this type of deal?

Got in touch with a seller looking for a cash deal through an agent listing website. Saw the area and her price estimation and thought this could be a great deal. I saw the property needed major work and new there was plenty of value add in this deal. Immediately gave her the offer she was looking for and signed the contract.

How did you find this deal and how did you negotiate it?

Got a notification from a Listing Website for agents. The deal showed the address and the Seller notes that said that she wanted $250k and is looking for a cash Buyer. I immediately scheduled an appointment with the seller, walked through and agreed to her price after quickly researching the area and estimating the rehab costs. I was familiar with the area which let me make a quick decision on the offer.

How did you finance this deal?

We purchased the property with Cash. Once we renovated it, we used a 6 year balloon with 30 year amortization to pull as much money out as we could. We got 252,500 loan amount, 6.5% interest rate, no points, no prepayment penalty. This was offered by a local credit union.

How did you add value to the deal?

We did a complete rehab - New Kitchen, new floors, new electrical, new balcony door, recessed lighting, upgraded all bathrooms, new roof, etc.

What was the outcome?

$400,000 was our absolute lowest we were willing to go at which point we listed the property for rent and found a tenant at $2800/m. We did a cash out refi and pulled as much money out. We were able to cash flow 850/m @ 10% CoC.

Lessons learned? Challenges?

1. We saved ourselves from a potential 35k loss due to market timing. 2. We wouldn't have to pay income tax and now when we sell it would be capital gains, which I believe is taxed lower (or we can now utilize 1031) 3. During the course of ownership we will get more money back in our pockets, have better tax advantages, and be able to sell in the future with plenty of equity. Glad the flip didnt work...

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Agent: We represented ourselves
Lender: UKRFCU for the Cash out Refi
Title: Alpert Abstract LLC