Cat Litter House: Flip # 653 and it could be the worst one yet. Look at the pics and you decide.

[Brian Burke]

Some flips are easy...paint, carpet, clean, and list.  Then there are the hard ones. 

I've never posted a diary of a flip before.  With over 600 flips under my belt I sometimes think that I've seen it all.  Then I see something I haven't seen before.  This time, It's so outrageous that I couldn't resist sharing.  I'll share the visuals, but fortunately for you I can't share the smells.  This is kind of a diary and kind of not...I bought it in January so you don't get the day-by-day play-by-play, but it's not done yet so this isn't old news either.

I came across this deal from a wholesaler who I met on BP (thanks yet again BP for making me money).  He hadn't seen the house in person but he had heard it was in bad shape.

I sent my acquisitions guy down there to look at the house. When he came back he said, "that's the worst house I've ever seen." At first I thought "Come on, really? You've looked at over a thousand houses for me!" Ultimately, I took his word for it. We threw a number at the rehab and ARV and made an offer. It was accepted.

Here are the numbers:

ARV $400,000 (probably a little more, I hope)

Rehab $175,000 (probably a little less, I hope)

Since there were some unknowns I had to make a conservative offer.  It would take a while to fix this place up, so I had to add some margin to cover the carrying costs. 

My offer: $125,000.

Closing was about a month later.  The seller agreed to move out and leave the key at the title company.  On move-out day, I went down to the house to see it for myself for the first time.  When I opened the front door, this is what I saw.

Ok, so now I knew that my acquisitions guy was right!  We were in for it!

Have you ever seen anything like it?  Wait, it gets worse.  More to follow!

[Brian Burke]

@Reggie Maggard I build my own list by mining data from public records. In some areas there are websites that aggregate this data, I'm just old school.

[Pavel Sakurets]

Originally posted by @Brian Burke:

Finally, the moment you've all been waiting for!  Escrow closed today, and the numbers are in.

$525,000 Sales Price

- MINUS -

$125,000  Purchase Price

$185,327  Rehab

$13,752 Borrowing Costs

$4,562  Insurance/Property Taxes/Utilities

$26,250 Commissions

$1,356 Closing Costs (buy side and sell side)

$168,753  Net Profit

This one worked out pretty well, I'd say.  Someone asked me earlier in the thread if there is anything I'd have done differently.  The answer is YES, I would have done the air test before putting the house on the market.  I had an offer the first weekend it was listed, the offer was $540,000.  The buyer backed out when they saw the disclosures, but I think they might have moved forward if I'd have had that air test to show them.  That mistake cost me $15K in additional profit.  Live and learn, I guess, but it doesn't change the fact that this was a pretty successful flip.

I'm ready for another one of these!

Congrats, Brian. What do you think the house would sell for in as-is condition if it would be listed on MLS when you first saw it? This is the second time in 10 years that I hear somebody made over 150k on the flip

[Brian Burke]

In our hot market it's anybody's guess how much a fool would pay...but anybody with a reasonable mind wouldn't pay over $175K in its as-is condition.  I wouldn't have paid that, there was just too much risk and at that time there were no comps to support a $525K exit price.  More like $450K.  So I'd say that $75K of that profit was a gift from the market.  When buying, I don't underwrite for appreciation.

[Pavel Sakurets]

Originally posted by @Brian Burke:

In our hot market it's anybody's guess how much a fool would pay...but anybody with a reasonable mind wouldn't pay over $175K in its as-is condition.  I wouldn't have paid that, there was just too much risk and at that time there were no comps to support a $525K exit price.  More like $450K.  So I'd say that $75K of that profit was a gift from the market.  When buying, I don't underwrite for appreciation.

 If I got it right, you bought it cheaper by 40k than anybody else would and extra 75k was as a ''gift'' from the market. Thus if these two things wouldn't happen, you would make about 35-40k?

[Brian Burke]

Originally posted by @Pavel Sakurets:

 Yeah, probably. I aim for a net of 10% of the exit price.  So maybe $45K had I sold it for $450K.

[Les Jean-Pierre]

Wow, great thread. Thanks for being diligent about updating everyone.

[Account Closed]

Excellent job and great service to the neighborhood. 

[Mike G.]

Awesome job!! Definitely a lemons into lemonade success story. Thought the dark laminate flooring and staging furniture looked very tasteful on the final shots. Also, appreciate the honesty in the full disclosure. Proves that even in an area with stiff competition, if you are known, get your hustle on, run your numbers right and don’t get scared off, there’s potential profit to be made.

[Brian Burke]

@Les Jean-Pierre , @Account Closed Thanks for reading and commenting!  One of the most rewarding parts of my job is turning an eyesore (or health hazard) into a great home.  That's why after 25 years this doesn't get old.

[Aaron Hall]

I went to that house and saw the completed job before the sale closed.  It was nice to see the photos of the before.  What a change.

Let's just say - the person liked Trader Joes.  I'm suprised it wasn't filled with Walmart bags. 

[Brian Burke]

@Aaron Hall how did you find it?  Did you just follow the smell?  LOL. Funny thing, even Trader Joes doesn't have that many Trader Joes bags.

[David White]

@Brian BurkeDo you have any video of the house before the pics. Something is telling me the before photos aren't doing it any justice. I probably would've seeked professional psychological help after stepping in that house before the transformation. But, wow what an amazing job. The house is beautiful. 

[Brian Burke]

@David White, I don't have any video, although that would have been fun to watch.  Fortunately, no smell-a-vision either...LOL

[Ruth Bayang]

Holy cow! That is quite an undertaking. Nicely done @Brian Burke!

[Imran Raz]

This is amazing transformation, Just to undertake such project require tons of experience and guts. This is truly inspiring stuff. 

[Shirley Gregory]

WOW, just wow!  Epic rehab, great job Brian and thanks for sharing. 

[Ernie V.]

What a transformation! Nice job!

[Rick Mays]

amazing brian , wouldn't have believed it had I not seen it. in my neck of the woods you can get those houses for a grand, no lie.of course the ones I'm talking about are basic 2/1 with only maybe 1200 sq ft. totally rehabbed they don't go for much over 30k. neighborhood considered the hood if you understand my terminology. man what a great job. miracles do happen don't they? wonderful! id like to just spend a month with you learning all the processes of what you do. fantastic!

[Waverly Rennie]

Brian, thanks so much for all your efforts in documenting this and answering all our questions. I learned a lot from the process and was inspired by your straight-up and honest approach. Thanks for all your hard work sharing your experiences with us!

[Brian Burke]

I'm glad you found it helpful (and entertaining), @Waverly Rennie.  Thanks for the comment!

[Emily Lopez]

I came across this older post when searching for before and afters (I wish there were more of those on here).  The original condition of this house is absolutely astounding.  Looks great now!

[FRANK R.]

Brian, My first visit here I did a drive-by posting. This time I read thru the entire post and was spellbound as the saga unraveled.  Wow!! You are a motivator and a change agent. Thanks for sharing.