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]

@Mark Elliott I didn't find anything worth keeping, not even the walls :)

The "after" pics are on page 8 of the thread. Check 'em out!

[Vicki Gleitz]

Wow! I am so impressed.  One question though. Do you have any idea how long these "everything" collectors lived in the home before you purchased it. 

[David C.]

Great job!  Win Win for everybody.  Thank you for sharing.

[Taryll Webster]

 @Brian Burke:

Amazing job. When I saw it at first I thought tear it down and start over. Then after I saw it cleaned up I thought just flip it to another investor right then. Saw it threw and great job.

I'm new to the REI business. Your post and this thread motivated me to sign up for this site. Not even sure how I landed here but happy I did. I fear the day when I walk into a house like that. I can't imagine how bad things could have been if you had bought that at auction. I have to ask knowing you had a good margin of wiggle room to make a profit ease the stress of dealing with such a house.

Also how much did you spend on just the clean up? Perhaps I missed that mentioned somewhere.

I'm new to REI and would love to flip over 600 homes someday. Was wondering what kind of taxes you have to pay on your flips when you flip that many homes. Do you pay capital gains taxes or ordinary but more painful income taxes.

Anyhow thanks for the amazing thread and taking us on your journey.  Looking forward to learning more here on this site.

[Brian Burke]

@Vicki Gleitz yes, original owners and the house was built in 1981!

[Brian Burke]

@Taryll Webster welcome to BiggerPockets!  I'm glad you found the site because it's a great place to jump start your learning.

As to your questions, yes, knowing I had a margin of safety eases the stress. I'm investing with other people's money so I always have a margin of safety because it's my duty to protect principal first, and make profits second.

I'm not sure how much I spent on the cleanup, it's lumped into the rehab cost but just scanning the P&L it looks like around $15K for debris and about $10K for demo.

Taxes on flips are ordinary income, no capital gain in the flip world (wouldn't that be nice?!)

Thanks for your questions!

[Brittany Marcotte]

Wow!!! This is seriously incredible! Thank you for sharing your experience, @Brian Burke .

I am new to BP and I'm really enjoying learning from some of you pros. Certainly inspiring.

[Brian Burke]

Welcome to BP, @Brittany Marcotte !!  I'm glad you enjoyed reading about this most unusual flip!

[Mary B.]

@Brian Burke,

Wow that is the best house transformation that I've ever seen, a real masterpiece. Excellent work.

Kudos,

Mary

[Brian Burke]

Thanks Mary!  It was a pretty incredible visual transformation, that's for sure. I need to get better at documenting my flips from a visual standpoint...this was one that I knew would be good. I'm glad I didn't miss the opportunity to show everyone.  It would have been a shame for this story to have gone untold.  

[Dean Teter]

What part of town did you find that gem?

[Brian Burke]

@Dean Teter It was in RP near the golf course.

[Dean Teter]

Originally posted by @Brian Burke:

@Dean Teter It was in RP near the golf course.

 My first guess would be C-Section, but the kitchen looks older like A or B. Good luck with your project, it looks like a hand full but I'm sure you'll do well. 

[Brian Burke]

Yeah, this was a good one. Be sure to check out the before and after pics on page 8.

[Lisa Misuraca]

I've got one of those also,Do we have to disclose it was a hoarder house?

[Brian Burke]

Originally posted by @Lisa Misuraca:

I've got one of those also,Do we have to disclose it was a hoarder house?

Disclosure requirements differ from state to state.  Speaking as to CA, we are required to disclose all known defects and a few specific other things.  While having a history of being a hoarder house isn't necessarily a defect once the house is fixed up (just my opinion, talk to your attorney) I think it's a good practice to disclose anything that might offend someone when they find out about it later (and they will!). I'd rather have a buyer walk away from making an offer than hide something and deal with an upset buyer later.

[Alisa O.]

Originally posted by @Brian Burke:

Yeah, this was a good one. Be sure to check out the before and after pics on page 8.

 Brian, you did an amazing job! Incredible! Congratulations! 

Got a question for you. Why didn't the city/municipality slap an ordinance for the caving second floor balcony and whatever it was at the back of the house and condemn it? Neighbors must have complained! In my neck of the woods they would actually condemn the house and declare it unoccupiable, i.e., they would literally lock it down with huge sheets of plywood. 

Also, how did your associate find this fragrant gem?

[Dean Teter]

Originally posted by @Brian Burke:

Yeah, this was a good one. Be sure to check out the before and after pics on page 8.

 Just did and wow, you did an excellent job; what a complete transformation. 

[Sally Peterson]

Oh my... reminds me of when Luke (dressed as a storm trooper) gets sucked down into the mucky trash pile. Yuck! But I feel so sad for the folks that created that mess. It's a mental disorder that totally controls them. So sad. Have fun with that.

[Brian Burke]

Originally posted by @Alisa O.:

Also, how did your associate find this fragrant gem?

 Kind of a funny story, after we cut the trees down in the front yard a neighbor remarked that he didn't even realize that there was a two story house behind all of that vegetation!  The city probably didn't act because they couldn't see what was going on in the back yard from the street.  That said, I'm surprised like you are that the neighbors to the rear or side didn't complain.  Maybe they felt bad for the people, or maybe they had code violations of their own and didn't want to attract enforcement into their own yards.  :)

My contact found the house through a friend-of-a-friend kind of thing.  Basically, everyone he knew knows that he's a real estate investor and people come to him with questions and conversations ensue.  It's why I always say that it's so important that everyone knows that you are a real estate investor!

[Bill Fennelly]

Did you happen to find anything of value under all that trash...lost signed copy of The Declaration of Independence ? 

[Brian Burke]

Not a single thing, Bill. Even the T-Bird in the driveway went to the trash heap!

[FRANK R.]

I purchased a similar house with the debris left behind. The hardest part of the cleanup  was a drowned rat in a water bucket under the sink (age unknown) and getting rid of the smell. Still made a decent profit.

[Reggie Maggard]

Brian, where do u get a schedule of houses for sale on courthouse steps?

[Karyn T.]

Amazing thread & flip!  Thanks for sharing!