Champaign, IL - SFR - Failed Flip

[Shawn Q.]

So, this is going to turn out to be a short diary unfortunately, as the deal recently died. Still, might be instructive - and at least maybe some of you can commiserate. 

An ex-hoarder house, a 3/1 in Urbana, was listed for $37K and I got it under contract for $35K. ARVs in the area would make this likely an easy sale at $59K, although it would still cash flow as a rental with my conservative monthly rent of $650 - so two exits (always a good decision). I estimated the repairs at around $10K. Pretty much just new carpet and paint throughout, some much-deferred yard cleaning and a small amount of roof work. As we approached the closing, the junk still hadn't been cleared out and the seller found termites. Not a big deal, we agreed to escrow the treatment cost.

The bad news came when the lender's appraisal failed - the appraiser had done some strange things which eliminated 90% of the comps in the area - so we worked to bolster our case. I asked my roofer to write an estimate for the repairs needed (as that was the largest issue the appraiser hammered in his report) and he unfortunately discovered some issues. My $1500 estimate for repairs became a $6000 estimate for a new roof. Well, the deal still had some meat left, but the bank wouldn't commit. I tried another lender, but couldn't get them to act with urgency, and we cancelled the deal.

Overall, I think I'm lucky it came out the way it did. The economics of the flip were getting worse and worse, and this property is outside my target area (I'm a buy-and-hold investor, but in Champaign - for sister cities they're really quite different). Turns out, I have an offer in on something much more my speed as I write this, so I'm very glad I'm not in the middle of a difficult and costly flip. Lesson learned: Stay flexible and keep moving!