Finished my First Deal in Portland, Oregon - WIN

[Isaac Frost]

I’m so excited to finally share the results of my first Rehab/Sale deal. I hesitate to call it a ‘flip’ considering that we held the project for just over a year. This has been quite a year and I’ve put countless hours into this project (ok I could count them, but I don’t want to). It was a hell of an experience. I got married a week after we bought the house and jumped right into it after our brief 4 day ‘mini-moon’ on the Oregon coast.

Since it’s the first thing everyone want’s to know; Here are the numbers:

Home Specs:

Before – 2 Bed, 1 Bath; After - 4 bed, 3.5 bath

Purchase Price of House: $365,438

Total Rehab Costs (incl. architect, engineer, & permitting): $336,888

Soft Costs/Holding Costs: $8,774

Total Purchase and Project Costs: $711,100

Final Sale Price of House ($55K over asking): $885,000

Realtor Fees: $42,038

Gross Profit for Project: $131,863

Funding Source: Private Lender

The duration of the project from acquisition to design, land use review, historic committee, construction and final sale was just over 13 months.

I’m going to chalk this one up as a WIN.

As much as I would like to say “hey look how awesome I am!” I think it’s best to take a step back and look at the realities of the situation and what led to this result.

Portland is a HOT market right now and sales have gone up in this neighborhood by approximately 19% in the last year. So that means this house sold for roughly $100k more than what we set our ARV at when we bought the house.

Here’s the fun part; I spent $100k more on the project than I estimated when we bought the house. And I’m a contractor so I do estimates for a living, and I’m good at it. What happened here? Optimism. Telling myself what I wanted to hear. Saying to myself “I don’t think this part of the project will really cost THAT much.” “I can do this part faster than I did it last time.” Yeah sure you can buddy. We also had the typical surprises (extra costs) you might expect to run into on a 100-year-old house.

So in a flat market this deal would have made me $30K. Not bad you say? That' just over a 4% ROI. If the stock market had performed the way it did in 2014 with an 11% return, it would have been really crappy for the investor that funded the project.

So I got lucky you say? Maybe. I’ve been doing construction for over 15 years and it’s not luck that I can make an incredibly beautiful and well thought out home out of a turd. I spent the year prior to acquiring this deal reading A LOT on Bigger Pockets, practicing deal analysis, writing a business plan and putting my team together.

I firmly believe in the phrase “Luck is the intersection of preparation and opportunity.”

I fully realize that this project could have gone another way in a different market. If this was 2007, I would have lost my shorts on this deal. That’s why I’m not jumping up and down and patting myself on the back. I did some things right, and I did some things wrong. If we are honest with ourselves about our successes and failures we can learn WAY more from experiences like this and how to do things better and SMARTER in the future.

The take-aways on this project:

1. 1.  Do NOT kid yourself about what it’s going to cost to rehab a house. If it looks like a ton of expensive work, IT’S A TON OF EXPENSIVE WORK.
2. 2.  DO make the house a knock-out. We made sure that this house got the wow factor response when you saw it from the street and again when you walked in the door. That’s why we had 3 offers all over asking and an accepted bid at the end of day 2 on the market.
3. 3.  Have a good team. We had an awesome architect on this job and my agent is also an investor/developer. We made a plan and followed it.
4. 4.  Check your numbers as you go. When I started seeing the costs creep on the construction I went back to my spreadsheets and looked at the results to see how our plan was being affected. I pulled comps every week to see if things were tracking correctly to make up the cost over-runs.
5. 5.  Do something extra that they won’t find at another house. I am a building science nerd and this house was a testing ground of sorts. I used some advanced materials and techniques that I’ve never seen on any other flip houses. We have very high insulation values and air tightness. We had an energy audit upon completion that verified that this 100-year-old house is now more efficient than a brand new code built home. People responded to these features and that excites me. It also makes me feel like I’m doing something good for my planet.
6. 6.  Thank the people that helped you. I could not have completed this project with out my team: My lender, my crew, my agent, my designer, my subcontractors, and the buyers. But most importantly my super awesome supportive wife who would go over to the house and do whatever needed to be done including bring me pizza when I was installing trim and cabinets at 11:00 at night. Thank you!