A Real Estate Investor is born ($75K Profit on first deal)

[John Upperman]

Hey BP Community,

I became a BP Pro member in December of 2015.  After years of talking about investing in Real Estate I decided it was time to take some action.  I started using my hour commute to work to listen to the BP Podcasts, learning all I could from the forums, and connecting with other BP members.  Since that time I have successfully closed on my first Triplex and just sold my first flip for over $75K in profit!  Below is a summary of the flip.

The Numbers:

Purchase price:  $185,000

Buying Costs: $4,475

Holding Costs: $2,875

Repair Costs: $57,000

Sales Price:  $342,000 (listed at $339,000 and sold in two days with competing offers)

Net Profit after Commissions:  $75,550

Pictures:

Exterior before

Exterior After

Kitchen Before

Kitchen After

Entry Before

Entry After

Master Bath Before & After

Master Bath After

Master Bed After

Hall Bath After

Living Room Before

Living Room After

Dining Room After

How I found it:  

I started working with an Agent that I know and trust and we set up some MLS search parameters that sends me emails daily. This is not the best way to find discounted deals (especially in Raleigh), but this one hit my radar in late January. I had already lost out on other MLS deals due to the competitive market, and I knew it had potential as soon as I saw it. We moved quickly and had it under contract in less than a week.

Lessons learned: 1) You have to analyze a lot of deals to make offers on a few to close on the one 2) Do not suffer from analysis paralysis...you have to act!

How I funded the deal:

I partnered with someone I trust and I also took a personal loan from my Solo 401k to help fund the downpayment. The remainder of the funding came through traditional financing (75% LTV of the purchase price and repair budget).

Lessons learned: 1)Sharing the risk with someone you know and trust makes the process a lot less daunting.  2) Banks loan to people!  Network with local bankers until you find one that wants to work with you (but don't waste their time by bringing them money losing deals).

The rehab process:

We literally started the demo process the day after we closed on the sale and were able to complete all renovations in about 7 weeks.  We budgeted $50K and came in at roughly $57K.  As you can see from the pictures we decided to go on the higher end of finishes, but we knew what the market was demanding.  

Lessons learned:  1) Make sure to build in a buffer for your project budget (you will go over it).  2) Know your market and give it what it wants.  You can't do Class C finishes in a Class A neighborhood or visa versa.    

The sale process:

We listed on a Friday, had our initial offer within four hours and then accepted the best offer that Sunday afternoon.  I realize selling this quickly is highly unusual, but we knew our market and priced it at a level we knew would drive demand and hopefully create a competitive bid environment.

Lessons learned:  1) Go where the people want to be.  Yes - it's more competitive, but competition equals demand, which is what you want on the sell side of the deal.  2) Build your business plan so you can list slightly below market.  This enables you to sell quickly so you can redeploy your capital to the next project.

I know we were very blessed on this first deal and I don't take that for granted.  But we were not "lucky".  In the four months since we started this journey I have used every spare moment to educate myself through podcasts, books, forums, networking and research.  I've become a Facebook orphan and I can count on one hand the number of hours I've watched television.  I analyzed a lot of deals, and I KNEW we were going to make money on this deal going into it.  I did this while working a full time job, raising a family and undergoing surgery due to a sports related injury.  

So if I can do it...anyone can.  

A special thanks to @Dmitriy Fomichenko for helping to educate me on the beauty of a Solo 401k.  @Brandon Turner and @Josh Dorkin for putting together this forum. And @Adam Ward, @Adam Schneider, and @Justin Hackney for just being generally good guys and taking the time to listen to a newbie.  

I'll post about the Triplex in a separate thread.  

John