My first flip- Profit: 19,100

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Hey everyone, 

I finally was able to put my deal under contract (again) and we are scheduled to close on May 6. Even though I feel happy about the outcome, I could have done a better job with the design of the flip which would have increased my bottom line/resale value. 

I wanted to thank everyone in the bigger pockets community for helping me out with all the questions I've had. I also want to thank J Scott for his 2 amazing books that really helped me pull the trigger and take action. 

Here is the breakdown of the rehab. Keep in mind I have ADD so my apologies in advance if I go off topic. 

Acquisition price: 56,100 (close date: 10/19/2015)

This is a house located in a southside suburb of Chicago. It's a C area but the house is located in a very nice pocket/block of the neighborhood. This was a Fannie Mae REO that had been listed since 2011 which was initially listed for over 100K. I had initially submitted an offer in the low 50s and the listing agent said there were multiple offers (which I thought it was bs) but decided to submit my highest offer for 61,100. My offer was accepted within the next 2 days and I was super excited thinking I had a huge spread on the property. My offer was submitted based on pictures I had seen on the MLS, and I had estimated 50-55k for the repairs.

During the inspection period I had 3 different contractors giving me a ball park estimate of the rehab costs. I found out the roof needed to be replaced and this wasn't included in my initial rehab estimate.  Every contractor told me the rehab costs were probably somewhere between 60-65K. After going back and forth with Fannie mae, we negotiated the price down to 56,100. At this point, I thought it still was a good deal but not as great as I thought it would be. After looking for properties in the MLS for 6-8+ months, and submitting so many offers, I decided this was the time to take action regardless of the outcome. I figured worst case scenario, I'd be making a very small profit but I would learn a lot from it.

Repair costs: 65,000 

The formal bid came and we were able to reduce some of the expenses to 60,000. The roof was my biggest expense, somewhere around 8,200.  My contractor had estimated 10,700 for the roof (including an additional dumpster). The carpet estimate was 6/sq ft which I thought it was ridiculous,and we reduced it to 2.50 sq/ft.  We also decided to "dress up" the doors instead of replacing them. We only saved 1,000 here and I really regret making that decision. Although the doors, looked great, I just didn't think saving 1,000 offset the benefit of replacing them for new doors. 

After the rehab was done, we had some plumbing issues in the basement. The AC unit was very old and the first couple of buyers pointed it out. I quickly replaced it before having any other buyers coming to see the property. The AC unit was at least 14+ years old and I was charged 2,700 for a new unit including coils. 

Rehab process: 

The rehab started about 10 days after closing date. I was very slow putting all the paperwork together. I wanted to make sure I was very protected in case things go wrong with my contractor. I could had been definitely been more organized and should have had the paperwork in place. It wasn't very hard to manage my contractor but he didn't have any progress the week after he finished the demo. We had a small argument about it, but after that incident, he did a pretty good job keeping with the SOW schedule. The rehab was done by mid December, just 1 week after the expected date.

Financing: 

The rehab was financed through 0 % credit cards. I initially thought about using a hard money lender but I didn't think I was going to make very much money so I decided to use my credit cards. The downside was that my credit score went down from 740 to 620. The upside is that I probably saved around 6,500. 

Asking price/sold price:

The property was listed until February 7 (yes, almost 2 months after the rehab was done). I had decided I was going to list it myself since I was already studying to get my license. Well, I passed my exam the first week of December. But I wasn't aware I had to take some additional classes and pass another test in order to get my license. Classes were not available until mid January so I was cursing at myself for an entire month after I found out about this requirement. 

After pulling some comps, I thought the appropriate asking price would be somewhere between 155,000 and 160,000. I decided to make an appointment with a top producer real estate agent and he told me it wouldn't sell for more than 160,000 and that I should list it for 155,000. 

Before I listed it, I saw a new property hit the market, just within a block of mine, and it was listed for 178,000. I was thinking this guy must be on crack if he thinks the property is going to sell for that. I called and got some feedback from him. It turned out he was an investor listing his own property. He had done a lot of rehabs around the area since the early 90s so I asked him to list my property as long as we split the commission 50/50. Based on his advice, I decided to list the property for 165,000 (By the way, his property got an offer for 185,000 after receiving multiple offers but the property was sold for 165,000 because the FHA appraisal came low).

Offer accepted:

3 days after my property hit the market, I got a full price offer for 165,000. They only asked for the AC unit to be replaced and 3 % towards closing costs. Unfortunately, it didn't work out because they wanted me to fix everything that came on the inspection report. The inspector came up with a pretty ridiculous list of minor details, including moving the water heather to some other place because the furnace was too close from it. The buyer wanted everything fixed from that list so we decided to pass on this one. 

A month later, I had 2 different agents calling me and we agreed on verbal offers. They said they would had the offer ready the next day. Then I waited... and waited... never received the offers. It turned out both buyer's had changed their mind. I was somewhat disappointed and I started doubting if the property was indeed priced correctly. We put a 5,000 price reduction and had many showings but no offers. Finally got the offer a week ago and the buyer decided to waive the inspection as long as I helped with 3 % towards closing costs. The attorney period review is over and the buyer is pre-approved.  There is only a financing contingency so we shouldn't have any issues closing on this one (or at least I hope). Closing date is scheduled for May 6.

Numbers:

Acquisition costs: 56,100

Rehab costs: 65,000

Commission / Holding costs / closing costs: 19,800

Selling price: 160,000

Profit: 19,100

Overview:

It's very important to point out that I would had made very little money if I had decided to use a HML. Splitting the commission 50/50 with the listing agent also helped and although I could have saved money here, developing a relationship with an experienced investor could be very helpful for my future projects. Another of his rehabs sold for 170,000 in the same area, which really makes me think I could have done a better job in the designing aspect of the rehab.

I really think I could have pushed the value of the property to 165,000-170,000, perhaps I would had invested more money on the project, but the profit would had offset those additional costs. 

Overall, I'm happy with the results but it does really bother me knowing I could have made a bigger profit. I definitely learned a lot from this flip and I'm confident I won't be repeating the same mistakes again.