How I walked away from my first deal with $67,899.45; thanks BP!

[Haydn Zeis]

As I’m writing this I’m about 12 hours and 30 minutes away closing on my first deal.  However, I’m not going to post this on the forum until the paperwork is signed! You never know what can happen!

In 2014 I purchased my first investment property, a live-in flip, in Columbus, Ohio. The property was a HUD home; I found it on the MLS (I'm a licensed REALTOR). I put a bid in on the property and it was accepted for $85,601.44 (44 is my lucky number)! I was able to secure a higher interest loan 4.85% for a 5% down conventional. Rehab costs were just over $20,000.00.

The rehab consisted of rebuilding the deck, pouring new front concrete steps, painting the exterior of the house, revamping all the landscaping, knocking down a wall in the living room to help create more of an open concept, sanding and coating hard wood floors, new carpet in bedrooms, changing out several light fixtures, swapping out the vanity in the bathroom, updating the kitchen with new appliances and creating an open concept by knocking down a wall, painting the entire interior, adding recessed lighting through the living room, updating all plumbing, and installing new gutters. I was able to keep costs down by down by doing most of the work myself, I did hire an electrician, plumber, and people to install the gutters.

In 2014 comparable properties were selling for $120,000 to $130,000. I thought, “Hey, if I can sell this house for $130k and put $15-20k into it, I'll be happy".  Though, in 2015, prices of comps started gaining, momentum.  Through the summer of 2015 prices had reached the $140s-150s.  Moving into the summer of 2016, prices had jumped even higher, $140s-180s.  No-one can control or predict the market, I'm just happy it adjusted in my favor. 

When it was time to list my home, September 2016 (late in the season), I listed the home at $184,900. Though, after 30 days, I hadn’t seen any offers. I believe this is due to the area being very cyclical – homes in Columbus, as a whole are moving very quickly, though, this neighborhood wasn’t as desirable as the faster moving areas.

I dropped the price to $174,900. I didn’t see any offers at that price for another 30 days. The first offer that came to me was a cash offer, after negotiating, we settled on the price of $162,400. That was $2,600 below my bottom line, but I was willing to move down because of a cash offer. The inspection period showed the rear basement wall was bowing 1.5 inches and the side wall 1.25 inches (not bad for a home that is 85 years old). Unfortunately, when most buyers hear something like this they think the house will spontaneously combust. Though, after getting a couple quotes we were able to find a company who would put beams in the wall for a reasonable price. The rest of the home inspection showed your typical home inspection things, light bulb out, missing shingle, etc. etc. The agreement we came to was for the buyers to buy the home As-Is for $158,500 and we get to close 3 weeks early.

The big reason I ended up dropping my price so much lower than my bottom line of $165,000 was the cash offer and the inspection did show legitimate concerns. Also, if the home fell out of contract, I would be able to count on having to wait until after the New Year to get another offer. I wasn’t willing to chase the money I maybe could have gotten. I also feel like the time I would have had to wait to sell this property and find another investment property would have been more costly than the $5-8k I would have been seeking.

To recap:

Purchase Price: $85,601.44

Down payment: $4,280.08

Rehab: $20,000.00

Holding Costs: I don’t count holding costs since the home was my primary residence and I would have had to pay interest, taxes, and insurance no matter what.

Mortgage Payoff: $79,614.49

Closing costs (including commissions, prorated taxes, title insurance, home warranty, etc.): $10,986.06

Sale Price: $158,500.00

Cash to Me: $67,899.45

The total profit was around: $43,619.37

That equals $411.50 per week for the 106 weeks I owned the property.

So what’s next!? My fiancé and I have purchased another foreclosure in an area that was more desirable to us. We plan on living in this home for a little longer, maybe three to four years. Currently, we purchased that property for $292,000.00 (though, I received a $7,000.00 commission off the sale so it’s more like $285,000.00). The comps in the neighborhood are selling for $339,000.00. The rehab needed for this home is right around $10,000.00.

I will be looking for investment properties throughout Columbus. My dad is wanting to invest with me; we’re looking mainly for buy and hold multifamily, but we’re open to other opportunities.

I have to say, BiggerPockets has been an amazing outlet for me. Although this is my first post, I have read or listened to something on BiggerPockets every single day (except when I was on vacation without internet service, it’s waaaay too expensive to buy on a cruise) for the last two years. Hearing and reading about people’s successes has been an amazing way to motivate myself. This community of investors is bar none and I’ll absolutely continue to read and listen to all the different ways to make my pockets a little bit bigger! If you’re a new investor, I highly recommend reading and listening to everything you can on this site!

Thanks again, BiggerPockets!