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Updated almost 7 years ago, 01/26/2018
2nd Utah flip - profited $22k!
Another one bites the dust! We closed yesterday and have officially sold off our 2nd baby, aka our 2nd flip. This project wasn’t nearly as extensive as our 1st, but it was very fulfilling and still learned a ton. This property was purchased through Auction.com and is located in Roy, UT. If you’ve never been the winning bidder on their site but are interested in the process, leave a note and I can tell you about my experience.
We closed on this property 10/7/16 but didn’t begin work immediately because my contractor was working on another project. Once we began, it was about 2 months of work, which is excessive for the amount of work that was done, so I’m not happy about that, but I’ll share why it went longer in my lessons learned section below. I borrowed funds from a private investor to fund this purchase. They covered about $85% of the required cash (repairs and actual purchase), and I covered the remaining 15%. Here are the numbers for this project:
Purchase Price: $140,999
Purchase closing costs: $1,706
Materials and Labor: $31,822
Holding Costs: $9,019 (includes repayment to investor)
Final Sales Price: $220,000
Closing Costs, Commissions, and Staging: $14,667
Total Profit: $21,788
Here are some before and after pictures:
Fireplace before/after:
Kitchen before/after:
These are the major items we replaced/redid on this house: converted the carport into an additional one car garage (not as hard as I thought it’d be), carpet, updated fireplace, paint, updated lighting, appliances, laminate, granite countertops (also added a little shelf to the counter so you sit at a stool to eat), backsplash, painted cabinets, new furnace, new windows, and removed 3 dead trees from the yard. This house already was 6 bed 2 bath, so it had great bones, just cosmetically it was fugly. My wife pretty much managed this project from beginning to end and did a great job. We only had it listed for a week before we received an offer $4k less than our listing price (but $5k more than I had always forecasted, if that makes sense), so we accepted and closed 4 weeks later.
What did I learn this time?
Lesson Learned #4 (to add to my previous post):
Too many cooks in the kitchen. We wanted to help out a neighbor and give him a chance to earn some side income on this flip. We laid out 3 items that he could do and then we would pay him once the job was completed (he wanted to be paid per hour and I didn’t agree). My general contractor advised us NOT to bring anyone else into the rehab, but we still went ahead with our decision. This decision probably single-handedly cost us ~3 weeks of repair time as he kept promising us he’d get his part done. Well, he didn’t, and so we had to call an electrician to tie a couple of loose-ends at the very end so that we could list the house. Lesson: Be wary of hiring friends, family, or neighbors.
We just started our 3rd flip in Ogden this past Monday. It was an MLS purchase. It's only 1000 sq ft so we should be re-listing it within a month.
@Adam Hays, phew. Much better than a deposit.
I understand you had to put more money to rehab the property and hold it while you sold it. The part that im curios to know is the $1706 you paid in closing cost to buy the property. It seems fairly lower than what it would cost to buy a property here in FL. Im my original email to you, these were my questions:
When you got the hard cash from the investor you said he lent you 85% of the cost of the property correct? (I believe that is what you wrote). You had to come up with the other 15% correct? If so, wouldn't the "purchase closing cost" be more than $1706?
Or maybe im reading it wrong and the money you borrowed wasn't from an investor (hard money )
For example, these are some of the cost associated to close on a property down here:
Loan Origination Fee: 2% of whatever loan amount agreed to
Lender Origination Fees: total of $885 (underwriting, administrative, tax servicing, wire)
Attorney Fees: total of $575 (mortgage doc prep, title review, courier, closing coordination)
Walk-through Inspection Fee (paid outside of closing: $150
Tax Escrow: There will be some held at closing in order to pay taxes in November. This is determined by the month you are closing in, and the total gets higher as we approach November.
Other Fees not associated with the loan/lender:
Intangible Tax / Doc Stamps on the Mortgage
Title Settlement Fee
Lender’s Title Policy
Recording fees
and the 20% amount of the property one would buy...hard money lends 80% LTV of the property, the borrower has to come up with the other 20%
Great Job Caleb!
Have you considered doing the work yourself? Also, how were able to establish your connection with a private investor? Lastly, have you or would you ever consider going into a project like this using a hard money lender? Thanks
That's awesome, I will be getting into some flips within the month so this is cool to see, especially your costs towards maintenance on a house of that size. I've mainly been doing vacation rentals and holding, so trying to eat up as much information as I can on flipping homes.
You are still confusing/combining closing costs and down payment. All the items you listed EXCEPT the last item (the 20% amount of the property) are closing costs. The 20% amount of the property is the down payment required by the lender. These are different, and both with vary based on the deal and the lender you use. If you need more clarification you should contact your lender and ask them to walk you through it and explain the difference, but really all there is to it is the list you referenced are all closing costs except the 20%, which is the down payment and is separate/in addition to any closing costs. You can usually negotiate with the seller to pay or contribute to closing costs, but not to the down payment.
Caleb did not use a traditional lender like you are referring to, so he did not have many of the costs you listed, and/or they were different for his particular deal. In his case it sounds like they totaled $1,706 (the closing costs) and you could consider the 15% as down payment.
Yes I guess im using the closing cost and dp interchangeably. If he didn't use hard money lender than his cost would be different. I guess what threw me off is he didn't list the Down Payment and the dp might be of interest to some people here. Not that I couldn't deduce what it was but him listing cost and not including the DP threw me off. ;)
True, but understand that he didn't use 'traditional' financing like you are asking about, and therefore didn't have a traditional down payment. He technically didn't even pay a 'down payment'--his out of pocket cost was 15% of the total investment, which included not only the purchase price of the property, but also holding costs, closing costs, improvements/renovation costs, etc.
Also keep in mind the way he structured this deal and the type you are asking about are TOTALLY different, so you can't really compare what you are asking about to the figures he listed because it doesn't work the same way. That may be what is leading to some of the confusion.
@Mike Palmer I guess now you didn't understand what I wrote. I never said he used traditional financing. I mentioned Hard Cash several times and wrote the percent they lent him 85% which is why I asked why his closing cost were so low. Thats why I listed what some of the cost are for me in my home state if I were to go with a non traditional lender ( hence - Hard Money ).
He had to come up with the remaining 15% of the purchase price of the home and that why I was a bit confused as to the low $1706 figure he listed and didn't include the Down Payment along with his closing cost. DP, attorneys fees (either attorney or title/closing company has to record the sale weather is traditional funding or not) and other associated fees are listed in the closing statement, therefore; again the $1706 was confusing for me because it seems low. Thats is why I would of liked if he could share some light on that.
@Caleb Rigby You are the real MVP man, congrats!!
Alright, let me settle this once and for all :) @Fred Pineda. Here is the actual snippet from my HUD settlement statement with auction.com that delinieates how I arrived at the infamous $1,706. Take a look (click on it and it will pop open to a new screen):
Maybe FL is just super expensive, or maybe I received the nice guy discount on my closing costs:).
I didn't list the down payment amount (which was 5% of the total purchase price, or $7,049.95) just because I didn't think it was relevant. I put in my money, the private investor put in theirs (a close family member - I'll write more on that later), I paid for the the majority of the renovation costs and other holding costs, then we got the house under contract, closed on it, and I received the lump sum (net of commissions and closing costs) and I wired them their original balance plus the interest money that we agreed upon. Sorry if how I worded it originally was confusing.
@Jennifer L., good luck! Will you flip in So Cal?
@Joshua Piepmeier, I missed your comment yesterday. The private money was actually from a close family member. I knew they owned their house free and clear, so I approached them and basically said this: "I've researched homes in this market for the past 7 months, I have one successful flip under my belt - want to put some of your free and clear mortgage into play and I can make you more money than your savings account will."
They then preceded to get a HELOC on their house. It was scary to ask, but we had a very good relationship that I knew it wouldn't hurt to ask. You probably know a handful of people that have some equity in their house, so even if they don't have cash just coming out of their pockets, they could get access to some money. I wouldn't have asked for their help if I wasn't confident that I could turn a profit, so the key is to get knowledgeable and then show your results to those around you.
Thanks for replying. And yes FL is very expensive. Also, thank you for sharing your settlement papers. I have one flip under my belt and it was very good (cleared $42k) but this was many years ago, about 2 years before the crash so I know times are very different now. So I, and im sure others that haven't done any flip yet, wants to be as informed as possible especially listening and learning from guys like you who have done this recently. So all the info helos and gives us the confidence to continue to look for deals that make sense. Anyhow, its great to hear your success and im sure all of us here wish you more..
Thanks
Fred
Nice job, glad auction.com worked out I have tried unsuccessfully even when having solid bids in. Cant wait to see pics of the new purchase.
Great post, learned a lot and enjoyed reading.
@Caleb Rigby from your experiences, how many times you did not have to raise your bid in the second round and still won? just curious
@Caleb Rigby Nope, I will be doing some flips in the Arizona region, then after awhile of doing that and all goes well I'm going to take those profits and try some buy and holds in possibly the Little Rock region.
Awesome job Caleb! How much did the private investor make on the deal?
@Hardik Patel, as I've only won 1 property from auction.com, my answer would be zero :)
@David Yates, they earned an ~11% annualized return on their investment.
It looks great @Caleb Rigby!!! Can you share what colors you picked for your kitchen scheme paint and flooring? As I'm looking to do my first flip, my color blindness get in my own way lol
@Andrew Adamany, I'm also color blind, so that's why I let my wife pick everything! But, essentially we like 'cool' color tones because of how trendy and how they don't exclude any buyers (whereas bright colors might). We like dark floors with white cabinets - pretty popular in our area at the time. Gray paint with light gray granite seems to tie them all in nicely. Just finished our 3rd flip this week and decided not to change anything up either - I'll share another post once this one sells as well.
Awesome @Caleb Rigby! "Cool" color tones, great to know! It looks very balanced in the spectrum of keeping the cosmetics very basic and seller friendly, and beyond acceptable to a homeowner's taste so they don't have to make their own updates for a long time. Nice job!
Did you stick with laminate floors in your bedrooms too, or did you switch to carpet? How far did you upgrade the bathroom(s)?
@Andrew Adamany, we only did carpet in the bedrooms. This is much more common in Utah (at least in this price range). Carpet is cheaper and way less time consuming to install.
Honestly, the bathrooms are where we lucked out. We painted the cabinets and walls and that's about it. The floor and shower tiles were updated when we bought the house. I really wanted to change them out because the tile color wasn't what I would have chosen, but my wife convinced (wisely) that it was perfectly fine as it was and that we didn't need to spend another penny on it. As a new investor it's still sometimes hard for me to draw the line > does this need to be updated, or is this just a want that I have.
Nice job Caleb.
Just out of curiosity, did you consider a BRRRR on this one, or others like it? Now that you have the rehab part down, seems like you could hold it and make some rental income, ya?
@Matt Sanford, not really, no. There's something way sexier about saying "I flip houses" rather than "I buy homes at a discount, rehab, rent, refi, and then repeat." :) Being landlords right now isn't what we're interested in doing, but I agree it's probably the smart thing to do and we will eventually do it.