First Flip in the US

[Fabricio Negri]

First Flip in the US – Florida - Success

Hello colleague’s investors,

I’m writing to describe our first flip in the US.
We purchase the property on Nov/16 and sold on May/17.

The numbers were:
Purchase: 65,000 Rehab:     24,780

Holding Cost: 2,500 Sale Price:    125,000

Net Result: 20,2%

Let me introduce ourselves

We are partners with experience in the Real Estate market in Brazil, specially in Rio de Janeiro.

I have a MBA and a graduated degree in Real Estate Management and since 2000 I work with residential flips and property management. In 2014 me and my partner started developing SFH's here in Brazil.

My partner has a degree in BA and a Master in Finance. Since 2002 he did a few commercial rehabs in Brazil and one residential rehab in Florida.

After the 2016 Olympic Games in Rio, the real estate market started to cool down and the country went into a recession, so we decided to start fliping in the US.

My partner and I went to Central Florida on last September with the goal to flip 1 house to know how exactly the market was and to compare with our development business in Brazil.

Searching and Finding

We found our first deal by the end of October after an exhaustive search in Orlando, Lakeland, Tampa and St. Pete. It was hard to find a deal that had good numbers, in a good neighborhood and with an easy to medium rehab. We drove a lot and worn out shoe sole.

Finally we find the deal from a wholesaler from Central Florida, in the city of Mount Dora (zip 32757), in a quiet and excellent neighborhood between two good schools and low crime zone. It was a vacant house in a corner lot a few blocks from the US-441. As a cash buyer, the closing took 2 days. It was a 3/1.5 with 1,380 Sq Ft, built in 1981. The roof and the foundations were in great shape and it needed only TLC. The garage was closed and transformed in a room. Electrical and plumbing working and no termites. Our advice was to add another shower in the master bathroom to push up the property value a little bit more than the ARV. We estimated the rehab in $ 15/Sq ft x 1,380 Sq Ft with a total of 20,7k.

Purchasing
We sent the downpayment on a Tuesday and two days later we sent the balance. Finally we got the keys. Uuoouu. The process in Brazil takes, at least, 60 days. Thumbs up !

Rehab

We signed with a contractor on the day that the rehab started and the guys jumped in the house like a angry dog. In the end of the second day, they got everything demolished and removed from the house. The guys come with all the electrical tools and start to deliver the build material.

During the rehab we had all outside cleaned up, trees trimmed, painted inside and outside, new laminated floors, painted the cabinets, replace countertops from wood to granite, new vanishes, new bathtub, replace all the doors and windows, new ceiling fans, and we removed the garage wall growing the living room area, changed the access to the roof, full service in the Hvac, etc. The major work was to replace a closet inside the master bedroom lavatory adding a title shower. It took 15 work days and in the end, it was a beautiful job.

The sale

The sale period took more than we planned. First, the period was the end of the year. Second, the neighbor was a car mechanic and every day the house was busy and noisy. Third, we decided to purchase the appliances at closing to avoid any risk of stilling, but with that we lost the visual impact. We got many visitors but few willing to close.
We start asking 130k for the house and our strategy was to maintain this price for 30 days and wait the offers, but all we got was far under our ask price cause we were in the new year/January period. We reduced the price twice and we continued to receive some offers, but not yet closer to our price. When March arrived the offers became to increase and we got one that we start to negotiate and, days after, we close at 125k. The seller required a 3% discount that we agree due the lack of time on holding the property and we need to move on.

So, at the end, it was 125K (contract price) – 3,750 (3% discount) equals 121,250. Discounting all the closing costs, broker fees, etc, the net liquidation value in the HUD becames to 110,622.

Conclusion

Before start we defined goals and guidelines in our plan.

They are below with the results:

	Reference	Premisse	Result
Goal	ROI (Rate of Return)	Over 15%	20,2%
Guidelines	Property Location	Good location	Yes
	Purchase Type	Cash	Yes
	Type of Rehab	Easy	Yes
	Type of Property	Single Family	Yes
	Time to Flip	3 months	No

Our Flip Analysis

Winnings

We find a good contractor.

Rehab in 3 weeks.

The numbers fitted our spreadsheet

Almost zero unforeseen

Red Flags

Total time was twice than expected. Increased holding costs. + 700.00

The neighbor is noisy and works in front of his garage.

The Hvac firm had been there twice. Extra cost. + 260.00

Appliances purchased and delivered after the contract signed. We did not impressed the buyers and have extra charges for delivery and setup. + 500.00

Result:
Between winnings and red flags, with extra expenses, it was a great deal. The goal was attain and we follow the guidelines.

Moving Forward

For now, we are researching houses in the counties of Polk, Lake, Osceola and Orange. The plan is to go over and have a closer look at the next rehabs, find some land development opportunities to build houses.

Our Numbers and Pictures are below