Hoarder Home For Our First Flip

[Avery LeMmon]

Investment Info:

Single-family residence fix & flip investment.

Purchase price: $107,000
Cash invested: $500
Sale price: $215,500

This hoarder house was presented to me by a local wholesaler. We had the opportunity to partner with a mentor and learn how to do our first official flip. There was black mold, asbestos, and meth in the home. However, we gut the home down to its studs and started anew. In the end, buyers entered into a bidding war for the home and we were able to take home $41,000.

What made you interested in investing in this type of deal?

My mentor at the time taught me that I needed to flip homes in order to accrue capital for more rentals. I later learned that wasn't the case. In addition, I believe everyone loves to see the transformation of these types of homes and I was no different from everyone else.

How did you find this deal and how did you negotiate it?

As previously mentioned, a wholesaler showed me this deal. Unfortunately, it isn't all that common to negotiate with wholesalers (at least in the state of Utah) from what I have seen. The purchase price I put it under contract for was his asking price.

How did you finance this deal?

I used a hard money lender's bridge loan at 2.5 points and 10% APR for 85% LTV (or 85% of the purchase price). My mentor, after letting me attempt to raise the private capital for gap (15% remaining to purchase the home) and repairs (what ended up being $53,000), brought a private lender to the table. We secured his money with a deed of trust.

How did you add value to the deal?

Arguably, I did 92% of the work. I found the deal, the majority of the funding, and the contractor. Later, I helped with demolition and, eventually, cleaning the property to sell, landscaping, and pouring a new driveway. I got everything ready to sell it and worked with our agent to do so.

What was the outcome?

We were originally going to list the home for $205,000 but the market warmed up and our agent encouraged us to list it for $225,000. We had multiple offers and we took the highest offer at full asking price. Unfortunately, the buyer was using a VA loan and that means he had to use a VA appraiser. The appraisal came in at $215,000. We took that since the other offer was about the same. Everything resulted in $41,000 in profit.

Lessons learned? Challenges?

Above all else, I learned the importance of contracts. My mentor was too busy to do the one thing he promised me he would do: create a joint venture contract for the deal. Because of his neglecting to do so, I was the only one on title and he couldn't prove he had any part in the deal. After coming to me when the home was about to close (asking for a 50/50 split), I told him I wouldn't settle for less than 75%. He was furious. In the end, he realized he couldn't change it.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

I had the opportunity to work with Rob Moser, a real estate agent from Ogden, Utah. He was more than fantastic. Because things went so well with him, I later bought and sold two more homes with him in Ogden.

We also worked with the women at Inwest Title who were equally amazing to work with.