PREHAB not rehab for $40,000 in 2 weeks

[Levi Klein]

Investment Info:

Single-family residence fix & flip investment.

Purchase price: $252,858
Cash invested: $16,428
Sale price: $310,000

PreHab is awesome. This project took us 3 months (2 weeks of actual work). I can't take credit for the prehab idea because I heard it from one of the podcasts. This was one of my biggest returns on energy. We basically had 2 weeks into this house over the 3 months we owned it. The house had a failed septic a terrible interior smell from the 5 terriers that weren't allowed to use the yard as a toilet. We demoed the entire place. The lower 2 feet of drywall and all the flooring was removed from the dogs marking everywhere. The repairs we did were minimal except for the septic repair which costed a few thousand dollars. We had the exterior painted and the new drywall taped (ready for texture). The house was ready to be put back together. It turns out if you sell the home when it needs to be finished to a fellow investor it can be a win-win for all. We made a tidy little $40k profit while leaving meat on the bone for the next guy. I guarantee the effort and dollars the next investor spends will be much more than ours but they will get the bulk of the profit for their effort. We could have wholesaled this home as soon as we purchased and made $10,000. However, by doing the basic repairs and getting it to the cosmetic finishes gave us $2 for every $1 we put in. By selling early to an investor we didn't need to worry about the house sitting on the market waiting for a buyer while we pay carrying costs at the end of the project, that risk shifted to the next investor. This worked out great for us on this one. I don't believe prehab is the ideal method to build your systems around and we think it will only work on some of our investments in this area. That being said I would do it again in a heartbeat so long as there is enough profit in the deal to share with the next guy. Bonus when this does work out for the investor we sold the home to he will be chomping at the bit for the next one. This home worked out great for everyone.

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

I can't take credit for the prehab idea because I heard it from one of the podcasts. We purchased this property as a fix & flip.

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

Was contacted by the seller who needed cash to move out of state quickly after a job loss.

How did you finance this deal?

We paid for this deal out of a HELOC on our primary for ease of transaction with plans to Pull a HELOC on the investment after essential repairs were completed.

How did you add value to the deal?

demoed and exterior paint plus made the septic repairs to be functional.

What was the outcome?

quick tidy profit after the prehab

Lessons learned? Challenges?

Some times a quick profit is better than a big profit.