Single family starter home turned into gold.

[Jake West]

Investment Info:

Single-family residence fix & flip investment.

Purchase price: $124,000
Cash invested: $5,300
Sale price: $150,000

Bought this house before first child was born. Lived in it for several years and then turned it into a rental. We invested very little and made $400 in cash flow for a few years before cashing out to fund our new home which was a foreclosure. New home purchased for $161,000, now worth $290,000.

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

Great neighborhood and good schools. This was a starter home for us. We later turned into a rental.

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

We were renting a house on the same block. Seller listed without a realtor. Initial listing was $134,000. Overal home was in great shape, just needed carpet and paint. We negotiated as sales price of $127,000 with a $3,500 carpet allowance and seller paid closing costs.

How did you finance this deal?

FHA with 3.5% down

How did you add value to the deal?

We added an enclosed sunroom with AC ducting, which counted as 50% sq footage. It added approximately $12,000 in equity and only cost me some long evenings. We upgraded the fireplace, carpet and paint.

What was the outcome?

We managed to get about $400 per month in cash flow for a few years and when we sold we made about $30,000 with no capital gains tax.

Lessons learned? Challenges?

Just because a buyer is willing to pay over asking price in a hot market, does not mean the home will appraise for the sales price. We lost $5,000 because the buyer was using a VA loan and had nothing to put down.

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

Sold it on my own.