First "True" Long Distance Flip

[Pat Jackson]

My wife and I live in Reno, Nevada and invest in Missouri.  Specifically St. Joseph and Maryville Missouri. St. Joseph is north of Kansas City, is a commuter city for many, but has a stand alone economy with many employers (state college, level 1 trauma hospital, air national guard post, meat processors, etc).  Maryville is home to Northwest Missouri State University and a fair amount of industry for it's size.  We like secondary markets, not as much competition.   

Anyway, back in January 2020 a VA foreclosure popped up on the MLS. 3 bed, 1 bath raised ranch with a large walk out basement, built in the early 1950's, located in a B- neighborhood. We had our agent do a walk through and some take videos. I should mention the MLS listing was scary, it claimed one had to enter at their own risk, wear a mask (there was a little mold from the basement getting storm runoff, but it wasn't bad). It sounded WAY worse than it was. No idea why the VA listed all that scary stuff, glad they did.

Asking price was $58,000, ARV as a 3/1 was $90,000-$95,000. We offered about half price, and after a few days our agent came back and told us we'd have to go over asking if we wanted it. We offered 59k, offer was accepted.

Then came all the due diligence in fairly short order.  Our agent did another more thorough walk through with more videos.  We had our general contractor walk it and give a rough estimate (hint: if you're new and don't have a report built with contractors, don't waste their time and ask them to walk properties for free).  I had a property manager walk it and get his opinion.  We had it professionally inspected.  To highlight, we got pictures, advice, and input from:

1. 1. Agent
2. 2. General Contractor
3. 3. Inspector
4. 4. Property manager (who also has a rehab crew and gave a rough estimate).
5. 5. We also had the sewer line scoped.  It came back great.  ALWAYS PAY TO HAVE THE SEWER LINE SCOPED ON OLDER HOUSES!!! In our market it's $150.  Very very worth it.

The house had some water issues in basement, the carpet was ruined, and there were a fair amount of holes in the walls.  The property manager remarked someone had practiced their kung-fu on the way out.  The kitchen was in good shape, the whole house had newer vinyl windows, the big things were more or less in good working order.  We were looking at $27,000-$30,000 in a mainly cosmetic rehab plus added living space in basement (more on that later).  

I know what you're thinking.  $95,000 - $59,000 purchase - $27,000 rehab = $9,0000 - holding costs - agent commission = what are you doing?!?!

That $95,0000 comp was for a 3 bed, 1 bath. I mentioned the house had a large walk out basement. There was ONE 4 bed, 2 bath comp our agent could find while we under contract for $120,000. The layout was right to add a bedroom (with proper egress) and a 3/4 bathroom to the basement. We went for it (spoiler alert, it worked). I will say we worked with our property manager, we wanted to know what this property would rent for as a 4/2 if we couldn't' sell it. We felt we would be able to BRRRR out if it wouldn't sell.

So here we are, house under contract for 59k and looking at 27-30k rehab.  We had 60k in a home equity line of credit.  What did we do to complete the project.....

......we used a hard money lender!  We actually bought the house cash and then using the title company did a "cash out refinance" with a promissory note.  So in less than a week we had ~$47,200 back out.  Our lender does 10% interest only, due at closing or refinance.

And on we went.  We created a scope of work and signed an agreement with our contractor on what would be done, by when, it would be up to Missouri code, and what payments would be received and when.   

My wife and I always buy supplies and materials to maximize airline miles.  We've used our contractor enough he has a credit card for the small stuff that pops up.  This also prevents burdening him with fronting funds to buy materials.  Over the course of a week or so we worked with the contractor to choose the floor layout for the basement, choose finishes and colors, and order all materials.  For the basement bathroom we went with an upflush toilet.  

When you add a bathroom to a basement you have two choices.  The first choice is to tie into existing plumbing.  If existing plumbing is far from the new bathroom, you either do a subfloor or jackhammer out concrete.  We had 7' ceilings so no subfloor, and jackhammering is expensive.  We opted for the second option, an upflush toilet.  If you've never seen an upflush toilet, its like a normal toilet with a blade and pump on the back end.  This blade/pump system services the toilet, sink, and shower (bathtub not recommended).  It slices and dices everything up, and pumps it all into existing plumbing on the above floor.  I told my contractor he ought to fill the toilet bowl with ice and margarita mix and use a pitcher to catch it all on the back end (before it was ever used as a toilet of course), but he didn't take me up on it.  Here's a link on how they work.

Upflush Link 

After ~1.5 months of rehab the place was done.  It was under contract in less than a week (4 days on market I think), and ended up selling for $125,000.  The extra bedroom and 3/4 bath cost ~$7,500, and added ~$30,000 in value. Final numbers:

• -Purchase Price: $59,000
• -Rehab: $30,000
• -Agent commission: $5,100
• -Buyer concessions: $5,000
• -Holding costs: $3,500
• -Hard Money:$1,200 (we had hard money out for 90 days)
• -Wire fees: $120 (those add up)
• -Profit: $21,000

We are really happy how this one turned out.  Having a good team on the ground, especially a good contractor and agent made it possible.  I think it's cool we have never once been inside.  Quick hints:

Know your market, have a solid team, buy ranches and raised ranches 1950 or newer, add living space to basement (ensuring you understand points of egress, have a back up plan.

Before, during, and after pictures for dramatic effect.

[Pat Jackson]

Here are the after photos.  Opps.