Case Study - Lynnwood Property

If you read my first blog post about how I got started in real estate investing, you’ll notice that I briefly touched on my first experience flipping. I'll be honest though, a lot of details are missing or blurry for me and I'm only speaking from memory - I didn't have the best system for tracking data in the beginning. 

Basically, I started attending local REIA groups for networking opportunities. This meeting had a “Haves-and-Wants” section where people could stand up and either ask for something they’re looking for or tell everybody something they’re offering. I listened to each speaker until I heard one talk about how they’re a full-service real estate brokerage that helps investors find, fund, fix and sell real estate opportunities. So I took their contact info down and met them at their office later. They held a new investor orientation that sat a bunch of us in a room together to describe how the process would work. I left the meeting armed with new knowledge and I was added to their buyer list for future properties.

About a week later, an email from them came in! I cracked open the email and it explained that there was this deal in the city of Lynnwood (about 30-40 minutes away from me) that was for the taking. First come first serve style. It was off-market so there was no competition from most other retail buyers – just the people all on the same list. My memories are a bit fuzzy at this point, but I remember thinking if the house was somewhere around 100-150k I could afford the 20% down payment and rehab loan’s 20%, as well. This was before I had the concept of monthly mortgage payments and utilities (aka. “holding costs”), contingencies, loan fees, etc. which is why it's so important to…

Lesson #4: Understand the numbers before agreeing to anything!

But, when they said the purchase price of the property was going to be $239,000 – way out of my budget, my heart sank and I thought ‘Getting into the investing game is harder than I thought’. Until they mentioned that I could find a partner and go 50/50 on it and split the costs and profits.

That’s how I met my first partner. He was introduced to me by the same company that was trying to sell me a deal. He was new like me and we both had little experience, but we somehow just kind of clicked. We agreed to tackle the project together and met at the lending office with each half of the downpayment needed to secure the property.

A week or two later, and we were now proud owners of our very first investment property together. The real estate company also provided us with a contractor since we had no idea how to find or vet a contractor on our own. They were a father/son team and the project manager basically guided the whole project along. We just showed up to help out in any way we could. My partner would constantly hound me about how we need to watch these guys like hawks and since he was the one with a 9-5 job, that I should do this, so I did just that. I remember spending 4-6 days a week driving up to this property and sometimes meeting my partner there with garden tools to clean the backyard since the contractors worked inside and we weren’t very handy. In retrospect, this was a massive waste of time since later on the landscaper would just run a lawn mower over it all and flatten most of the entire area that we painstakingly cleaned by hand for weeks. 

The contractors almost quit on us! I’m not sure why or what happened, but we noticed that they would start showing up less and less and suddenly not at all and we soon started fearing that they weren’t coming back at all. This confused us both greatly. How could someone who is being paid to do a job possibly decide it wasn’t worth it in the middle of it? We had our company contact push the contractors and in the end they came back and finished the work. Turns out later during some conversation that the company’s project manager had a reputation for negotiating very low wages and slipping in extra work that wasn’t part of the original agreement. I could only assume that was why they felt disgruntled and stopped showing up briefly.

In the end, we had a finished product and it felt like a great weight had been lifted off of our shoulders. Here were some of the numbers that I recall…

• 
  Purchase price: $239,000
• Rehab budget: Around $45,000
• Sales price: $385,000

This whole project happened between November 2014 to June 2015, about 7 months. It was a basic cosmetic flip, nothing complicated so it really shouldn’t have taken this long, but we were just excited to be a part of the process. The “Gap” I like to call it, was $146,000 (The difference between the Sales and Purchase price). It was a deceptively large difference in numbers, because in the end after paying back the company’s loan and the holding costs and other miscellaneous costs and fees, we walked away with a profit of about $36,000. And after splitting 50/50 with my partner, I walked away with about $18,000 profit.

Anyway, I’m curious to know what you all think about this experience. Would you take on a project like this as your first ever?