Flip 1, Week 1: The Journey to My First Acquisition

May 4, 2017

Flipping houses consists of so much more than just what you see in a 30-minute TV show. I knew this going into it, but the four months leading up to my first acquisition have truly driven home this point for me. Having done extensive volunteer construction work with Habitat for Humanity throughout high school and college, spent a year working for a company that, among other things, rehabbed dilapidated properties, and earned my real estate license and residential construction certification, I saw house flipping as a logical next step to capitalize on the strong housing market and propel myself toward my dream of running my own real estate investment and development company. What follows is the story of the acquisition of the first property I will be flipping. I will post periodic progress updates throughout the rehab process as well.

Today was closing day on my first flip, a three bedroom ranch in Holliston, MA. I formed an LLC in December 2016 to separate my business activities and finances from my personal. In January 2017, I started the search for a property to flip. While I had heard of many flippers having success with methods such as bandit signs, cold calling, and direct mail, I chose to focus on MLS listings. I saw three benefits in doing this for my first acquisition. First, I have my own real estate license and would therefore be able to collect the buyer’s agent commission (another benefit of having my license is being able to control my own schedule when viewing MLS properties, but any investor sourcing their deals off market has this same benefit). Second, the process of buying properties through the MLS is standardized, giving me more predictability with the transaction. Third, finding properties through the MLS takes much less time than other methods, making it more feasible to use this method while continuing to work my full-time job.

After settling on this method of sourcing deals, I moved ahead with designing systems and processes around it. I scanned the MLS daily for new listings and price changes, visited properties in person on weekends (and sometimes at 6:00 AM before going into work), and made offers on the ones that were worth pursuing. After analyzing over 30 properties and making offers on five with no luck, my sixth offer was countered by the bank and I agreed to pay an additional $4,000 to secure the property.

The house was a foreclosure, originally listed for $240,000, but after four price cuts the list price had come down to $170,000. I was able to secure it for $168,000. Depending on which neighbor I ask, it’s been vacant for anywhere between two and five years. It needs a new septic system as the last one was installed illegally by the former owner, new plumbing supply lines as the existing ones froze and burst during the time the property was vacant, and it has extensive wood rot on the exterior. Aside from that, it is in need of some light cosmetics inside, a new driveway, and a new HVAC system. I have budgeted approximately $70,000 for repairs and have set a target of putting the property on the market by the end of June. Based on recent comparable sales, I project the property will sell in the low 300's.

The first lesson learned came out of the closing process, when my attorney uncovered a title issue that was the responsibility of the seller to resolve. After waiting a few weeks with no movement on the seller’s end, I took the matter into my own hands and was able to resolve the title issue within a couple of days. On future transactions, I will be sure to be more proactive from the start when issues arise, even if they are the seller’s responsibility. Demo day is May 6. Now the real fun begins…