Investment Info:
Single-family residence fix & flip investment.
Purchase price: $289,000
Cash invested: $80,000
Sale price: $410,000
First Fix and Flip project completed. Some highlights below:
Hard money loan was used to finance 100% of the renovation and 90% of the purchase. Used BiggerPockets forums and resources to find and vet our lender and was pleased with that experience.
Closing on the property was delayed due to back-up in available appraisers (all the re-fi going on + working in a "hot" real estate market). I had to be very diligent about getting the appraisal done so that I did not jeopardize the transaction. Could not rely on the lender to do this and was glad that being pro-active and persistent paid off with a smooth close.
Dealing with the initial contractor - his ballpark estimate on initial walkthrough vs. actual estimate was a difference of approximately 30k. Given that we did not change project scope, this was concerning. I found another contractor that had done many flips in the area whose price for the same work was substantially lower. We thoroughly vetted him and decided to make the switch.
Project scope - I went in with more ambitious designs than were ultimately executed. This was good and bad - yes, these upgrades/updates would likely have pushed my final sale price higher but the expense and time invested to complete them may have neutralized the benefit. I realized it's about finding a balance of those variables and minimizing risk where possible. Ultimately, we did change the configuration of the main hallway and master bath to allow for a "true" master bath (this was a 70s split-level with a very modest master bath originally) which I believed was crucial to getting a higher sale price. This was the contractor's idea and I learned a lot from him on this project.
Timelines - We went over our initial timeline by more than one month. At least two of these weeks were due to the bathroom remodel change in scope. The rest of the time was spent on re-work (paint/finishes needed touching up, multiple times). Realizing that each day of holding the property is expensive, we tried to expedite the finalization of the project as much as possible without sacrificing quality. Lessons learned about being present on-site more often and ensuring the projects are done successfully throughout the process so that we're not scrambling towards the end to bring the various trades back through for re-work.
Final sale - Our final sale price was approximately 20k less than what our realtor had estimated based on comps originally. In an area where homes are sold on average within 1 week of listing, this was not what we anticipated. Further, the home appraised for less than our agreed upon sale price by almost 8k. Again, lessons learned that I need to do my own due diligence and not rely on one opinion for something like the list price and comps which can dramatically effect my profit/loss on the project.
Final thoughts - This was a great learning experience. I was disappointed that we did not realize more significant profit but was also happy to not lose money while "learning on the fly". Certainly I'd done my homework through BP and elsewhere, but actual experience was the best way to learn. I look forward to working on additional fix and flip projects now that I have one under my belt along with resources that can help me achieve the most successful outcome.
What made you interested in investing in this type of deal?
Knowing that my local real estate market had great opportunities for this type of investment, I was excited to find the "right" property to buy, rehab, and get back on the market.
How did you find this deal and how did you negotiate it?
A wholesaler (found through BiggerPockets!) contacted me about this one. I was out at the property within a few hours of his call with my contractor. After this walkthrough and analyzing the renovation costs and potential margin, we were under contract in less than 24 hours.
How did you finance this deal?
Hard money loan - 90% of sale price and 100% of renovation.
How did you add value to the deal?
Thankfully, the majority of work on the home was cosmetic rather than repairing the roof, foundation, etc. The HVAC did need to be replaced. Otherwise, we added a new kitchen, replaced a dated built-in desk area with a full pantry complete with barn door, new flooring on main living level, paint on exterior and 90% of interior, new light fixtures and repairs to electrical and plumbing (minor).
One change-in-scope to original plan was renovating the hallway and master bath configuration.
What was the outcome?
This was successful in that we sold the property fairly quickly, did not lose money on the deal, and learned from the experience. Certainly room for improvement...and we'll use that knowledge when evaluating the next opportunity.
Lessons learned? Challenges?
More critical analysis on purchase and sale comps. Could have improved on both fronts, leading to more profit.
Having the right team is crucial. This deal helped me to realize what I had already - and what I needed in terms of investor-friendly team members.
Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?
Capital 360 - Hard Money Lender
