Back in early July of this year, we closed on a 1,200 sf, 3/2 ranch in our hometown of Brick, NJ. This was another scenario where our agent had been the winning bid at auction and had later passed this property on to us. Similar to the last property we received from an auction site, this too had a 5% Buyer’s Premium (see last blog entitled “Flipping Full-Time in NJ: #4 Complete) however, this time around the premium was paid by the seller at closing instead of being paid by myself. We were told that this was negotiated at closing but in any event, we weren’t not going to complain. There were a fair amount of lessons learned from this project with the largest being learned at the very end during closing…but we will get to that.
The purchase price of the property was $149,100 and we paid approximately $3,320 in closing costs or 2.23% of the purchase price. The property was purchased using my equity line and the interest was covered with my own personal funds. On a side note, it was during this project that I began creating a spreadsheet for all of the fixed costs for each job moving forward so I'll be able to get a lot more granular on the numbers moving forward. Back to the deal, we had originally figured $30,000 for rehab costs and $6,000 for holding costs with a listing price of $249,000 and a realistic sales price of $245,000 (after we negotiated a bit). I never like to bank on getting the full price so what I like to do is typically run my analysis based on an after repair value (ARV) of roughly $5,000 less than what my agent tells me it will be. It's always good to be conservative because I've never sold a house where I didn't have to come down on my price at least a little.
Getting into the renovation, it was a lot more extensive than I had anticipated. What looked like mostly a cosmetic rehab turned into gutting the entire bathroom, closing in a garage door, re-sheet-rocking the entire kitchen and re-grading the entire backyard. I had initially accounted for some of this, however, it was more extensive than I had thought. In summary, we used up every dime of that original budget as our combined cost for the renovation and holding costs came in at $35,927. I’d like to say that I’m that accurate when it comes to estimating budgets but I think luck had a pretty big role in it as well. Once we finished and listed the house, we had an offer in just under two weeks but it was low and they wanted two months to close. After negotiating it back up to $245,000 with a closing set for a date one month away, we gave them the green light to start their inspections. Here’s where we went wrong. They came back with an outrageously long list of items they wanted addressed, most of which were things that had already been addressed during the initial renovation but that they wanted done differently. We agreed to fix some of the critical items and provide a $250 credit at closing. They accepted.
After personally completing the agreed upon items, they had the house re-inspected by their contractor and were not happy. In their words, the items were not done the way they had envisioned and wanted to have their contractor give them a quote to repair what they wanted done. About a week later we received a request for a multiple thousand dollar deduction based on their contractor’s quote. It appeared as though their contractor was taking us to the cleaners for this one. After meeting in the middle, we ended up settling things out and agreeing on a final price of $241,500. The lesson: whenever the buyer requests items to be addressed at closing, we will never again handle them ourselves; we will either simply offer them a credit or hire out a professional contractor ourselves. This lesson hurt but we were happy to have the house sold and happy to be that much wiser because of the lesson that we learned.
