Hi BP Community,
My business partner and I live in Houston, Texas but for various reasons have been investing in Montgomery Alabama. We recently sold our first flip in Montgomery, AL - managing the process from 670 miles away in Houston/Katy, Texas. During the process, I made 1 trip to see the progress and do some painting. There is a old saying that a lawyer who represents himself has a fool for a client - well, a lawyer who hires himself has a painter has a fool for client (that and other lessons learned discussed below). The property was a HUD foreclosure in need of a lot of work. Here is a quick look at the numbers:
Sale Price: $172,000
- Purchase Price: $90,000
- Closing Costs (Purchase): $2,179
- Finance Costs (Purchase): $1,100
- Inspections: $700 (initial inspection, later structural inspection/report)
- Rehab Costs: $51,768
- Holding Costs: $3,745 (Purchased 9/28/15 and sold 3/4/16)
- Sales Commission: $10,320
- Home Warranty: $485
- Closing Costs (Sale): $3,852
Net Profit: $7,851
This project was an education for us that ultimately put nearly $8,000 in our pockets - that's better than any guru course I have come across. We learned the following lessons during and since this first flip:
1. HUD will come off the asking price - we probably could have purchased the house for closer to $80,000;
2. Set a contingency budget of at least 10% of the overall budget;
3. If you are not onsite to monitor the contractor - you need a "boots on the ground" project manager;
4. Purchase appliances and other major items together and ask for a discount (saved a lot on appliances because we bought 3 sets (this house plus 2 rentals) all at the same time;
5. Do not try to save money by doing things yourself if you are not capable of actually doing them (I flew in to paint the exterior and did not finish while I was there because of rain and underestimating time required - plus I got paint on the brick which I had to pay the contractor to fix);
6. Do not try to sell a house during the holidays (we already knew this but when the project got delayed we ended up listing Thanksgiving week instead of during October); and
7. Trust your realtor - we pushed a more aggressive list price than recommended initially by our realtor which probably caused us to miss out on some buyers and then had to lower the asking price by $10,000 when we needed to get our capital out for other projects.
The original rehab estimate was closer to $45,000 but we encountered the following unforeseen issues we had to deal with: (1) Drainage issue in back yard required a 40' retaining wall and french drain ($4,000); (2) Roof of addition was not property joined to main structure causing a buckle after a heavy rain - we had to get a structural engineer's report and fix that problem in order to sell the house ($1,500); and (3) Miscellaneous items here and there that we forgot to account for $1,268.
The project was also delayed nearly 5 weeks due to heavy rains which delayed putting in the retaining wall. Plus, Our contractor was also in a major auto accident (not his fault), attacked by a dog (requiring skin grafts to close it up), had a grandmother in ICU, and had a young daughter who required specialized medical care out of town - all during our rehab project. We confirmed that all these events actually happened and none were his fault through a mutual friend who had referred us to the contractor. But we learned that no matter how well you plan, there are events that can delay your project which you could never expect.
Here are some before pictures:
And....here are the after pics:
We think our first flip turned out really nice and we are excited for the young family who purchased it. We hope you enjoyed reading about our first flip.
We just closed on what we hope will be our second flip - utilizing the same contractor (hopefully he has better luck during this project). We will post an update once we finish it. This one is a historic home built in 1936 in the Cloverdale area of Montgomery so it will likely present some different challenges.
