I completed and sold my first flip just over a month ago. I made way less than I was hoping, but learned so much! Wanted to share...
PROPERTY: The old, single-family house built in 1910 was located in a desirable area of St. Louis city near key landmarks like Forest Park, Washington University of St. Louis, and the Delmar Loop. The 2,500 sqft home had 6 bedrooms, 2 bathrooms, a fenced backyard, and a detached 2-car garage... plus plenty of historic charm!
PURCHASE: This was an off-market deal. I found the property when another local investor mentioned a rental property he was looking to sell in a forum post. The rent he mentioned was quite high for the St. Louis area, which got my attention. I reached out, and learned that it was a large, single-family home being rented to Washington University students. After walking the property and running the numbers, I felt the location and size of the home offered multiple options -- I could continue renting it to students for good cash flow, or renovate it after the current students left and make a profit.
The layout was choppy and the finishes were nothing fancy, but I decided to move forward and, after a little negotiation, we settled on a price of $282,750 for a property that was rented for $3,120. We put 20% down and closed on the property in November 2017, with a lease that went through May 2018.
We immediately started cash flowing about $1,000/month. However, I soon learned that neighbors weren't thrilled about having a student rental on their street, and I was concerned about the prospect of frequent tenant turnover with students. The next best option was to renovate and sell, so I found a general contractor to begin planning the renovation as soon as the tenants left.
RENOVATION:
Due to the size, age, and amount of updates needed in the property, I knew the renovation would be big! After working through some numbers with my GC, we decided we'd need ~$100k to accomplish my vision for the property. I covered the renovation by refinancing the property with a local bank I'd been developing a relationship with. They gave me a 12-month, interest-only loan that covered my remaining principal plus the full renovation amount.
Renovations were pretty extensive, especially for my first flip. The work included:
-- Fully remodeling the kitchen and two existing bathrooms
-- Opening up the choppy main floor to eliminate a narrow hallway and expose the kitchen to the dining room
-- Adding back a half bath that had previously been eliminated from the main floor
-- Creating a master suite by taking a bedroom and turning it into a master closet and bathroom off the largest bedroom
-- New tile front porch, landscaping and garage doors
-- New paint, light fixtures, etc. throughout
The age of the house caused a couple budget issues during renovation, but our biggest roadblock to an efficient renovation was from the GC's end. Their company went through three different project leads during this renovation, and the turnover really blew up our timeline. What was supposed to be completed in 10 weeks ended up taking nearly 7 months, which meant a ton of additional holding costs. And instead of listing in late August/early September 2018, as originally planned, we finally listed the property for sale in chilly mid-January 2019.
Despite the contractor headaches, I loved the finished product! We turned a choppy, dated, 6 bed/2 bath house into a beautifully updated 5 bed/3.5 bath house. The house now had a more open-concept main floor, a spacious master suite, and updated kitchen and baths... while still retaining plenty of that 1910 charm!
FINAL NUMBERS:
We listed the finished product for $474k. After about 35 days on the market, we accepted an offer for $460K. While our construction company caused most of the delays that blew up our original timeline, the co-owner of the company is an agent who offered to sell the property without commission as a way to make up for that! Obviously a big relief, and proof that I was working with good people, even if their business was going through some turmoil. Here's how the final numbers worked out (rounded for ease of reading)...
Sale price: $460,000
-- Purchase price: $282,750 ($56,550 down payment)
-- Closing costs: $3,000
-- Renovation: $111,250
-- Holding costs: $37,500 (includes interest-only loan payments, taxes, insurance, and utilities)
-- Sales costs: $15,000 (buyer's agent commission, home warranty, etc.)
Net profit: $10,500
My goal had been a profit of $30 - $40k. I fell WAY short! But I learned a ton without losing a penny, so I'll call it a win. And when you add in my $1,000 in cash flow for each of the first 6 months of ownership, I actually made $16,500 total over 17 months of ownership. That's an annualized return of about 19% on my original down payment of $56,550.
BEFORE PHOTOS: (apologies for the sideways photos... couldn't figure out how to correct that!)
Hunter green paint and concrete porch
Closed-off kitchen
Second-floor bathroom
Third floor bathroom
AFTER PHOTOS:
Two-tone exterior paint
Tiled porch
Open main floor
Open, updated kitchen
Peninsula facing the dining room
Second floor bathroom
Newly created master bathroom
Third floor bathroom
I'd love some feedback... let what you think and what you'd have done differently. Any questions or tips for me? Thanks for reading!
