My Twelfth Investment Property, Property Flipping the Right Way

Investment PropertyMy twelfth investment property was one that was almost by accident.  By the time the fourth quarter of 2013 was coming around, I was not anticipating a property purchase for 2013.  Things were about to change on November 8, 2013…

I had purchased a property in each of the past five years, and was doing OK cash flow wise.

I knew a lot about foreclosures as I had studied the process extensively over the past several years.  I went to several classes, and even advertised myself as a foreclosure consultant.  I met with many people in foreclosure over the years, and explained the process.  I was not able to actually get into any properties as a result of my efforts, but it helped me understand the process thoroughly.  I also helped many people understand their situation better, all at no cost to them.  Although I was not actively searching for foreclosures, I am always open to any deals.

My good friend and also Real Estate broker advised me of a deal he was working on.  He had several properties all tied up, and needed some cash for this opportunity.  The original deal was to pick up a property for ~$130K, and sell it for ~$170K.  We might need to put a few dollars into the property, and each of us would come out with ~$10K.

This property was a 3BR, 2BA townhouse, built in 2005.  It sold new for $245K.  Nothing in or on the house was more than 9 years old.  It had 1758 square feet of floor, all on one level.  The bedroom ceilings were 9’, the main room ceilings were 12’.  It was a nice place.  It also had heated cement floors, central air, and good windows, everything you would expect for a place built in 2005.   The homeowners association it was in, kept the neighborhood in great condition.

In a foreclosure, especially after the Sheriff’s sale, time is of the essence.  By MN state statue, there are only 180 days for the homeowner to redeem.  You also have to file and pay for the “Intent to Redeem” within the proper time period.

The property had a first mortgage of ~$175K, and a second mortgage for ~$60K.  The first mortgage bid $124.5K at the sheriff’s sale, a bit of a discount from the original mortgage.  It was a cash purchase, the only kind you can make at the Sheriff.

We made the homeowner an offer.  Often, in a foreclosure, the Homeowner doesn’t know their rights.  They can sell, they can stay for now, they can do quite a bit of things, but one thing they cannot do is stay in the house forever.  They need to make a decision, and it is hard for them.

Despite offering the homeowner several thousand in cash in return for giving us a lien, she was under the impression it was illegal.  It seemed too good to be true.  We were giving her the choice, take a few thousand dollars cash, and move out, or just wait and let the bank tell her to move out.  She thought the offer was too good to be true.  She could still sell, or redeem, or do nothing.  Or take our offer.  Our offer did nothing to extinguish her redemption rights.  All of the risk would be in our hands.

We had the homeowner talk to our attorney.  She was worried she was somehow ‘cheating’ her mortgage company by not giving them back the house.  We were actually paying off the mortgage instead.  That did give me some additional faith in people; some people still have a conscious.

The homeowner agreed to our offer at the last minute, with only a few hours to spare.  We took a chance, paid the homeowner some money, and became a junior lien-holder.  We were third in line.  If the second mortgage redeemed, we would have been out a few thousand dollars and a significant amount of time.  The second mortgage did not redeem, and we bought the property from the Sheriff for ~$128K at the end of the redemption period.  We were the owners of the home.

The property, although structurally sound, was a bit of a mess.  New carpet, some new appliances, and lots of paint were needed.  And a whole bunch of cleaning.  We could have immediately sold it, like our original intention, for the $170K.

After further analysis, we discovered that another property in the same townhouse triplex sold for $208K just a few months prior.  We know that if we had a finished product, we could get more money out of the property.  It would take some work, or we could hire out the work, but it would be worth it.

I had just turned an apartment, and had no move outs until the end of the month.  Perfect timing; so the rehab of the place began.  You cannot make any money sitting still.

The two kid bedrooms rooms were painted some terrible colors.  One was lime green and electric blue.  The other was dark brown (almost black), with a maroon stripe.  It took two coats of Sherwin Williams ProMar 200 flat paint to cover.  The bathroom had a blue and purple flower design painted on the walls.  And whoever painted the all of the walls previously, never missed a chance to hit the ceiling with the roller.

Since we matched the existing paint in the other rooms, we only needed to do one coat on the rest of the walls.  Using the same color also eliminated the need to cut in the ceilings and made for a faster paint job.

So I put on 8 gallons of paint, fixed a bunch of smaller items, things like towel bars, kitchen faucet, installed a dishwasher, made and installed a screen patio door, hooked up a washer and dryer, fixed a door lock, removed all of the existing carpet and pad, etc.  All fairly routine things when you are used to being a landlord.

After I completed painting, I had Home Depot install ~150 yards of carpet.  With their $37 install, it was a great deal.  Lowe’s delivered the appliances and hauled away the old ones.  We did a lot of cleaning.  The refrigerator and stove looked like new when we were done.  The dishwasher was newly purchased, as was the washer and dryer.  Everything was spotless, and we put it on the market on Thanksgiving Day for $219K, a mere three weeks later.   All in all, it took about $15K, and 80 hours of work to make the turn.

At $219K, we thought it may be a bit high, but you never know so we listed it anyway.  As long as you are prepared to lower price, starting a bit high is OK.  We had several showings right away, but not any bites.  People who looked at it thought it was a great place, but over-priced.

After about 10 days, we lowered the price to $214K.  We had more showings, but still no bites.  We lowered again to $209K by the middle of December.  The first offer was a cash offer for $195K, which we countered at $204K.  The buyers walked away, which was OK, as we were getting decent traffic, despite the -20 degree weather.    We received a cash offer of $200K less than a week later, closing in only a few weeks, which we accepted.  All in all, it was about a $54K profit that we split, less taxes.  No bad for 80 hours of work.  All while still working full-time, and managing 25 rentals!

Have you ever done a RE flip?  Ever wanted to?  Have you ever wondered how some people get rich in RE?  Or are able to sell properties and make money?

 

11 Replies to “My Twelfth Investment Property, Property Flipping the Right Way”

    1. Thank you for the comment Holly!

      That was my first real flip. The HOA had a No Leases for a year rule, so I didn’t want to wait for 12 months, or violate the rules. I am an HOA president, and the rules are there for a reason. It was not a great cash flowing rental, as the price was too high for the rents that could have been received. plus I would have had to buy out my partner in the deal.

      But it was a great way to make a couple of bucks. I am in the middle of another 52 unit purchase. I will write about that one soon.

      1. 52 units?! Wow! I look forward to reading about that deal. Thanks for sharing your landlord expertise. I’m doing my research & plan to buy our 1st rental in CO next year. 🙂

        1. Thank you for the comment!

          Yes, it is a 52 unit place in San Antonio, TX. I am not a major player in it, but I will be part of a private equity group. I get a guaranteed return, plus part of the appreciation when it sells, if any.

          It is a bit different for me, but I am going to try it. I also have another deal in the works.

          I am debating on buying more property, or just keeping what I have and riding off into the sunset…

          1. Since you’ve been successful, I’m sure it’s hard to know when to call it good! The TX project sounds like a nice “semi retired” investment since it won’t be so hands on. I look forward to reading more & hope you continue your blog.

          2. It did not. I had another local deal that I wanted and it would have been too tight to get both. I chickened out on the one I had no control over, and my local deal fell apart. The owner and I agreed on a price, and he backed out when I presented a purchase agreement.

            So, I paid off a mortgage instead. I get nearly the same cash flow as a new rental, with less work. And it’s less risk to my overall retirement.

  1. That’s a great return for a minimal amount of time commitment. Flipping is something that I would love to do, but unfortunately it requires a ton of capital in my market. There was a recent distress sale that my agent wanted me to partner up with… only catch was the property was listed for $620k, which would have required close to $80k per person, even with financing, which I doubt I would have even qualified for with all my other loans… not enough seasoning… After some light rehab, it could probably sell for over $750k, easy.

    We took too long deciding and it sold quickly… Having a lot of capital helps a lot… as I’ve learned many times in the past.

  2. That’s awesome that you were able to come out so far ahead for only 80 hours work. Personally, I’ve never flipped a house. I did try to sublease for rental income, but that didn’t work out. Maybe I’ll get back into it one day.

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