Cutting our teeth...
I'm running a little late this month because I wasn't sure what to write. Then I thought why not tell you about our first flip. So here it goes... Investing in real estate was something I had thought about doing for a long time. I tried to rope Josh into it in 2005 but honestly we were not in the position at the time financially to venture into this reality. Plus we doubted our abilities, not a good combo when starting a new venture. In all honesty this was probably a good thing considering the whole housing bubble, but that’s another story. In 2016 I finally convinced him we could do this. So we began looking at houses in May, making offers (which looking back now luckily we didn’t get) & lining up financing. In October after much frustration with finding only limited financing and getting our offers rejected due to the limited financing, we started Southern End Investments LLC. We were finding most hard money lenders wanted us separate from the business to increase how much we could get so we did this, crazy I know but we were always being told we needed to be incorporated. Creating the LLC however enabled us to begin lining up financing & make more solid offers on houses.
In January of 2017 we were still chomping away. Nothing was panning out with our offers even with financing and we were getting a bit discouraged, but we didn’t give up. On January 2nd we looked at Manor, it was the first house of the day with our realtor. We knew it was the one from the moment we walked in. The asking price was a bit high & being it was an approved short sale we knew they wouldn’t budge. It was a gamble & I normally don’t like gambles but we felt we could make it happen. We thought it was fairly quick & easy flip, in and out. Even with the desire to do quality work we thought it was more cosmetic than anything. So we set a 6 month deadline settlement to settlement, ran the numbers for the increase in purchase price & pulled the trigger.
Settlement was delayed a week because it was a short sale, these can be very complicated to get to sale, but on 1/21/17 we bought a house. There was no heat or air so that was priority & we figured our most expensive item. The water & sewer were public, the roof looked newer & the house had good bones. We began work on the day of settlement. Once we began getting into the home however we realized it had a bit more needed than just paint. Electric outlets were fire hazards! Surge boxes that you plug into normal outlets were mounted in the wall, hard wired & had actually melted. Yikes! The pipes under the sinks were so brittle they broke when we tried to swap out the downstairs sink. What was going to be our quick, easy, inexpensive flip was now a new outlets, fixtures, new supply plumbing lines, new heating system to replace the old one, basically a new home. Ouch to our timeline, our pocket book, as well as our bottom line. We could've ignored all this and just “put lipstick on a pig” as Josh likes to say but we couldn’t in good conscious run a business like that. We wanted homeowners, tenets, etc. to be safe. We wanted to treat every home as if it was ours. If we wouldn’t live there then we wouldn’t expect anyone else too, especially if they had children. So we buckled down and decided to fix or have it fixed right.
We knew we would need help to meet our aggressive deadline especially now that the work had increased so we enlisted the help of friends, family & pros. We deconstructed almost the whole house on the inside & renovated & repaired it. When it was said & done the entire renovation was 3 weeks late, but we were still going along well. Then the day of inspection came & of course items were found. None of which were items we did but things the previous owner did that we missed. We repaired these & listed the home.
Homes were selling fast at the time & honestly we had high hopes. We believed for all the work we put into her she would go quick. She would be the need to have home. A beautifully practically new 4 bedroom, 2 bath home on a quiet street in a good school district. Our goal here was 2 weeks, yes I know aggressive but the market was good it was the spring & that’s when they tell you to list. People are ready to begin moving around after a long winter & school is wrapping up. This part of the process however lagged on for 7 extra weeks. Our realtor had suggested a sale price of $199,900, seemed high but he said they were getting a practically new home & we agreed. We had many showings every week, our open houses were busy and still no offers. We went through the home many times trying to nail down what it was that was turning buyers away. We couldn’t find anything. We mowed, cleaned & waited. Finally an offer came in & we negotiated hard finally settling on $194,000. The new buyer asked for another inspection, which we were fine with because we had one so we figured we’d be fine. However more items were found that were not caught by us, our pros or our inspector. These had to be negotiated to seal the deal & they cost us a few more dollars out of pocket. We also anticipated a settlement in 4 weeks from the time we accepted the offer. Due to the bank not getting documents to settlement on time this delayed us an additional 1 ½ weeks.
In closing I am not sad we finally decided to do this. There were stops & starts from the day we said let’s do this until the sale of the 1st flip. We experienced delays & unexpected costs all along the way. We prepared, but not well enough. I can tell you this is definitely not like on the television shows & not for the faint of heart. There is a lot of gamble, a lot of risk and a lot of time involved in flipping or prepping a home for rent. We devoted every evening after our 9-5 jobs & every weekend to working on the house. We have chosen to launch our business this way, a lot of other flippers don’t they hire out a lot of the work, but we have chosen not too for many reasons. First this home didn't have the budget for that. Second there is a lot of pride in our work in the idea that we did this. Lastly we actually enjoy getting our hands dirty. We are fortunate to have the contacts we do & the knowledge we do. We continue to make more & learn more every day. We also have the ability to roll with the punches & continue towards the end. It was more stressful then I am expressing here, it is a process that will test you in ways you couldn’t imagine, at times it can be downright discouraging, it tried our patience with ourselves, each other & our poor extended family. My father in law quit daily near the end but continued to show up every day to see the project through. He’s a big reason this wasn’t a total failure.
Our projected profit originally was $28,000 not bad for a 1st flip. This was even after we recalculated costs because we paid more than our original purchase price was written for, something we will not do again. We naively thought we could balance it out with keeping costs reigned in. Our actual profit before taxes was $14,000. We doubled our time & halved our profit! This was our “learning house” as Josh likes to call it. Because even though we didn’t make a lot of money we learned A LOT! We know with each one we’ll get better at everything we do, earning us more money. Yes, you heard me right we didn’t give up. We actually settled on Manor on July 11 & 10 days later closed on our 2nd home! So stay tuned for the blog on that one. What can I can say it’s in us now we’re addicted to this stuff.
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