In my last post, I mentioned we would be closing on our second house flip last Friday. Well, that didn’t happen and we still haven’t closed. The buyer’s financing took longer than expected and we had to push closing until Thursday. These things happen though, and we are grateful that we get to close, even if it’s later than expected.
As with the first flip, we bought this house from a wholesaler. This means an investing friend of ours, bought the town home then immediately sold it to us for more than what he paid for it. This cuts into our profit, but we didn’t have to put work into finding the deal, so were happy to pay for that service.
We paid for all closing costs except for title insurance. This includes the closing fee from the title company, the tax certificate fee, recording fees, and the HOA transfer fee.
The owner of this property was going to be foreclosed on any day. We paid essentially what it would cost him to pay off his mortgage and other liens on the property (from unpaid HOA dues and other legal fees) and the wholesalers fee. The original seller didn’t make any money off the sale, but we saved him from foreclosure and bought the property as-is. We didn’t have an inspection, appraisal, or financing contingency in our purchase contract.
This is one of the great things about real estate. Successful investors know that price isn’t always the driving factor behind people wanting to sell their homes. This seller needed out very fast and his home was in really rough shape. We saved in the stress of a foreclosure and saved him the trouble of having to clean the place up.
The thing about distressed properties…
The night before we bought this town home, the seller, or one of his offspring, vandalized the garage door. This town home had a shared garage with our neighbors, so the HOA required us to put $3,500 into an escrow account to cover the damages.
Was this really our responsibility? I don’t know. We should have consulted a lawyer before going forward, but we just wanted the purchase to be over, so we went ahead and did it.
That’s the thing about distressed properties. Anything can happen. You have to roll with the punches and be ready for strange things to happen.
This rehab went very smoothly. We hired 95% of it out, the only work Luke had to do was change the electrical receptacles and hang some closet doors.
It did take longer than it should have due to the kitchen. We put an IKEA kitchen in this town home, but purchased it during their spring kitchen sale. That meant we had to wait longer than usual for the installation and the countertops.
All told, this rehab took 70 days, which is pretty long for a lipstick remodel with only interior changes.
Here is a breakdown of the rehab costs.
*This table was edited on 8/17 after finding a few transactions that were not accounted for, oops!
Before and After Photos
I think it goes without saying that these are the after photos.
Have every measurement meeting or contractor estimate scheduled for as soon as possible after closing.
I had all the major design decisions made prior to closing, but drug my feet on scheduling the estimates and measurements. That meant I had to wait a little to get on people’s schedules. I couldn’t schedule the countertop template until I scheduled the kitchen installation. I couldn’t schedule the kitchen installation until I had finalized the layout and design. Every day counts when you have a waterfall of things that need to happen.
FHA financing is tough to work with
Our buyer is using FHA financing, which is very difficult to deal with. FHA appraisers do not have to abide by any appraisal deadlines in the purchase contract. This means they don’t have a lot of incentive to move quickly, and things can take a while.
Also, it is illegal to be under contract with an FHA buyer if the seller has owned the property for less than 90 days. We had only owned the property for 74 days when we went under contract. So we had to terminate the original purchase contract on day 92 and sign a new one. The lender couldn’t send the buyer’s file to underwriting until we had a valid contract, so this added 3 weeks to our timeline.
We will finally sell this property on Thursday and I will post again about final numbers.