Make Money Buying Fixer Uppers and Flipping Them
Most homes in America (research
figures) are old. A lot of them are in bad shape and in need of repairs and
modernization. They need the latest plumbing and electrical systems. They need
new kitchens replete with the latest inventions in countertops and appliances.
This problem offers new opportunities for you the investor and if you are a
contractor, you stand a better chance of making it really BIG in this market.
Old houses with deterred maintenance
attract fewer buyers. First time home buyers look for homes that are in
pristine condition. They want a home that is in move-in condition. They want a
home with granite countertops, hardwood floors, stainless steel appliances.
Most first-time home buyers do not have a lot of money to put down when they
buy a home. They are the candidates that folk to FHA loans that require very
little down payment, often times as low as 3.5% down, sometimes even as low as
1% or even ½% down. These first time home buyers qualify for down payment
assistance from their local, city governments. Some of these buyers are
veterans who require zero down to buy a home. However, the homes that the FHA
and VA lend on must be in ready to move in. More often than not, these homes
must pass termite, home and roof inspections. Most old homes fail such
inspections, which is a great thing for you the fix and flip investor. Most of
us have a high regard for doctors, and specialists such as heart and brain surgeons
get paid much higher than general practitioners. The same is true in the realm
of real estate. As a rehabber, you are the one who takes what is old and makes
it new. You are the one who makes an old, decrepit patience and make it look
vibrant, very attractive and sexy. I know this because I have done so. You will have multiple buyers making offers
on a house that, just a few months back, none of them would dare take one look
at. Below are just a few examples:
30 Topeka Ave, San Jose, CA
Citi Mortgage assigned this property
to me as their REO Broker in 2009. It was one of the many properties I sold for
them back then. As soon as I received the assignment, I did a little research
and found out that the property fell under the jurisdiction of Santa Clara
County. The house was boarded up and the front yard became a dumping ground for
neighbors. I went to the zoning and building departments at the county and told
them that I was in charge of the property. The inspectors were elated to know
that there was finally someone they could talk to. Those were the days when
people were walking away from their homes and abandoning them. The crisis
presented a BIG headache for many local governments who had to put up with the
blight of unkempt yards, graffiti and even vandalism.
It was an expensive situation for
these governments. Not only were they not collective property taxes from these
abandoned homes, they were compelled to monitor them as well. I came to know
that the county had paid a contractor up to $14,000 to board up this home.
Apparently, the previous owner had gutted the inside of the property with the
intension to start remodeling it. May be he did not bother taking out a
building permit, so he may have been told to stop. That I do not know. What I
do know is that when I took over the property, it was such a mess. There were
dirty sofas beds in the yard. The grass was dry, the roof and siding in
complete disrepair. I could not decipher whether this was a duplex or a single
family residence, nor could the appraiser. It took the asset manager at the
bank much longer to determine the price for this property than all the others I
had sold for them. When she finally gave me the price, it did not take me long
to sell the property.
I announced on the MLS that I d be
at the property at 2 p.m. that fine Friday. Before I got there, there were
people already waiting for my arrival. I had my notebook with me and all I
required was their names, their all-cash offer price and their contact
information. I was at the property for only a few hours. I left the place at 6
p.m. that day with 15 offers. That was the very first time I had this kind of
experience where I was mobbed by hungry cash buyers. I felt needed. I felt
super important, powerful. It s a good feeling.
The list price was only $101,000. I
ended up selling the property for $201,000. I emailed the asset manager that
night and woke up the following morning to read her response! Wow, Paul. You
ROCK!, she exclaimed. You can tell she was ecstatic. So was I.
Success makes you feel good. You
feel even better if you are the one making all the money. The day the asset
manager accepted the $201,000 offer, I received an email from a contractor
offering me $300,000 for the same property. Unfortunately, we were already in
escrow.
The investor who bought the property
for $201,000 used her IRA both for the purchase and the rehab. She spent
$100,000 to rehab the property and 3 months later, she sold it for $465,000
within 2 days of being listed. A buyer from Taiwan, who was so enamored with
the property, offered her cash. The investors and all those involved in helping
her were all smiles.
3566 Wren Ave, Concord
The outlook for this property was
not as grim as that of 30 Topekan Ave,
which meant that the money to be made here was not as great, either. The more
dire the situation the greater the bargain may be and therefore the better the
possibility of BIGGER profits. That s just the name of the game.
As soon as this property was
assigned to me and gave the asset manager my opinion. There were holes in some
walls, I recommended we do a minor fix-up inside to ready it for the market. He
preferred to list it AS IS for $330,000. However, he listened to me and gave me
the go ahead to fix it up a little. I spent $12,000 to do so. Ironically, he
sent me a list price of $319,000 when I was done. Strange that he d list it for
$330,000 AS IS yet $11,000 less when fixed up inside.
As soon as I received that list
price, I recommended to my friends to buy the property, all cash, at $320,000.
The coupled agreed. We closed the transaction soon after and spent another
$12,000 to fix up the exterior of the home: siding, paint, landscaping, a new
fence, the pool. It took less than 3 weeks to do the work. I put the property
back on the market as soon as the work was done. That was in the winter of
2009/2010. If we had spent a little bit more money to rehab the kitchen and the
bathrooms and if we had staged the property, we would have sold it much quicker
and made more money out of it. Nonetheless, we received an offer from a VA
buyer for $408,000. He bought it with absolutely no money out of his pocket and
received 3% back from us to pay for his NRCCs (non-recurring closing costs).
3100 Berlin Way, Oakland, CA 94605
This one was a Wells Fargo REO. It
had been foreclosed on back in September 2010, yet by May 2011 it had not been
listed. Shadow inventory, you say. An agent in my office had introduced me to a
guy in Richmond whom she said was head of the NSP (Neighborhood Stabilization
Program). Long story short, I borrowed $40,000 from a private lender friend of
mine and got two other investors to JV (joint venture) with me on the deal. We
spent an additional $12,500 to rehab this small 2 bedroom, 1 bathroom single
family residence that measured less than 800 square feet. Built back in 1912,
the little home needed a facelift. We re-sanded and coated the hardwood floors,
installed a brand new kitchen with new cabinets and granite countertops. The
kitchen floor had tiles, most likely installed by the previous owner fairly
recently. The windows were also relatively new and so was the deck in the back.
We repaired the leaky roof and installed a new tub in the bathroom. In the
front and back, we installed a new lawn and a new sprinkler system. We painted
the interior, pressure-washed the exterior, built a new fence and a new gate,
repaired the garage siding and painted it, installed a new garage door and
fixed the garage roof. All of this done for only $12,500 and finished within 2
weeks.
I called my stager and ordered that
she stage the property ASAP. She moaned a wee bit but did it anyway. That 4th
of July weekend, I put the property on the MLS (Multiple Listing Service). I
went to the property and held an Open House both that Saturday and Sunday.
Offers started pouring in. Multiple offers in a down market! We had bought the
property for only $120,000. I had done my CMA (Comparable Market Analysis) and
knew what I d get for it. Besides, the bank had also done its own appraisal and
came up with a $200,000 ARV (after repair value). I had the home on the market
for $189,000, a very attractive price for a small home that cute in that
neighborhood. No wonder I received more than 5 offers. We closed escrow at
$201,000, so to a very happy buyer who made other buyers, who also wanted that
home, very sad. We walked away with over $45,000 in profits in a very short
time. We split the money 3 ways. Now can you imagine if I had borrowed all the
money from a private money lender and gone solo on the property? I would have
netted the entire profit alone, less the cost of borrowing. What if I had the
money and had bought it all cash? I d have had no fees to pay and certainly
would have shared the development (i.e. the profit) with no one. Indeed, the
rich get richer and the poor get poorer, especially during hard times.
San Carlos
This was another REO listed by me,
another relatively small home. As usual, I gave the bank the BPO (Broker Price
Opinion) soon after the assignment was given to me. I received a list price of
$546,900. As soon as I put the property on the market, I received 2 offers, one
for $589,000, another for $570,000. The property had a foundation issue and
these buyers were first-time homebuyers. They got scared of the foundation
issue and backed out of the deal. I ended up selling the property to a seasoned
contractor whose wife is also a real estate agent. They bought the home all
cash for $527,000. I had ordered a foundation inspection on the property and
was quoted $14,000 to remedy the problem.
I sent them the foundation report go the agent. I don t know if they
addressed the issue. What I do know is that they gutted the kitchen and put a
very nice one in its place. They also remodeled the bathroom, refinished the
hardwood floors and painted both the interior and exterior. They staged the
home and took very enticing pictures. They put the home back on the market a
month later and sold it quickly for $656,000. Being a contractor, I am sure the
agent s husband spent less than $25,000 to rehab that home, in which case they
made about $100,000 in the home in less than 2 months. Nice!
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