Here’s a quick recap of our accomplishments:

• 24 Houses Purchased & Resold (Every One Profitable!)
• 5 Mobile Homes Purchased and Resold (4 out of 5 Profitable)
• 2 Houses Held as Rentals for Short Periods

Of the 24 houses that we purchased and resold, the level work completed breaks down as follows:

• 18 Full Rehabs
• 2 Minor Rehabs
• 4 Wholesales to Other Investors

In addition to the 29 deals that we did directly, we’ve also started carving out a niche helping a couple other investors with their rehab and resales. My wife has staged nearly a dozen other properties for other investors (including a model apartment for an apartment complex), we have managed several rehabs and we have listed and sold several properties for a couple very select investors.

Some financial statistics of the 24 houses purchased and resold:

• Total Profit on Flips: $478,083.10
• Average Profit Per Flip: $19,920.13
• Minimum Profit: $3,416.21 (House #1)
• Maximum Profit: $40,487.06 (House #16)
• Average ROI: $94.37%
• Average Annualized ROI: 421.80%

Also worth noting is that by having our own real estate licenses, we have saved or earned over $82,400 in commissions over the past 3 years. That about one-sixth of our total profit.

Of course, those numbers don’t take into account the cost of employees (myself, my wife and our project manager) nor the overhead costs of the business. Between the costs of being real estate agents (my wife and I), the cost of equipment, vehicle maintenance, staging furniture, etc, we actually spend a good bit of the profits, though I don’t have the exact percentages. So, don’t assume the numbers above are what we’re taking home — it’s a pretty good business, but not that good!

In terms of our rehabs, here are some interesting statistics:

• Average Purchase Price: $47,541
• Average Rehab Costs: $24,242
• Average Rehab Project Time: 28.5 Days
• Average Sale Price: $101,108
• Average Hold Time: 103.4 Days (not including the two rentals)

One of the places where we’ve been tremendously successful is in marketing and selling our properties in this tough market. While many investors have properties sitting for months on end and/or selling for far below what they expected, so far we’ve been very good at getting properties sold quickly and near our expected sales price:

• Average Time From List to First Contract: 17.9 Days
• Average Time From List to Final Contract: 43.0 Days
• Longest Time Property Took To Sell: 184 Days
• Shortest Time Property Took To Sell: 0 Days (Twice)
• Average Sale as % of List Price: 95.2%

Probably my favorite stat above is the 95.2% of sale price to list price. This means that on average, we sold our houses for over 95% of what we *ORIGINALLY* listed the houses for. Even in rare cases where we had to drop our prices, the average was still tremendously high.

Lastly, it’s nice to know that we’ve had a small little impact on our local economy. In addition to rehabbing 24 properties, which inherently improved the neighborhoods where we buy, we spent a good bit of money doing so:

• Gross House Purchase Costs: $1,141,000
• Gross Sales Revenue: $2,426,600
• Total Spent on Contractors: $465,000
• Total Spent at Home Depot: $117,000

It’s amazing that in three years, we’ve bought and sold over $3.5M in real estate and have spent nearly $600,000 on renovation costs.

This project has been at times frustrating, at times fun, and has presented some very unique challenges. Specifically, one of the most difficult aspects of this project has been deciding what our exit strategy would be. We considered a major rehab and flip; we considered renting; we considered flipping to another investor; and we considered a minor rehab and flip. One of the most important lessons learned on this project was that you don’t necessarily have to sink a lot of money into a project to get a good return. In fact, oftentimes the best return comes from the simplest and quickest exit strategy.

In this case, we realized that while we may be able to make a few thousand dollars more by putting more time and effort into the project, our annualized ROI would be much greater by just getting in and out. Plus, having our cash tied up in this property for too long would have made future acquisitions more difficult. And lastly, we learned many lessons about location and price-points in this market (I’ll have more to say about that in a future post).

Ultimately, we ended up doing very little rehab on this project. Here is the breakdown of financials for this project:

• Foundation Repair
• Main Water Line Replacement
• Land Survey and FEMA Letter of Map Amendment
• Interior Paint Touch-Up
• Replace Cabinet Hardware and a Light Fixture

Total rehab costs for this project were as follows:

• Labor: $6,360.00
• Materials: $99.21
• Total: $6,459.21

Timelines

Here are the key milestones from this project:

• Purchase Offer Date: 10/9/2008
• Purchase Closing Date: 11/3/2008
• Rehab Completion Date: 11/10/2008
• Sale Listing Date: 11/10/2008
• Sale Contract Date: 11/18/2008
• Sale Closing Date: 11/21/2008

While 8 days on the market is fantastic, the fact that the buyer was paying cash and was able to get the closing attorneys to close in under 60 hours was amazing! And while this wasn’t a full rehab, it’s still pretty amazing that my total time from closing of the purchase to closing of the sale was only 18 days…

Financials

Because I didn’t set my exit strategy on this one until right before I listed it, I didn’t have a set budget for the rehab we ultimately did. So, it’s unclear if I was either under- or over-budget on this one…but the final financial results indicate that the project was a success from a financial standpoint.

Here is the breakdown of financials for this project:

I’ll get much of that insurance premium back, and I’ll owe a bit on final utility bills, but the final number should be pretty close to that (likely, it will be about $200 higher).

Final Statistics

Here are the final statistics on this one:

• From Offer to Purchase Time: 25 Days
• Rehab Time: 7 Days
• Selling Days on Market: 8 Days
• Selling Close Time: 3 Days
• Total Hold Time (Close to Close): 18 Days
• Total Profit: $20,676.42
• Return on Investment (ROI): 29.48%
• Annualized ROI: 597.84%

Because I paid all-cash for this property, my ROI was less than I would have expected, but due to the quick turn-around, my annualized ROI was through the roof.

All-in-all, I consider this a very successful project, and I think our whole team learned a lot from this one that we’ll use on future projects…

We’ve gotten tremendous interest in this house over the past week, and it was only a matter of time before we got an acceptable offer. Today, not only did we get a very reasonable offer, but a second potential buyer who visited the house a few days ago told their agent they’d be back tomorrow and would likely put in an offer as well. The second buyer tipped their hand at their highest likely offer, so we went back to the first buyer who made the first offer and told them that if they could match it, we’d accept immediately (no reason to wait until tomorrow and risk losing the sale for an equivalent offer).

There was a bit more haggling, but in the end, we got near full price, with excellent terms — an as-is sale (no due diligence period), over 3% earnest money, all cash offer, close in one week. It doesn’t get much better than that!

In fact, the closing is already tentatively schedule for next Tuesday morning, and if it can be arranged with the closing attorney’s and the buyer, we may possibly move it up to as soon as later this week.

Hopefully there won’t be an update on this one until after the closing…with no due diligence period, the earnest money is already ours to keep, and I’m hopeful the buyers will be able to close quickly, as promised…

We also got our first two calls about The Corn House, and two separate buyers were planning to look at that one last night. While I’m not expecting much, the fact that we got two buyers through there within the first week of my wife taking over the listing (after our previous agent didn’t get anyone through there in a month) makes me really happy. It’s a great house, and I’m confident that we’ll get an offer as soon as we can get a couple more potential buyers through there.

The first formal offer we received was from an investor, who offered cash at about 20% below list price (without even looking at it). With all the interest in this house, and considering he had an agent that would take 3% of the sale price, I wasn’t willing to come off my list price much, but did make a 5% concession because he was a cash buyer who could likely close quickly. I’m guessing he won’t be able to come up that high, but it’s nice to have at least one formal offer within 24 hours of when it was relisted.

Then this evening, my wife got a call from a college student who was interested in looking at the house. He was looking for a place where he and a couple fraternity brothers could live and renovate over the coming few years, and as he had flipped some houses with his mom in previous years, he was no stranger to foreclosures. So, when he saw The Yellow Stain House, and realized how good condition it was in for the price, he was very interested. But, he also wanted to look at some houses before making a decision. In fact, my wife offered to show him other houses (she might as well get a commission representing him if he doesn’t want to buy our house), and seeing as how I was in the area, I tagged along as well.

We visited two other houses, and it was actually quite fun helping this guy and his friend try to find a place they could live and renovate. In the end, they found a house that is probably more suited to what they’re looking for then ours (a bit bigger), and they’ll likely put in a bid for the house this week (it goes to auction starting tomorrow, and therefore they wouldn’t need an agent for that house). If that doesn’t work out for them, I imagine they will come back to us with an offer on The Yellow Stain House, which would be great. But regardless, my wife and I feel good just for helping them out with their search; even if we don’t end up making a dime off them (now I see why she’s enjoying this so much…she loves helping people).

So, in the end, I don’t know if any of today’s showings (or tomorrow’s scheduled showings) will result in an acceptable offer, but regardless, I’m encouraged by all the interest, my wife is enjoying her new side profession, and hopefully will be able to translate the interest we’ve had in this house into some new knowledge about what buyers are looking for these days.

To add to this weird situation, my wife got another call today from a person driving by The Yellow Stain House, who was very interested in seeing it. Luckily, my wife was right around the corner at The Second Chance House, so she was able to run right over and meet the potential buyer. The woman loved the house, and was very excited about finding it. But, it turns out she is also an FHA buyer (pre-approved) and is not willing to wait until February to close. When she found out that there was no other alternative, she left the house very dejected.

After talking to my wife about this at length, we decided that we’d do what we could to work with one of these potential buyers (if they want to put in an offer). For example, perhaps offer the ability to lease back the property while waiting for closing. Or work with the buyer to do some upgrades that get rolled into the purchase price (so they don’t have to pay cash for these). I very much like to be conservative when selling houses, and if a potential buyer comes along, I’ll do whatever it takes to facilitate the transaction. I’d rather sell for a little bit lower price or for a bit worse terms if it means selling quickly.

Now, my wife is a little more aggressive and would prefer to hold out for a better offer than to jump on the first one that comes along. So, if these buyers fall through, I very much agree with her that we should do minor rehab and raise the asking price. We should probably follow that strategy anyway (my wife is usually right, and it would likely be more lucrative), but I’m glad she’s willing to indulge me on my effort to make it work with one of these first two buyers.

We’ll see what happens…

1. Most lenders have “seasoning” requirements before they will refinance. In other words, they require that the house be owned for some period of time (generally 6-12 months) before they will consider refinancing it. While it is possible to find lenders who will refinance in shorter periods of time, they generally will only finance up to 65-75% of the *purchase* price, as opposed to the appraised value. So, as an example, I bought The Yellow Stain House for $60K, I would have to put $10K of work into it to rent it (plumbing, flood letter, foundation, etc), and if I were to refinance in the next 6 months, I’d only be able to pull out $45K (75% of $60K). While this is certainly an option, it would still leave me with $25K in the property, which hurts my rental ROI numbers (and ties up my cash). The other option is to wait 6 months, and refinance based on the appraised value; but again, it would require tying up a lot of cash for at least 6 months;
2. Because I don’t have 2-years of verifiable income in this business, I currently can’t qualify for a loan (I don’t meet the income requirement) without a partner or someone else to co-sign. Generally, this means giving up a percentage of the profits to whomever takes the risk of co-signing. Considering I’ve put up all the cash and have done the majority of the work to this point, I’m hesitant to give away any profit simply for someone to co-sign a loan. While I would consider partnering with the person I partnered with on The Bulge House or the person I discussed partnering with previously on this house, the dynamics of partnering at this stage of the project are a little weird.

All of that said, I’m not completely averse to taking this road, if necessary. In fact, if I were a year further into this business, I’d probably be jumping at the opportunity to hold this property as a rental (the numbers work very well).

But, right now, I’d really like to get a couple more resales under my belt, if for no other reason then to keep me motivated. My wife and I have discussed so many potential exit strategies on this property, and we come back to the rental option often; but for now, I think we both agree that it would only be a last resort if we find we can’t resell the property.

On Sunday, my wife received a call from another agent who had a potential buyer for the house. She was only looking at properties under $100K, was looking for a house to move into, and wanted to see ours. My wife gave the agent the code to the lockbox, we headed over to the property to drop off some fliers that were geared towards a homeowner (the flier we had left were specifically for investors), and we turned on all the lights. A few hours later we returned, turned off the lights, and verified that one of the fliers had been taken. Okay, at least someone had come by to look!

We didn’t really expect to hear anything further, but on Monday, my wife got a call from the agent saying that his client was very interested in putting in an offer. The bad news is that she had not yet qualified for a loan, so they were holding off on the offer until financing was in order. We probably won’t hear back until Tuesday or Wednesday about whether she gets her financing, but we’re keeping our fingers crossed.

The other issue we face — even if she gets her financing — is that if she goes FHA, we have to wait 90 days from the time we closed on the house to the time she can buy it. Since we didn’t buy it until November 3, we couldn’t close with her until February 3. Whether we’d be willing to wait that long to close on this property is something we haven’t yet decided, but if she comes in with a full price offer and a reasonable earnest money deposit, I would consider it. While it would be mildly frustrating to have to hold this property for three more months, getting it under contract a week after buying it would be very nice. And while I have a good bit of cash tied up in this property, I don’t have a mortgage, so my holding costs are under $100/month (utilities and insurance).

Anyway, these are good problems to have, and just getting an offer from one of the first people to look at the house is encouraging. I was especially concerned when, while speaking to the other agent for the first time, my wife told him that the foundation had been repaired (there are obvious signs of repair and we wouldn’t be there during the walk-through, so we thought it was better to preempt any concerns than to scare the potential buyer off when they see the repairs). He said on the phone, “Oh, that may be a problem.” But, after explaining that the repair was done by a company with a great reputation, had a lifetime warranty on the repairs, and had an engineering report indicating the problem was fixed, they decided to look at it. And apparently the buyer was still very interested.

Anyway, a lot of people have asked what kind of evidence was left by the foundation repairs. Here are some pictures. And also some pictures of the plumbing evidence…

It took about 150 hours of study, a crash refresher course, and then two exams, but she did it, and with flying colors (whatever that means). In Georgia (and probably everywhere else), having your real estate license doesn’t mean anything until you find a real estate broker to hook up with. This could be a big company like Coldwell Banker, Keller Williams, or Re/Max, or it could be a mom-and-pop real estate shop. Because she only got her license to support our business — and to help friends and family when they need it — she decided to steer clear of the bigger brokerage houses, as they tend to take more of each commission out of our pocket.

After talking to several brokerage houses, she decided to go with Solid Source Realty, and Atlanta-based company with about 2700 real estate agents, many of whom are investors, like us. The financial side of the business is actually pretty interesting. She will pay a monthly fee to work with the brokerage, and then pay a fee for each real estate transaction she completes. There are a couple other fees involved in each transaction, and some recurring fees for things like MLS access, insurance, etc, but for the most part, it will only us about $5000/year for about 40 transactions (for example, 20 purchases and 20 sales). Considering we’d otherwise be paying about $120K for those same transactions if we had to pay commissions, that’s a tremendous annual savings — over $100K — that will go right to our bottom line!

In addition to the savings we’ll get on commissions, we’ll also have access to the MLS, both to find properties and to list properties. We’ll have the ability to negotiate with agents directly and manage our own contracts and paperwork. And we’ll be able to get into any properties we’d like to see (both potential acquisition and potential competition) without having to bother an agent to accompany us. While it took a lot of work these past two months to get her license, I think she agrees with me that it will be well worth it.

In fact, she just listed our first property just a few hours ago. This is The Yellow Stain House, as we’re trying to resell it to an investor before we start doing any rehab work…

- The foundation work was completed…while a good bit of the yard was dug up during the repair (they put anchors both against the interior foundation wall and outside the house), by the time they were completed, you would never have known they were there;
- We got word from our land surveyor that the structure is not in a Flood Plain! This is great news, and now we just need to send the right documentation to FEMA to have the structure officially removed from the Flood Plain;
- We cleaned the house top to bottom (and left to right…or was it right to left?);
- We painted the ugly green hall bathroom (the paint was in fine shape, but the color was horrible);
- We replaced some old light fixtures;
- We replaced much of the cabinet hardware;
- We replaced the old, cracked switches, switch plates, receptacles, and outlet covers;

The nice thing is that — other than the foundation and flood letter — we did all the work ourselves in just a couple hours. While I normally don’t like doing any of the work myself (I think I can earn more by hiring the work out), it would have been almost as time consuming finding a handyman and explaining what we wanted done as it was to do it ourselves.

Based on the outcome, I’m convinced we’ll be able to sell this house to another investor pretty easily, and barring that, we should be able to put another $6000 into the property and sell it retail for an even larger profit.

We’ve had a couple investors contact us about the property, and they will be looking at it tomorrow; also, an investor friend of mine is considering purchasing the property as well. If none of those leads pan out, we’ll put the property on the MLS for a week or so, and see if we can find another investor that way. Otherwise, we start the additional rehab, and we sell it to a nice family looking for a very nice home.

While closing on this house is a good thing, it’s a reminder that things don’t always work out the way you plan, especially in this business. I’ve been learning that lesson repeatedly over the past couple weeks. Here are some of the roadblocks and challenges I’ve had with The Yellow Stain House just in the past month leading up today’s closing:

• Foundation Issues: Didn’t find the foundation issues until I was within minutes of being under contract without a due diligence period
• Plumbing Issues: Didn’t find the major plumbing issues until after the water was turned on, which also was within minutes of being under contract
• Renegotiation: I walked away from this deal, only to have the seller come back to me with major concessions
• Flood Plain: Just 24 hours before closing, my lender finds that this property is in a Flood Plain
• Loan 1 Falls Through: Because of the Flood Plain issue, loan #1 turns out to be more difficult than expected
• Decide to Rent: Because of my loan situation, I decide to go the traditional loan route, and find a partner who can co-sign
• Loan 2 Falls Through: While processing the loan #2, the seller decides they want to impose a per-diem penalty for missing the closing date. To avoid the mounting penalty costs, I need to close quickly with cash.
• Back to Flipping: Because I now have a lot of cash tied up in this one, I don’t want to hold and rent. So, my exit strategy is back to flipping.

Here we are. Three rounds of negotiation, foundation, plumbing, and flood plain issues, two failed loans, Plan A down the drain, Plan B down the drain, Plan C down the drain, and back to Plan A again. Between inspections, appraisals for loans, engineering consultations, and contract penalties, I’ve officially spent more on this property pre-purchase than any other property I’ve yet acquired.

Now, that said, here’s why I’ve happily enduring all this frustration…

I picked up The Yellow Stain House for $60,000. Based on my last appraisal, the as-is value is currently $124,800. This leaves me nearly $65,000 in equity on this purchase! Subtract out the inspection and appraisal costs, the closing costs, the foundation and plumbing repair costs, the cost of removing the property from a flood plain, and my equity is still over $55K.

Additionally, I did some research today on rent comps in the area. I had been assuming they were around $1000/month, but in actuality, they are closer to $1200/month. This means the property could provide tremendous cash-flow as a rental as well. So, regardless of whether I decide to resell or rent this one, the numbers are fantastic.

In fact, with the new information about the rental comps, I actually have another exit strategy (are we on Plan D yet?). Yes, I know…in yesterday’s post, I said that I had finally figured out what my exit strategy was going to be on this one. Well, I changed my mind again. I’m going to actually try flipping the property to another investor for a quick profit without doing any additional work (besides the foundation, plumbing, and flood plain work). While flipping to another investor wouldn’t be the most lucrative route, I could still make a very decent profit this way. The reason I’d be willing to forgo some of my profits by selling to another investor is two-fold:

1. Quick and Easy: While I’d see less profit, the total time and effort I’d be putting into this property post-purchase would be minimal. A couple days babysitting the foundation and plumbing guys, and a few minor cosmetic enhancements, and I could be done with this project and onto the next.
2. 90 Day Rule: If I sell to an FHA buyer (a likely scenario if I finish the rehab), I’d have to hold the property for 90 days before I’m allowed to sell. This means a couple extra months of holding costs, and more importantly, a couple extra months that my cash is tied up.
3. Win/Win: Because there is so much upside to this property, I could make a decent profit plus allow the investor on the other end to make a nice profit as well, either by renting or flipping. I love situations where I can succeed and help someone else succeed.

So, I’m going to spend the next week or so — while the plumbing and foundation work get completed — marketing this property to other investors. If I get a taker, great. If not, I’m planning to do a minor rehab ($6,000 or so) and put it on the market for retail sale, hopefully for a nice profit.