House #18: Inspection

July 6, 2011 · 3 comments

We’re on vacation this week, so just a quick update…

The Haggle House has been under contract to sell for a little over a week now, and the buyers have completed their due diligence and inspections on the property…

As suspected, the inspector found no major problems, but there were a few minor things that the buyer asked us to fix based on the inspection report. The list includes reattaching a couple loose shingles on the roof, capping an unused gas line, caulking a hole in the siding where the AC condenser line goes into the house, fixing two HVAC issues, and fixing some damage on the chimney cap.

Between our roofer, HVAC guy and my project manager, these fixes should only take a couple hours. The next step in the process will be the appraisal, which I imagine will happen sometime in the next 10 days or so. I’ll have more to say next week once we get through that step…

3 responses to “House #18: Inspection”

  1. Joe says:

    One question and the answer can certainly wait until you get back from vacation. Hopefully you won’t be in Fiji or similar location and spend you vacation checking BLOG posts. πŸ™‚

    What changed your mind about your exit strategy? You originally made the decision to hold and rent for a few years until the market value went up. Now after one problem tenant you have decided to sell.

    Have a great vacation!

  2. J Scott says:

    Hey Joe,

    No problem…I need something fun to do when laying on the beach gets old… πŸ™‚

    Plus, it’s a great question that I should have answered in my original posts…

    There were a few reasons I decided to change my exit strategy on this one:

    1. I really hate being a landlord. I know that buy-and-hold is a great long-term financial strategy, but when I’m actually holding the properties, I dread it. Even though I hire out the property management, knowing that there are tenants destroying my nice house really bothers me. That said, I’ll probably come to my senses at some point and buy some larger rental properties;

    2. My reason for holding this one as a rental for a couple years was that I felt there was a lot of upside to the investment if I didn’t sell immediately. Had I done a typical flip, FHA would have had an issue with the fact that I didn’t do a lot of work to the property and wouldn’t have let me mark it up to market value. Also, there was the stigma of the 2009 floods that hit this area that was making properties in this vicinity hard to sell (even though this one wasn’t directly affected). When the tenant left, I realized two things: 1. That I could now mark the property up to market value for a sale without any financing issues; and 2. The stigma of the flooding has subsided tremendously over the past 8 months since I bought the property;

    3. The profit on this sale will likely be about $30K+, which is a tremendous ROI on my $12-15K investment (it’s partially financed). Had I held for another 2-4 years, I likely would have cleared an extra $20-30K in profit, but my annualized ROI would likely drop;

    4. The tenant left the property in tremendously good condition, and there was very little additional work that was needed to get it ready for listing and sale. Had we put another tenant in the property (or multiple tenants over the next couple years), we’d likely have to do a much more extensive rehab in order to resell, thus cutting our ROI even further.

    Given those four things, I decided to list it for sale and see if we had any interest. Ultimately, we got a great offer, and hopefully it will close without too much trouble!

  3. Joe says:

    I can certainly understand your decision. I’m just getting started in this business and I have thought long and hard about buy/fix/hold vs. buy/fix/flip. In my case I’m retired, 50 years old and really just want to make some immediate extra income that will take the place of a part time job that I’m working. I guess an occasional rental property would be okay as an alternate exit strategy when things don’t go exactly as expected, but for the most part I would like to use the investment returns for other fun things right now. I also don’t relish the idea of dealing with stopped up toilets, destroyed rehab work, collecting late rent payments, evictions, blaaa, blaaa, blaa… Thanks for the reply. NOW, get back to the beach! πŸ™‚

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