House #4: Final Plan

November 3, 2008 · 0 comments

I mentioned recently that The Yellow Stain House is quickly becoming the bane of my existence…and in just the past few days, things have only gotten more annoying…

I most recenly had decided to go the tradtional loan route, with the expectation that I’d likely rent this property for a year or two while working through the other issues (foundation, flood plain, plumbing, etc). But, as I suspected, if I wait for the traditional loan to come through, I’m going to incur some substantial financial penalties for pushing out the closing date.

In fact, as I heard from my agent last week, I’m already starting to incur these penalties for the 6 days that I already surpassed the agreed-upon closing date. I thought that I’d be getting out of those penalties, which is why I decided to keep pushing forward with the loan; but the minute I heard that I was going to be charged by the seller for the extra days, I decided to close immediately for cash. Unfortunately, immediately is not until tomorrow (Monday), but closing is scheduled for 11am.

Now that I’m purchasing the property for cash, I need to change my exit strategy yet again. Luckily, I had a Plan C…


My new plan involves doing a quick rehab, including the foundation, the plumbing, rectifying the flood plain, interior paint, new fixtures, and new vinyl flooring in the kitchen and baths. Based on the two appraisals I have recently gotten, I think this new plan is actually the best way to go. I had originally gotten an appraisal for an After Repair Value (ARV) at $134K; this means that with the house rehabbed and the basement finished, I should be able to sell for about that amount. The second appraisal was for the property in “as-is” condition. This appraisal came back at $124K.

So, by spending $10-15K finishing the basement, I’m likely to only get back about $10K in return. I’d much rather save the money and time and make the same (if not more) in profit. Easy decision.

And because I’ll have my own cash tied up in the property, I’ll try for a quick sale once the rehab is completed. Based on the appraisals that we received — and our ability to acquire this property at the right price — I think this is shaping up to be a successful project.

In my next post, I’ll finalize my Scope of Work, my budget, and my schedule, and hopefully by then I’ll be closed on the property and ready to start work…

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