As Realtors®/investors, we get asked a lot about the house flipping process. We just purchased a property that is going to be our biggest project ever, and we thought it may be interesting to let you tag along and watch the progress. Even if you aren’t interested in technically flipping a home as in investor to re-sell or rent out (which is what we will be doing with this property), you may enjoy following along and watching this Fort Smith eye sore transform into something that the neighbors will be proud to live next to. We plan on being as transparent as possible with it, and will give you all financial information that we can, and will answer any reasonable questions about it.
First, though, some quick back history. Kevin and I have been buying investment property for 15 years. As self-employed individuals, we are investing to fund our retirement, primarily. We don’t live off of the income at this point, but hopefully we will at some point in the future. We are investors that buy, fix up and hold/rent out. We have Realtors® in our office that buy, fix up and sell, we also have some that buy, fix up and owner finance. We will bring you more information on both of those avenues at a later time. There is nothing inherently wrong or right about any of these investing philosophies. It mostly depends on what are you trying to achieve with the investment.
Kevin and I have lived in Fort Smith nearly all our lives. We love it here. We have raised a family here and started a business here. We are invested in the area in many ways. We live and work in the middle of Fort Smith in a very old historic neighborhood. We have a tendency to purchase properties in the same area. We like living/working close enough to our investments that we can drive by and check on them easily at any time. That said, we have driven up and down Dodson Avenue practically every day. To and from Darby and Northside, church, shopping, restaurants,etc. Day in and day out. For a really really long time. Being a real estate agent/investor, I pay attention to homes that are on my “beaten path” There is one that I was always curious about, but never really spent the time to research. It has been boarded up for as long as I can remember. So, when I saw a sign in the yard one day, I immediately jumped on the MLS to get the skinny on it. When I told Kevin that I wanted to make a run at it, I think he thought I was nuts. I probably am, but it looked affordable and like a property that would easily fit into what we look for in an investment.
Fast forward a few days later, and our offer was accepted and a few weeks later we closed on the property. The purchase price was a whopping $20,000 ($13.57/foot). We negotiated the seller down from $30,000. It is 3 bedroom, 2 bath home with 1474 square feet, according to the appraiser. We got a post remodel appraisal of $100,000 ($67.84/foot) which is probably a little low, but doesn’t really matter to us as we are going to be renting it out. The only thing that we really care about, regarding the appraisal, is if we can borrow enough to fund the remodel. The bank will loan 80% of the appraisal value, which would be up to $80,000 in this case. So as long as we can get all the work done for $60,000 ($80,000-$20,000 purchase price) we won’t have to put a dime into it. My initial estimate came in at $45,000-$60,000. That sounds like a HUGE spread, and it is, but sometimes you don’t know what you are going to get into when you get into a remodel. This home was built in 1940, so there is no telling what kinds of issues we are going to run into. I can’t remember a time that we have NOT had something unexpected come up. Probably because we mostly purchase older homes. Another reason for the large spread depends on what type of finish out we do. High-end or low-end lighting, appliances, flooring, etc. We tend to go pretty mid range on this, but my contractor left me a wide gap to have some freedom to make some decisions.
Now that we have gotten through some of the background and basics, let me introduce you to the Trap House, as my daughter calls it. 2717 Dodson Avenue.
I am sure in its day, this was a great family home, but it has been neglected for so long, it is going to take some serious money and work to get this back in an acceptable and habitable condition. At one time in our lives, Kevin and I did most of the work. All the painting, flooring, etc. All that we could. Never plumbing or electrical. We simply didn’t have the money and banking terms were different back then. We didn’t have a choice really. If we wanted the property, we had to put as much sweat equity into it as possible. And so we did. We just wanted in the game. We were banking on it paying off at some point, and it most definitely has. In 2017 times, though, we have more experience, less time, and WAY MORE city regulations (insert eye roll) to do much of the work ourselves and have made the decision to hire a contractor to finish it out.
As you can see, we have a lot of work ahead of us. We have a reliable and hardworking crew that we are depending on to walk us through the project. There is no way we would tackle this kind of project without them. In hindsight, we are grateful for the experience of doing a lot of the work ourselves in the past. It has has given us a realistic opinion of how much money and time the project will require. It has allowed us to be knowledgeable about who to choose to do the work and the ability to realistically monitor their progress, and pay them accordingly. It has also afforded us the experience to handle reasonable minor repairs on our rentals with some hands-on knowledge.
That’s about it for this week. We should have a lot more progress next Friday for you. If you have a serious interest in buying investment property, we have a complimentary instructional DVD of an investment seminar that Kevin taught. It is a great primer to getting started. We would be happy to get that to you. In addition, we have quite a few Realtors® in our office who invest themselves and are therefore more knowledgeable than most agents in that niche market. Weichert Realtors®, King Realty Group prides itself on training. Not just training our agents to better serve their clients, but training our clients to make the most of their investments. So call us, #wecanhelp 479-242-4000 or email us at firstname.lastname@example.org.