First Year Recap

Hit to the bull's-eyeI have been working on this post for a while.  After a short vacation I am finally getting it finished and posted up.

J Scott at 123 Flip in Atlanta made a similar post and I am going to share a lot of the same information he did.  He runs a great blog and we really have a lot of similarities to him.

We closed on our first property in 8/25/08, just over a year ago and just put the 20th under purchase contract today (9/1/09).  We have wholesaled four, remodeled and sold nine, rented one, three are under construction and three are in purchase escrow.  Two of the three we have in purchase escrow are going to be rentals.

For the nine houses we have remodeled and sold:

Total Sales Price: $1,901,000
Total Purchase Price: $905,500 (avg $100,611)
Rough Remodel Expense: $339,000 (avg $37,666 – that’s a lot!)
Purchase Price & Remodel: $1,244,000
ARV Percentage: 65.4%
Avg Hold Time: 179 days (almost 6 months)

Most of the properties had hard money loans and we have overhead beyond that, so the difference is not profit, but because it is difficult to calculate those expenses outside of year end I have not included the additional expenses.

The hold time is our most embarrassing number, we are selling these properties ourselves and we learned the hard way putting a couple buyers into escrow that should have never made it (low credit score, low cash down, etc).  This number should be improved over the next 12 months, but with the FHA 90 day rule, I think we are going to have a difficult time getting properties to sell in less than five months.

Part of the reason the remodel budget is so much House #4 had over $80,000 in repairs and House #12 had almost $90,000.

Info on the Remodeled Houses

Beds: 3.33
Baths: 2.0
Sq Ft: 1,275
Yr Built: 1962
Lot Size: 8,281

Five of the nine houses have been in our main farm area.

For the four wholesale properties:

Total Sales Price: $375,000
Total Purchase Price: $315,000
Rough Remodel Expense: $2,000
Purchase Price & Remodel: $317,000
Purchase Percentage: 84.5%
Avg Hold Time: 4 days

The Recap

Overall, we are very happy with the results of our first year.  It took a lot of work and we really learned a lot along the way.  The market has really changed since we started and I don’t expect it to last as this business is always morphing.

We have built great relationships with a lot of different REO agents and we have bought properties from eight of the biggest REO offices in our areas.  Since we have closed them all, our offers are starting to get some respect, which is great.

Goals for Next Year

Now the fun part, we have some lofty goals for next year.  We would like to buy two houses to remodel per month and one to rent.  Over the last year we have built great relationship with a hard money lender that will work with us very closely.  That is 36 houses, which is going to be a lot of work.  If we do this goal we would pretty much always have 10 flip houses somewhere along the stage and 1 or 2 rentals on the go.

We have construction crews to work on two to three projects consecutively, if need be.  I think the trickiest part of our goal will be to find the deals and manage busy months versus slow months.  Some months we may buy five houses while other month’s only one or two.

The market will dictate if we can completely accomplish our goals.  California is definitely seasonal, so we want to have a lot of inventory ready to sell from June to September and have most of it gone by October.

A Word of Caution

I know these numbers look pretty good, but this business really requires a strong team with a lot of moving parts.  You need sufficient capital, the ability to get a property fixed in a reasonable amount of time, a great team and an exit strategy and most importantly buying a property at the right price.  If you are starting out, I would put the excitement aside and make sure you get a smoking deal.  We are competing against a lot of investors right now that are really over paying for properties and it scares me a little bit as I don’t know what their exit strategy is.  Sure, they’re getting market price, but they cannot repair and resell the property for a profit.  So be careful, run your comps carefully and make sure you have a strong team.

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6 Responses to “ First Year Recap ”

  1. Mike Z says:

    Congrats on the great year. Curious when you look to lock up a deal what is your goal? 40K+ in profit? or Maybe a 20% Return on Cash?
    I really liked your word of caution. I am seeing new investors overpay in my market as well (Central Valley)

  2. Steve says:

    Hi Mike –

    I built a spreadsheet that runs a deal through the system. Probably the most basic way to explain it is we are looking to buy at 70% ARV less repairs.

    So if a property needs $20,000 to be worth 150,000, I want to buy at 150,000 * 70% = 105,000 – 20,000 = 85,000 max offer.

    Basically 10% for closing costs, 10% for cost of funds (hard money) and 10% profit. Since we sell properties ourselves closing costs are closer to 5% so theoretically should end up with 15% of selling price as profit. With the market upswing, we ended up doing a little better.

    I am curious to know what you buy and your strategy it seems like you are a long-term investor? Drop me an email via the contact form, if you want.

  3. Ben says:

    Hi Steve,

    I’m working on finding a Hard Money Lender. Would you be able to pass along the one that you use?

    BTW — I’m getting my license. Have you find that you find your buyers or the come from other agents?

    Thanks and congrats on the success.

    Bb

  4. Steve says:

    I can send you contact info for one, I don’t know if you got my last email but I mentioned them in it.

    We just list our properties and let other agents find buyers typically.

  5. Ben says:

    I didn’t get the last email — not sure what happened, there is a very annoying spam blocker that is at the server level. Another email that should work better is bbary123 no spam [at] yahoo.com

    Thanks,

    Ben

  6. Steve says:

    Okay, I sent the email again.

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