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House #3: Flipping Real Estate

Read the first part: Make Money Flipping Real Estate

Flipping Real Estate Property: Controlling the Deal

A great real estate flipping lesson I've learned from a fellow investor is to try and oversee as many parts of the deal as you can. That way the success of each part is up to you and not someone else.

So when it came to the appraisal, the last hurdle when trying to flip a house, I wanted to make sure I could show that appraiser why that property should be worth what I was trying to get for it. To do this I met him at the property when he was doing the appraisal. He turned out to be a very talkative guy and was willing to explain the entire appraisal process, which in turn turns out to be great education for me.

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Once that was done I provide him information on the house and area, not to influence him (this guy was too knowledgeable for that) but to make his job easier. I gave him the following:

- Pictures of the house in the “before” stage. So that he could see how messed up it was.
- A list of the improvements I made. This would make it easy for him to quantify the work.
- Comparable homes that have sold in the area. He can find these on his own but if I provide them and they are really comparable then I make sure he does not miss them.

All this worked great because not only did the house appraise, but the guy gave me his card and offered to help with any questions I might have in future investments! He has been in real estate flipping himself and has been around real estate for more than 30 years so he could be a great resource.

Once the appraisal was done it was smooth sailing from there. We closed five days later.

So, did I make money flipping real estate?

Absolutely, and here is the breakdown. Although I cannot go into the specifics of the purchase price, I’ll give you a good enough idea - you figure it out:

  • Purchase Price: $55,000 – 65,000 (including closing costs)
  • Repair Costs: $31,416 (more details below)
  • Materials: $2,886 (includes appliances, staging supplies and misc. parts)
  • Holding Costs (4 months):
    • Insurance: $246
    • Interest only payments on loan: $914
    • Utilities: $848 (winter time!)
    • Total: $2,008
  • Selling Costs:
    • Closing costs: $5,235
    • Agents commission: $6,250
    • Staging: $1,260
    • Total: $12,745
  • Total Cost of Investment: $104,055 – 114,055
  • Selling Price: $125,000
  • PROFIT: $10,945 – 20,945 (on the higher end of this range)
  • Return on Investment (ROI): 20.2%
  • Annualized ROI: 60.6%
  • Adjusted ROI after taxes (projected): 17.1%
  • Return on time: VERY HIGH
  • Days on market: 26 days (average for area is 101 days)

Flipping Real Estate Property: Repairs and Return on Time

The bulk of the repair expenses were paid directly to my general contractor. He was basically in charge of the kitchen, floors, window replacement, interior paint, all plumbing, all electrical and drywall. That left me to coordinate HVAC, exterior paint and landscaping.

Like I did in House #1 I chose to hire a general contractor because my time, during this rehab, needed to be spent somewhere else more important. One of the keys to building a business is to recognize the things only you can do and delegate the others.

In turn that is why I say that my return on time was very high. Although I did make money flipping real estate, my profit on this house was not right where I would have liked. On the other hand it did not require a huge output of time on my part. The work was done right, on time and obviously with good results.

To make a business out of real estate flipping requires both experience and creating an operating system, both of which I obtained with this flip.

Finally, one of the great things about flipping real estate property, like in House #1, is that I turned another neighborhood eyesore into a great looking house, raised property values and provided someone with a great property they can make a home.

Nothing wrong with that…Smiley Faces


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