House #2: The Little House Flip That Could…
First time here? Learn about House #2
Pulling off a house flip on House #2 is turning out to be a lot harder than I expected. My plans to flip this house were all based on six month maximum holding time...well, guess what?
It has now been six months that I have been trying to flip that house...
What blows me away is how nice the darn house is. As far as house flipping goes this house truly shines in how move-in ready it is. Everything on it has been done except for the roof (more on that below) so it baffles me that houses nearby, in half the condition, are selling for just $10,000 less and mine is not.
We initially priced this house flip at $110,000 and after 90 days and one agent change we lowered to $95,000. That helped us get it under contract at a price that will probably leave me with minimal profit, if any. Fine. I’ll suck it up because this is turning out to be a poor investment so now I need to flip this house and move on.
As expected the buyer did their inspection and we get the inspection report…a couple of things here and there are minimal and truly oversights on my part…but the big whammy is that the inspector made a big fuss over the roof and now the buyer wants a new roof!
So never mind that this house has new siding, cabinets, appliances, water heater, floors, doors, garage door and on and on…and that we have lowered the price by $15k…and that we will pay closing costs! But sure, let’s go ahead and throw in a new roof too…would you like maid service included with that?
And, get this, they want the roof installed before closing. Meaning that I am going to have to install it and keep my fingers crossed the deal closes – if it doesn’t I am stuck with a new roof and a bill for a new roof!
Anyway…let me get off my rant and actually give you something that you might learn from, after all such is the nature of house flipping.
Although nobody cares this is a house flip, but because this is an FHA loan there is a chance that the appraiser might require the roof to be replaced as a condition for loan approval. Although that is unlikely because the roof is not leaking and the appraiser will look at the roof but he will not get up there and examine it closely.
I tried explaining this to the seller and their agent so they could agree to do the roof after closing and I would give them the money for it at closing. That way we both get what we want.
But, again since it is an FHA loan the lender clarified that any funds received at closing are a big NO-NO with FHA and might cause the loan to be turned into a 203(k) which would be a big pain for everyone.
After several rounds of back and forth negotiations with buyer’s agent, lender and getting several roof work quotes we agreed to do the following:
- We raised the purchase price by $3,100. I believe I can get the roof done for about $3,800 so that means I would be out of pocket by $700-800. Not great but not bad either.
- The buyer will increase earnest money by $1,000. That means that if the contract were not to close other than by financing not being approved, I get to keep the $2,000 earnest money total. At least that would cover half of the roof repair.
- The roof replacement will be done 7-10 days prior to closing. By then we will know if the loan is going to be approved or not.
So that mostly covers both of us but most importantly it gives me a pretty good feeling that the buyer intends to go through with this purchase and I’ll be able to flip that house.
But, and this is a big “but”, since we raised the purchase price now the property has to appraise for that price, and given the slew of foreclosures nearby…let’s just say I am keeping my fingers crossed the appraiser doesn’t kill this house flip deal .
Stay tuned to see how this flipping deal turns out…
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