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Make Money Real Estate: The Final Analysis on House #7

To make money in real estate you basically have to offer a product people want at a price they are willing to pay. We have chosen to purchase distressed real estate at below market value and then by doing exceptional renovation work to it, place the property back on the market at market value…otherwise known as house flipping.

The key to make money in real estate when flipping a house is adding value by doing an outstanding renovation. Remember, the reason we purchased the house at the low price that we did is because there was something wrong with it. If you look at the “before” pictures (see them in buying a bank foreclosure article) you can see all that was wrong with this one.

However, whatever is wrong with the property has to be something that you can fix. If the problem was the neighbors, the neighborhood, some high voltage power lines in the back or something else that you cannot fix, then it’s not a deal, regardless of price.

The purpose of these articles on House #7 was to give you enough detail about the entire process from finding the property, buying it, estimating the repairs, rehabbing it and then putting it on the market so that you can see how we have gotten to this point.

So here we are…property rehabbed, staged and on the market.

Once you list that property for sale you need to let the quality of the work and the “awesomeness” of the house you are offering do the talking…and talk it did…

We got our first offer after the house had been on the market for a week…nothing wrong with that.

The offer was close enough to our asking price that we accepted it. But, since we have learned our lesson that an offer is only as good as the ability of the buyer to obtain a loan, we made the offer contingent on the buyer being qualified by our mortgage lender.

In a scenario that has become all too common in today’s mortgage market, we found out through our lender that the buyers would not be able to qualify for a loan. Fortunately, unlike House #6 (see this post on flipping properties), we found this out 5 days after being under contract and not 30 days after…phew!!

make money real estate

We quickly terminated the contract and placed the house back on the market and started calling every one that had visited the house while the house was under contract. Let me tell you…what a smart move that was because one of those calls resulted in another offer close to full asking price!!

Once again we prequalified them with our lender but this time they passed the pre-qualification with no problems. But to make money in real estate you have got to get to the closing table. That means that we still had to get through the house inspection, the appraisal and final loan approval.

Thanks to the attention to detail and the expertise of our contractors and specially the project manager we hired, the inspection did not bring up any major issues. All we had to do was replace some of the footings in the back deck to finish them in concrete, fix some outlets that were not working, install two GFCI outlets and seal some cracks around the fireplace.

Because we had disclosed to the buyers that there had been a mold problem in the basement they also asked us to do a mold test to verify everything was ok. We did the test and all the results came back normal…one down, two to go.

Next up was the appraisal Smiley Faces...

Like we always do, we met with the appraiser when he went out to do the appraisal and gave him all the information on the repairs we had made, the cost, before and after pictures and a list of recent sales nearby. The house appraised above sales price, which is rare these days, so we were ecstatic…two down, one to go.

Finally, there was the final loan approval left...

I got a bit nervous because the buyers decided at the last minute to switch from a conventional loan to an FHA loan. This meant more paperwork and an extra inspection would be required. So in typical FHA fashion, the very day before we were to close they asked us to fix some trivial stuff they picked from the inspection report. It was such minor stuff that I did not even argue and got it fixed in 2 hours.

With that done we got the final approval and the next day we were at the closing attorney’s office (my closing attorney which I picked Smiley Faces) ready to sign on the dotted line.

The buyers were a young couple that had been looking in that area for a long time and had not found anything at that price in such a good condition. This of course is icing on the cake to me. Not only do I get to pull off a great deal but a happy couple gets to enjoy the fruits of my labor…win-win if you ask me!

So how did we do?...Did we make money in real estate?

I thought you might ask so here it is…by the numbers:

make money real estate

Obviously if you look at the yellow section you will see the bottom line and the great returns of the whole deal. But other key numbers are the % of ARV (after repair value) column. You will see that we bought the house for 47.8% of the final sales price. I am finding that the sweet spot for a good deal is buying in the 47-53% of ARV range. This is important to know when making future offers.

Also, the total rehab costs were slightly higher than what we budgeted (see post on buying a home after foreclosure ), about 10% higher. This mostly was due to a few extra upgrades we threw in the mix that were not necessary but were good to do. This included a new fence, a stainless steel refrigerator plus the repair work for the inspection items.

Can You Make Money in Real Estate?

If you and I were sitting across a table right now you would see me pausing while still trying to believe that this is real. You see, just a couple of years earlier I did not believe it was possible for me to do this. I thought that to make money in real estate you had to be some kind of already rich dude or a schemer.

But just like Henry Ford said, “wether you think you can or you can’t, you are correct”.

Nothing in life happens if you don’t take action. I first took action a couple of years ago (see this post on beginning real estate investing) not knowing what was going to happen and now here I am.

I don’t want you to think every deal flipping a house is like this, some house flipping deals are better than others but this has been one of the best so far. I bought right, rehabbed right and listed at the right price and this is one way I make money in real estate.

Please use the comment box below if you have any question or comments…I want to hear from you Smiley Faces

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Catch up on the history of House #7:

Return from Make Money Real Estate to House Flipping Chronicles
Return from Flip That House to Real Estate Investing home

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