$14,500 Profit in a Month on First Deal

The CRE Online Convention in Atlanta was all I needed. I closed my first flip last week. It took me exactly one month from start to finish. On April 9th, I ran an ad that said:

On the 17th I received a call from a seller who wanted to get rid of a brick townhouse he’d inherited last year. He warned me that it was in pretty bad condition. He said he wanted $15,000 for it.

I suggested that $15,000 was a lot of money, but I would consider it. But what was the best that he could do? He said $12,000 would be the least he could accept.

The townhouse happened to be in a subdivision that I know fairly well and was the same layout as about 75% of the houses there: 956 square feet, 2B/1Ba, nice backyard, two-car garage. Recent sales prices for those houses were right at around $60,000.

I got to his house at around 8:00 that night. And you know what? It WAS kinda crappy. The sink was falling down. One wall was covered with mildew from what looked like years before. And it was so out of date that there was linoleum on the living room floor.

But it was structurally sound, rubber roof, plumbing in fairly good shape, most of the lights worked, no real water damage (the entire neighborhood had drainage problems back in the late 80s until the city fixed the sewers).

I now believe that the mildew is from the moisture caused by floods from 20 years ago! My nearly worthless opinion was that the place probably needed about $10,000 in rehab work. What I knew for sure was that there was a LOT of room between $12,000 and $60,000!

I signed it up on the spot using one of Bill Bronchick’s sample purchase contracts that I had been reviewing to decide if I wanted to buy his course (I did!). It said “SAMPLE” on it in big, puffy, baby blue letters! I told my seller to ignore it. A few days later I came by and we rewrote the contract.

I then placed an ad in the paper to sell the townhouse for $29,000 or less than 50% of fixed-up value. I received dozens of calls! I settled on a selling price of $26,500 with a rehabber who had two other houses in the neighborhood.

I assigned the contract to the rehabber and the whole thing went off without a hitch, except that it took us two weeks to get title because everyone and their Aunt Suzy is refinancing.

It turned out my seller’s name wasn’t actually ON the title and the property had never been through probate, so we had to have him sign an affidavit, and the seller’s attorney from a previous matter kept trying to put himself into the deal. (My argument to the seller: “Look, you don’t need a lawyer. If no one’s handing you a check at closing for $12,000 minus closing costs–don’t sign!”).

And I ended up giving my seller $500 in earnest money three weeks into the deal because I was certain that he was going to blow up our deal and go to someone else because he was so desperate for money. None of it mattered. On May 17th, 2001, we got it done:

Purchase Price: $12,000
Sold to Buyer: $26,500
My profit: $14,500!!

I’ll use the cash to get into some “Lonnie Deals”! Oh, and to go to Jamaica! What did I learn?

1. That sellers don’t have a good feel for what their property is worth or how to get it. My seller had his house appraised at $37,000 last year! But he knew he would have a hard time selling it to a homebuyer in that condition and, once the previous deal to sell it fell through, he just wanted to unload it. At any price.
2. That time is of the essence in flipping real estate (also know as “you can’t steal in slow motion”). My buyer had only called two ads that day, mine and the ad of another guy who was planning to stop by the next morning at 8:30 a.m. I suspect he thought he was being quick. But he was just being late.
3. That if you can just get started, you will realize that you have all of the resources you need to succeed. I’ve been lurking on this site for a looong time. I was chewed out by J.P. for a something I did in a message board post (I don’t remember what) nearly 5 years ago! I have learned so much in that time, but I never USED it!

But the second I did, everything clicked. Sure, I made mistakes, and my deal had some problems, but I just overcame them.

Finally, I have a lot of people to thank, especially Dee-Texas who introduced me to a bunch of people at the CRE Online Convention and made me feel welcome; Jim Piper who verbally attacked me at the Convention for suggesting that I needed a money partner to do flips; Tim Jensen for giving me advice that helped me clear my plate to get THIS deal done; and finally, of course, J.P. and Terry Vaughan.

Like I told Terry at the convention, I love to complain. But you people make it impossible! See you at the CRE Online Convention next year. I’ll be the one with the tan!