A ‘fix and flip’ real estate opportunity that I passed on

Introduction

You guys know that saying in Hold ‘Em poker – “You have to know when to hold ’em and when to fold ’em?”  Well, in yesterday’s post, I had written about 2 house flipping opportunities that came my way.  Here are pictures of the first one (I won’t show you the second one since this one pretty much sums it all up).  Never mind – the pictures will be at the bottom.  Let me commentate on it first.

Location

So this house is in Bremerton, WA, which is 1.5 hours away from Seattle.  The house is NOT on the market and it’s currently being wholesaled, meaning John Doe was able to find this house through various means and had the owner sign a contract saying John had the rights to sell his house for XYZ dollars.  The wholesaler then adds a little on top for his commission on finding the house.  Because John doesn’t want to deal with the actual fixing up with the house due to either a) low margin or b) too much risk, he’s decided to sell it to someone else to take on the risk/rewards.  Here’s the math on the unit:

  • Cost – $79,000
  • Repair estimate – $35,000
  • Total – $114,000
  • After Repair Value – $150,000
  • 12% Commission (realtor fees, buyer’s closing costs in this case) = $18,000
  • Net – $132,000
  • Net profit – $132 – $114 = $18,000
  • Profit margin = 18/ 150 = 12%

The Decision

As you can see, the numbers look pretty good.  A 12% margin is the target margin for people who don’t need to borrow hard money.  So why did I say NO?  I was actually on the fence about this property.  I could have gone either way, and my financier was okay with it too.  Well, I talked to my mentor, who was actually the wholesaler, and he just said that for my first one, this one may be too involved.  He was worried that the repairs could be higher, and it needed way too much work for my first time.  Even another reader told me my first one should be fairly ‘easy.’  I then talked to my buddy’s friend, who now flips million dollar homes, and he also agreed to pass on this one.  So what kind of idiot would I be to take on this house when everyone has basically told me not to do it?  So while I was very excited about the prospect of my first deal, I had to look at the cost/benefit and risk, and it just didn’t make sense.  If I had done this before and had a go-to contractor who could definitively give me a good repair cost, then maybe it would have made more sense.  Thus, I folded my cards on the flop even though I flopped a flush draw (and you know how Viets love to fish)  Here are pictures of the house.  Remember, this is not HGTV people.  Remember the numbers and the potential, which I think there would have been.  Maybe if it didn’t have an oil furnace, I would have considered it.  Well, like Jay-Z said, “On to the next one.”

IMG_0724

 

Looks pretty small on the outside.  Needed new house, new doors and probably windows.

IMG_0711

 

I know what you’re thinking because I thought the same, “What the hell?!?”  I don’t even know how there is black on the ceiling.  Nevertheless, a paint job and carpet and new door would fix this.

IMG_0714

 

You just have to keep reminding yourself – I’m not living in this house.  I’m selling it to a crack dealer!  But really, I think it has some charm.

 

IMG_0721

 

The deal-breaker right there.

IMG_0717

 

Did Dextor’s ex-wife live here?  SORRY!  But c’mon, Dexter has been over for so long now that if you haven’t watched it yet, then you’ll probably never watch it.

IMG_0709

 

Eh?  Needs a beer pong table perhaps?

  • Bruce Wayne

    wow that house looks horrible. charming? I feel pity for the sucker who might have to cough up $150k for this big piece of ironically ‘small’ junk. maybe I’m spoiled by low home prices, even for new digs here in TX.

    but anyways, thats not a flippers prob… although I’m curious if your mentors are actively involved in this very same game in your own backyard – why would they invite you and tons of other folks in, effectively creating more competition for themselves. both in terms of finding good deals (which presumably you will branch out and do on your own, and how often do good distressed properties come around in any given area anyways) AND saturating markets with flipped/remodeled properties. esp if the eventual buyer cares about a ‘flipped’ houses status and isnt willing to pay top dollar even after a remodeling (due to history or perception or whatever – kind of like a salvage title on a car.)

    call me a skeptic, but I dont get the mentors angle, much less why he’s spending money thru these bbq’s and events to help YOU make money. doesnt make any sense, unless you’re giving him a cut of any deals you eventually do, or pay to goto his other seminars/buy stuff from him.

    I can understand this case, coz he’s got that contract that pays him a commission from the seller. but going above and beyond just marketing to the extent of recruiting folks to the same game? either its a suckers play or theres more to it behind the scene. I’m not trying to discourage you by any means here, vinh. flipping houses is a perfectly good way to make extra cash and maybe even do it full time, if all these glamorized reality tv shows have anything to say about it lol.

    but I guess I dont understand this mentors’ motivation here, unless this is purely his way of marketing. spend a few hundred or a grand on bbq’s and events/walkthru’s and collect something like a $5k commission for ‘listing’ and ‘selling’ this property to flippers? … do you know why in this specific case the seller just didnt list it with an agent, it would cost him less and get more eyeballs for a quicker sale, even to a flipper.

    • Miles per Day

      I thought about that, and it took me a while, but I figured it out. First, who got rich during the gold rush? Not the people mining for gold; it was the people selling the supplies. Think about the audience that goes to these things; most have no capital and want to get rich right? So they most likely will be wholesaling. And who would they call when they find a house? Well, probably the teacher since they don’t have the buying contacts. If it’s a great deal, he buys it himself. If it’s not great, he sends it to his buyer’s list (me on it.) Then he takes a cut off of that. It’s genius really.

  • GerryT

    This looks like your old Brazee place. I’m sure your mentors have covered this but if you choose to do any work it’ll challenge you physically+mentally especially as a noob. It’s like an endurance thing that you have to push through and get stronger at the end. For me, it’s really hard to do this type of work given my day job’s hours and the time away from my personal life so I really can’t pull this off even though I’m CAPABLE of doing it.

    • Miles per Day

      No man, I’d contract out EVERYTHING.

      • GerryT

        Are your mentors connecting you with GOOD contractors? It’s hard to find here in Ohio.

        • Miles per Day

          Yeah, these guys have been doing this for a while.

  • beaglehug

    This is kinda similar to the house my brother bought, tore down, rebuilt (along with some major contractor scams resulting in the DA suing the contractor and landing him in jail for 6 months, still haven’t completely paid us back yet), and is now living in. What a headache.

    • Miles per Day

      oh man, what a nightmare…

  • frekwentflier

    I’m so relieved you passed on this house. I emailed you a response. let me know if you come across any more deals you want some help with.

    • Miles per Day

      Thanks. Read your email. Glad I passed too. Will definitely get your opinion on more deals when they arise.

  • ES

    All that black stuff looks like MOLD!

    • Miles per Day

      Well even more reason why I passed. Haha

  • Points For Later

    “Needed new house” – Freudian slip? (1st picture caption)

    • Miles per Day

      Hahaha I probably meant ‘roof’ but a new house would have worked wonders.