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.
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%
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.”
Looks pretty small on the outside. Needed new house, new doors and probably windows.
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.
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.
The deal-breaker right there.
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.
Eh? Needs a beer pong table perhaps?