Author Topic: The Slow-Flip for fun and profit - long post  (Read 8888 times)

Hamster

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The Slow-Flip for fun and profit - long post
« on: September 04, 2013, 01:50:54 AM »
I'd mentioned before that we were considering selling our duplex/renovation project that we purchased in 2011. Well, today the sale closed, and the wire transfer is on it's way from the title company.

End result: our initial investment of just under $50k has grown to just over $100k in about 27 months.

This was a new type of purchase for us. We purchased it as a "slow-flip". We bought it at a bargain price -  short sale, somewhat distressed, with the plan to fix up/resell at a profit. But the market at the time wasn't good for flipping, so we looked for a property with good rental prospects to hold until the market changed. We thought that might be 3-5 years. But, this summer, the market where we bought was going gang-busters, so we did the comps, and sold it to take the profits ahead of our original schedule.

Here are the quick numbers (we co-owned with friends, so half is ours):
Purchase price in 2011:                        $235k
Up front investment -                            $98k - downpayment, renovation, initial expenses
Sale price 9/2/2013:                             $379k
Our proceeds after all costs covered:   $189k

I don't have the exact figures in front of me, but we made somewhere close to $13,000 net on rent minus expenses over 27 months (rented for 24 of those months)

Not considering taxes, this nets just over $200k or 100% return on initial investment - or about 40% annualized return.

We put in 5-6 full weekends renovating the place with our friends, while taking turns watching each other's kids. It definitely wasn't all passive income. The first summer we were so exhausted we wondered if we'd made a bad decision, but things calmed down and it was pretty smooth from then on other than the typical minor hiccups.

We didn't end up doing a 1031 exchange. Our partners want their cash now, and it seemed too daunting with the co-ownership issues. So, we're giving uncle Sam his share...

The biggest factor in this working well was flexibility. We had a Plan A (renovate/resell), and Plan B (rent/hold) until we could realize plan A. Our goal was to always be looking for when A would be profitable, but keep B as the fallback. A single-family home with a converted basement "apartment" allowed us to access the single-family market, and also use it as a multifamily rental for decent cashflow.

We didn't meet the 1% rule - $235k purchase price plus about $40k in renovations gave us $275k total purchase price and our rent was $2250 per month total (1450 up, 800 down), yielding a monthly rent of 0.8% of the purchase price (all expenses covered by tenant, low taxes, no HOA, no management fees). Our return from the rent came to about 6% per year, but the plan was to make the real money on the value added by renovation, and fortunately a rising market.

If someone can tell me how to post photos, I will share some before/after pics of the renovation next week (I won't have access the computer they are stored on until then). Since I've mentioned the low-cost Chinese granite/cabinets a few time, I want to show them off.

arebelspy

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Re: The Slow-Flip for fun and profit - long post
« Reply #1 on: September 04, 2013, 10:34:09 AM »
Congrats!  Sounds like a solid investment, buying in an undervalued market and selling in a (potentially) overvalued one.

Well done.
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
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kendallf

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Re: The Slow-Flip for fun and profit - long post
« Reply #2 on: September 04, 2013, 09:13:49 PM »
Very nice!  I'd like to hear details on what you fixed, and see pics. 

SnackDog

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Re: The Slow-Flip for fun and profit - long post
« Reply #3 on: September 05, 2013, 02:11:31 AM »
Now go do 10 more!

totoro

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Re: The Slow-Flip for fun and profit - long post
« Reply #4 on: September 05, 2013, 05:50:55 AM »
Very good! I'd like to see pics - who knows how to do this?

velocistar237

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Re: The Slow-Flip for fun and profit - long post
« Reply #5 on: September 05, 2013, 07:44:08 AM »
Adding photos:

Resize photos to something reasonable, like <1500 pixels on the long side.
You can attach up to 4 photos to your post (click on "Attachments and other options" below the edit box).

Or you can use something like imgur.com. Just go to imgur.com, drop all your photos in the browser window, click upload, and paste the gallery link here.

Hamster

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Re: The Slow-Flip for fun and profit - long post
« Reply #6 on: September 05, 2013, 09:20:55 AM »
Thanks. I should be able to get photos up in Mon or Tues.

catccc

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Re: The Slow-Flip for fun and profit - long post
« Reply #7 on: September 12, 2013, 10:47:28 AM »
What kind of renovations did you do and how much did they cost?  (Can you break it down at all, like Kitchen, bath, painting, flooring, whatever...)

I am curious about a short sale in my neighborhood where I currently rent.  Well, the neighborhood right next to mine where homes are 25-50% less...  Anyway, the idea would be to live in it while fixing it up, then sell at a small profit.  It is listed at $75K and the property right next to it sold for $163K last month.  And the property that went for $163K is a twin w/ slightly less square footage than the short sale, which is a SFH.

Any reason I shouldn't pay cash for the home?

Hamster

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Re: The Slow-Flip for fun and profit - long post
« Reply #8 on: September 22, 2013, 05:04:04 PM »
Sorry for the very slow replies.

Here is a quick outline of approximate costs, as requested:

~$65000 cash at purchase - downpayment, inspection, sewer scope, fees associated with mortgage

$8000   Kitchen cabinets and granite countertops installed up and down:   
$6200   Electrician (new panel, wire kitchen to code, electric heaters downstairs, etc)
$5700   Egress window (required engineer and cutting/reinforcing foundation and window well) - necessary with most of downstairs unit below grade
$2700   Drainage improvements - putting the window well in increased risk of water encroaching on downstairs unit
$3300   Hardwood refinishing (and installing in one room)
$700     Plumber for service to washer/dryer, etc.
$1100   Drywall finishing
$2000   Carpenter to open 2 walls, reinforce beams, relocate window.
$1250   Craigslist appliances - stainless fridge, stove, microwave, dishwasher up; stove, dishwasher, compact stackable W/D down
$4400   Miscellaneous - paint, tools, dumpsters/disposal, truck rental, plants, bathroom vanity, etc
==========
About $100k initial expenses.

Our sweat equity: demolition, most cosmetic work (painting, etc) other than floors, landscaping, connected sinks, dishwashers, garbage disposal, etc. Contracted out anything that we worried would be a liability issue as landlords.
« Last Edit: September 22, 2013, 05:23:04 PM by Hamster »

Hamster

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Re: The Slow-Flip for fun and profit - long post
« Reply #9 on: September 22, 2013, 05:10:17 PM »
Here are a few photos. I'm still toying with the best way to attach them. They first two show the upstairs kitchen remodel with removal of part of a wall, and building a "nook" to push most of the refrigerator out of the kitchen and into the space behind it (laundry room) to open up the kitchen.
Downstairs kitchen we moved the fridge, and upgraded electrical circuits for a better layout. [Edit] - the downstairs photos are taken from opposite directions, so look like different rooms. The next post has a different shot that allows a better comparison.

I've mentioned before the cheap cabinet/granite. I was pretty impressed with the price-- all the cabinets you see up and downstiars, including sinks, and granite countertops, including installation, for under $8000, and easily added more than that to the sale price (I know there are granite haters out there, but right now, granite and stainless sells houses)
« Last Edit: September 22, 2013, 05:27:13 PM by Hamster »

Hamster

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Re: The Slow-Flip for fun and profit - long post
« Reply #10 on: September 22, 2013, 05:20:31 PM »
A few more pictures. Grainy before and an after of the other half of the downstairs kitchen. It was a very narrow "galley" kitchen, so we kept the walls pretty open with shelves (got the wood in sheets from the cabinet company so it matches), and a narrow profile over/under washer/dryer which was pretty easy to fit in since we could extend the plumbing/electrical through the utility area behind the kitchen.

And, an exterior shot before, and one after - mostly replaced the railing and cut down the overgrown shrubs. The after is a little crappy, but you get the sense.

[Edit] this was before all the work was done (e.g. missing toekick for dishwasher)

« Last Edit: September 22, 2013, 05:28:43 PM by Hamster »

kkbmustang

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Re: The Slow-Flip for fun and profit - long post
« Reply #11 on: September 22, 2013, 10:35:52 PM »
That's really impressive! Congratulations on such a great outcome. The after kitchens are beautiful.

catccc

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Re: The Slow-Flip for fun and profit - long post
« Reply #12 on: September 23, 2013, 06:22:51 AM »
Thanks for the details.  That house we were interested in was a wreck and needed way too much work, unfortunately.  But you did a great job with your slow flip!  Congrats on the success with it!

ritchie70

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Re: The Slow-Flip for fun and profit - long post
« Reply #13 on: September 25, 2013, 10:43:36 PM »
And, an exterior shot before, and one after - mostly replaced the railing and cut down the overgrown shrubs. The after is a little crappy, but you get the sense.
It all looks great.

Did you do something to the concrete steps other than just cleaning? They look so much better in the second pic than in the first.

ichangedmyname

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Re: The Slow-Flip for fun and profit - long post
« Reply #14 on: September 25, 2013, 10:55:43 PM »
Looks amazing! Great job!

The kitchen looks really great.

tryan

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Re: The Slow-Flip for fun and profit - long post
« Reply #15 on: September 26, 2013, 08:02:17 AM »
Congrats!

You got VERY lucky having a flexible partner you could work with.  Most of these "relationships" end when the SO weighs in - trumps - what you believe to be a perfectly reasonable position.  Or even worse .... he's all thumbs (incapable of doing anything).

I am curious to hear some of the drama that went on between the 4 of you!  These things NEVER go smoothly.

Hamster

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Re: The Slow-Flip for fun and profit - long post
« Reply #16 on: September 26, 2013, 09:13:11 AM »
Did you do something to the concrete steps other than just cleaning? They look so much better in the second pic than in the first.
Thanks. Just pressure-washed the concrete, and pulled out the grass/dirt between the driveway and the steps and replaced it with gravel. The little patches of grass sticking up between concrete gives everything that 'abandoned lot' look. And it's a darker picture which makes it look nicer.

Hamster

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Re: The Slow-Flip for fun and profit - long post
« Reply #17 on: September 26, 2013, 09:32:29 AM »
Congrats!

You got VERY lucky having a flexible partner you could work with.  Most of these "relationships" end when the SO weighs in - trumps - what you believe to be a perfectly reasonable position.  Or even worse .... he's all thumbs (incapable of doing anything).

I am curious to hear some of the drama that went on between the 4 of you!  These things NEVER go smoothly.

There was nothing terrible, though there were definitely some frustrations around needing to get work done when partners would rather go out of town or just pay to outsource the labor. Mrs Hamster and I were the ones with the remodeling experience, and were more interested in getting our hands dirty. She did veto me refinishing the hardwood though. i wanted to do that myself and lay travertine tile in the kitchen. The partners and Mrs Hamster voted to hire someone to do the floors and extend the hardwood into the kitchen. It all turned out fine. I don't know why Seattleites like hardwood in kitchens. I always worry about water damage.

The best part about working with partners - we were tearing out some stuff in back when my friend uncovered a rat nest. His scream was so high-pitched it started dogs barking a block away. His brother was there to witness it, so that has become local legend now.

The biggest frustration was that Mrs Hamster ended up doing about 80% of the day-to-day work--finances and tenant communication. We're all still good friends, but my wife is pretty against the idea of partnering with friends again.

I think we mustachians can find it hard to work with others, as you point out, since we are the ones with the perfectly reasonable opinions while everyone else is plugged into the matrix and deluded... I'm partly kidding. I know I can be a challenge that way, though... Dammit people, can't you see reason and just accept that I am right about everything? It would be so much easier.

tryan

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Re: The Slow-Flip for fun and profit - long post
« Reply #18 on: September 26, 2013, 10:46:43 AM »
Quote

We're all still good friends, but my wife is pretty against the idea of partnering with friends again.


That sums up my experience ....  In fact I never known a group that stayed together for more than one deal.  Too many cooks in the kitchen!

daizy744

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Re: The Slow-Flip for fun and profit - long post
« Reply #19 on: September 26, 2013, 11:57:13 AM »
Wow. Renos look beautiful! I can't believe those two kitchens and all that granite was only $8000!

Stasher

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Re: The Slow-Flip for fun and profit - long post
« Reply #20 on: September 27, 2013, 07:17:31 PM »
Great work on the property and congrats on a successful disposal.

CatamaranSailor

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Re: The Slow-Flip for fun and profit - long post
« Reply #21 on: October 02, 2013, 09:45:00 AM »
Looks great Hamster! Are you planning to do it again? (with or without a partner). Also...was it already a duplex when you bought it ? I know in your post you said you had to add a bigger window well for egress...so I'm assuming it wasn't.

Excellent job!

Hamster

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Re: The Slow-Flip for fun and profit - long post
« Reply #22 on: October 02, 2013, 12:38:12 PM »
Looks great Hamster! Are you planning to do it again? (with or without a partner). Also...was it already a duplex when you bought it ? I know in your post you said you had to add a bigger window well for egress...so I'm assuming it wasn't.

Excellent job!
It wasn't a legal duplex. It is zoned single family, but had been used as a duplex for years - despite having no egress window. We were ok stretching the rules to continue using it as a duplex, but not comfortable with it being unsafe. Also, since we planned to resell in a few years, we wanted to make 100% sure that everything was up to code to avoid hassles at the time of sale. We expect the new owners (who live in one unit) will get it permitted as an ADU (accessory dwelling unit - aka in-law suite), which is allowed in the neighborhood.

As for doing it again, we made offers on 2 places this week that would have both been complete remodels (demo down to the studs and full redo of plumbing, electrical, insulation, etc). They would have been fun projects - one a craftsman home, and the other a victorian, that I was excited about remodeling with some period finishes. The craftsman would have been a good option for us to move into (downsize from our current home - which we've been thinking about for some time). The other would have been a flip. We were outbid on both of them. Trying to be patient and not take any undue risk.