060: The Story of my High-End $800,000 Flip

Last November I bought a house I planned to flip for $535,000. I estimate the home to be worth about $845,000 after minimal repairs, which is an amazing deal. The catch was, the home had a tenant in place with a ten year lease. I could not talk much about this flip the last 8 months, because I was negotiating with lawyers and the tenant.

However, on August 1st, 2016, the tenant moved out and I gained possession of the home! On this episode of the InvestFourMore Real Estate Podcast I talk about the numbers, the repairs, dealing with the tenant, why a ten year lease was in place and much more.

Was I crazy to buy a $800,000 house with an uncooperative tenant?

This house was for sale as a REO (foreclosed bank property) for many months. The home was priced okay, but it was being sold occupied. The reason it was being sold occupied is the tenant foreclosure protection act allowed a tenant with a valid lease, to keep renting a home after a foreclosure. The tenant in this house took out a ten year lease in 2007 for $2,200 a month, with a family member as the owner. The bank who foreclosed even sued the tenant twice to get her out, but the courts said it was a valid lease. There was definitely a reason I got this house so cheap and most people I talked to about the property thought I was crazy to buy it. I knew worst case scenario I would have to wait a little over a year to get her out and sell the house.

Below is a video of the home.

How was I able to afford to buy a $500,000 flip?

I have had from 8 to 12 flips going at all times in 2016. It takes a lot of cash to flip houses, even with bank financing and private money. If I were to use a bank loan to finance this house, I would have to get an appraisal done and put 25 percent down. Since the home was occupied, there was no way I could get an appraisal done and I really did not want to tie up $125,000 in cash for over a year. Luckily I was able to find a private money lender who was willing to finance the entire purchase price. I had to pay 10 percent interest, but I did not not need an appraisal. I was receiving rent from the tenant of $2,200 a month while she was living in the home, which helped to offset the interest payments every month.

Will I keep doing high end flips?

This is the first flip I have bought for more than $230,000. I find it is very hard to make the numbers work on high end flips in my area. There are owner occupants willing to spend much more than I am, even when a home needs a lot of work. I was able to buy this home, because it had a very unique tenant situation that no one else wanted to deal with. I would love to get more deals like this, but I have not seen any houses in the high end price range with this much profit potential. I will most likely stick to my low price flip strategy.