I have spent a lot of time improving my flipping business over the last year. I have some bad experiences thanks to a project manager I hired, who did not work out and some really good experiences. This month I had a great experience with a flip that I made $35,000 on, without making any repairs. I bought the house from the MLS, with a tenant in the home, evicted the tenant (tried to avoid eviction), and sold the home for about $47,000 more than I bought it for. I know some investors might say they made $47,000 when they sold it, but I try to be realistic with the costs that come with flipping houses, even when you don’t make repairs.
How was I able to get such a great deal from the MLS?
I bought this property for $102,344 on March 18th, 2016. The home was listed for $75,000 and was an estate sale. The property next door was also part of the estate sale, and I bought that one as well for about $118,000. We fixed up the home next door, which is listed for sale and under contract. At $75,000 this home was listed well below market value. It is really hard to find any houses for less than $150,000 that are decent so I knew I wanted to buy this house. The house was listed on the MLS and I went to see them both as soon as I possibly could. Since I am a real estate agent I made an appointment to see the house next door which was vacant, but could not get an appointment set up right away to see this house, because it was occupied by tenants.
While I was at the home next door, the tenants were out in the yard of the house listed for $75,000. I knew it might be at least a day for me to see the home by setting up an appointment, so I started talking to them. They were nice and offered to let me see the inside of the home. The house was a two unit property with one unit upstairs and one unit in the basement. I was only able to see the upstairs unit in the home, which needed some work, but was not in horrible condition. At $75,000 I knew this was an amazing deal since the home would be worth at least $180,000 fixed up. I made full price offers on both the homes the first day they were listed with a quick close date and no inspection contingencies.
I was hoping that since I made the offers about three hours after the home were listed, that the seller would accept them quickly, but they received multiple offers the first day. I had to decide how much I wanted to offer on the homes to give myself room for profit and have a chance to get them. I like to offer weird numbers on my offers, especially in a highest and best situation. I offered $102,344 because it makes the seller think I put more thought into the offer and if someone offers $102,000, my offer will be slightly higher. Even though the house was listed for $75,000, I had no problem offering much more because I knew I could still make a good profit on it. A couple of days later, the listing agent told me I had gotten both houses, even though they had over 20 offers on each house.
Why was this house listed so cheap?
When a house is occupied by tenants, it can make it much harder to sell the home. Owner occupied buyers will purchase most houses and they cannot move into a home when tenants are leasing the house. This home also needed some work that would not allow a buyer to get a FHA or conventional loan. This house had been rented to the same lady for many years and she paid $375 a month, when market rent was about $1,000 a month. She was on a month to month lease, and the seller had expressed wishes that whoever bought the home did not kick her out right away. The basement unit was rented for about $500 a month, which was closer to market rent, but still a little low. If you considered the current rent on the property, the condition, and that fact it was tenant occupied, I could see why the home was listed a little lower than market. However, I think $75,000 was way too low even for this home.
Below is a video of the property:
How was I able to get the tenants out?
Both tenants were on a month-to-month lease, which means if I give them 30 days notice, I can end the lease. I promised not to kick out the tenant right away, but I was not told how long right away meant. I could have ended the leases right away and gotten away with it, but I don’t operate that way and I had many other flips going at the same time. The tenant wanted to stay as long as possible and keep paying $375 a month. We talked to her about when she would want to move and even offered to pay her to help her move out. The problem was she could not afford much more than she was paying, and there are very few rentals in the area that are less than $700 a month for the most basic amenities. We agreed to let her stay another three months to give her time to find another place to rent without raising her current rent.
As we got closer to the date she was supposed to move out, she stopped answering her phone. We could not get a hold of her, but could tell she was still living in the property. We left notes, messages and letters saying we needed to talk to her and would even pay her to move out by the date we had agreed on. She still would not respond, so we decided to start the eviction process. It is very easy to evict someone in Colorado if they break their lease. It takes about 4 weeks to complete the entire process. When we started the eviction process, she finally contacted us and begged us not to evict her because she could not find a place to move to. I could tell she was never going to move on her own, and we would have to continue with the eviction process. If she did not move out by the eviction deadline, we would have to hire a crew to move all her stuff out onto the street. Luckily she moved out right before the deadline, and we took possession of the home. The second tenant was much easier to work with and was happy to take our money to find a new place to rent.
Why did I choose to sell this house as-is?
I fix up almost every flip I buy, but I decided to try to sell this home as-is. I knew I got a great deal on it and most of the work would be getting the tenants out. Once the tenants were out, I decided to list the home on the MLS. I listed it for $159,000 which made it one of the cheapest homes on the market. I was hoping to get an investor buyer, who would use the property as a rental.
I got a couple of offers right away, but they were from owner occupied buyers who would have to get a loan. I talked to the buyer’s agents and told them the house would not qualify for a loan due to the roof needing work and other problems. One agent insisted his buyer wanted the home and the bank would loan on the home in its current condition, except for the roof. I agreed to raise the price above list and put a roof on for the buyers. We decided not to replace the roof until after the inspection and appraisal deadlines passed in case there was other work needed. The buyers completed their inspection and asked for much more work to be done, even though we told them the roof was all we would do and the home was priced very well. We could not agree on a resolution, so I put the home back on the market. I should have known better than to try to sell the home to owner occupants in its current condition.
I put the home back on the market and ended up getting a cash investor to buy the house for $149,000 in two weeks.
How much money did I make on this house?
I bought this home using a loan from a portfolio lender. I was able to finance 75 percent of the purchase price for one point and a 4.5 percent interest rate. Below are all the costs on the deal:
- Purchase price: $102,344
- Taxes and insurance: $1,500
- Utilities, maintenance: $500
- Eviction/trashout: $2,000
- Financing costs: $3,000
- Selling costs: $5,000
- Total: $114,344
Since I sold the home for $149,000, I made just under $35,000 in profit on the deal. I may have been able to make a little more had I fixed up the home, but it would have taken me at least two more months to fix it up. I have 11 flips at the moment and I cannot repair many of my homes right away because my contractors are working on other jobs. I was happy to take a quick profit.
For more information on flipping houses, including how I average over $30,000 profit on each flip, check out my bestselling book Fix and Flip Your Way to Financial Freedom. It is available as a paperback or eBook.
I make repairs on most of the homes I buy, but there have a been a few sales I have flipped with making repairs this year. I bought a home last year that was occupied by the previous owners for $105,000. I rented it back to them for about a year for $1,300 a month and sold it for $145,000. I sold a flip last year for $20,000 more than I bought it for without making repairs and without another agent. I have a flip in my inventory now that I may sell without doing a full rehab to some investors as well. It is fun to see the transformation on a home after we fix it up, but it is also nice to make a quick profit. Below is the before and after video of the flip we fixed up next to this home.