We Sold House Flip #2 (and bought House Flip #3)

by Joe Plemon on October 18, 2012

House Flip 2 now has a very happy owner.

WooHoo!  We (my son and I) closed on our second house flip last month.  When I wrote House Flip #2 is on the Market, I promised, once the house was sold, to give you a full report on how we did.  I am happy to say that we made a profit.

How we figured our purchase price

As with our first house flip, we agreed that our total investment should not be more than 70% of our asking price.  Also, like our first flip house, we agreed to go for the “Wow” factor, which included painting the exterior of the house, painting all interior walls and ceilings, installing all new ceiling lights and ceiling fans, new kitchen and bathroom faucets, new ceramic tile bathroom floor and new mosaic glass kitchen backsplash.  We also installed a new garage door with remote opener.  This is a 1250 SF, two bedroom, one bath house with a full basement and attached garage, in an average neighborhood.  Because of the extremely slow housing market in our tiny town, finding recent comparable sales was difficult, so we checked all two bedroom, one bath houses currently on the market and decided that we could ask $74,000 for our completed house.  We also estimated that we would spend $8,000 getting the house ready to sell.  Therefore, the math works like this:  70% of $74,000 = $51,800.  Subtracting $8,000 fixing up expenses brings us to a purchase price of $43,800.  Of course the seller would have to agree to $43,800, which she didn’t.  But we were able to make the purchase for $45,000.  Not bad.

How did we do?

Once again, we underestimated our expenses.  Instead of spending $8,000, we spent $10,000.  And although we asked $74,000 for the house, we eventually agreed to a sale price of $67,000, bringing our profit to about $12,000 (not including our labor for doing all of the things listed above).

Our thoughts

We continue to learn.  The expenses which are easiest to underestimate are monthly utility bills, insurance and property taxes.  In this case, we falsely assumed that the property taxes would not change from what the previous owner paid, but they did.  A lot … from $450 to $1650 a year.   Why?  She had had a long time homestead exemption, which was dropped when she no longer owned the house.  We also, once again, overestimated what we thought we could sell the house for.  But still, in a very slow housing market, we feel good to have taken a nice house, turn it into a very nice house, found an extremely happy owner, and made a bit of profit.  Like I said, we continue to learn.

House Flip 3

House Flip 3

More coming on House Flip 3, but the teaser is this: we made an offer which we never dreamed would be accepted…but it was.  So here we are with yet another house flip.  As with the others, I will keep you posted on how it goes.

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{ 9 comments… read them below or add one }

Money Beagle October 18, 2012 at 10:22 am

That’s not a bad ROI. I think at this point you probably need to adjust your expectations since there are always bound to be cost overruns and/or unexpected costs. But who knows, one day you might get a higher offer than anticipated so you could end up making more money than you’d thought one of those times. Here’s hoping.

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Joe Plemon October 18, 2012 at 10:33 am

You are right about adjusting our expectations, but we need to be extremely careful NOT to pay too much for any house. The money is made at the purchase and there is very little we can do to make up for it once we have bought the house. We think we got House Flip 3 at a very good price, but time will tell.

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krantcents October 18, 2012 at 4:12 pm

As long as you are earning a decent return, why not. The part that scares me is the dead time before it sells. The carrying costs can erase your profit pretty quickly.

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Joe Plemon November 1, 2012 at 5:47 pm

Krant — you are right. One thing that helps us keep the carrying costs down is the fact that we finance as little as possible. Our house flip 3 was purchased without any loan at all.

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Brick By Brick Investing | Marvin October 24, 2012 at 6:55 pm

Congrats on flipping the house. I completely understand the benefits of real estate investing but don’t completely understand the ins and outs of the industry. Hopefully after following your site a bit I can gain some insight and tips.

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Thomas S. Moore October 26, 2012 at 10:03 am

Looks like good profit to me especially in this economy. You are doing the work yourself so that is saving a lot on costs. Maybe I missed this in the post but how long from purchase to sale of home?

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Joe Plemon November 2, 2012 at 6:30 am

Thomas — We bought this house on March 3, 2012 and closed on the sale on September 6. So…total turnaround time of six months. We consider that to be very good in a very slow market — much better than our first house flip which took about 16 months.

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Thomas S. Moore November 5, 2012 at 7:39 am

Joe – 6 months isn’t that bad. That’s a great price on a SF home getting something like that in Fl would have to be in a really bad neighborhood for that price.

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Rich - MoneyWisePastor December 3, 2012 at 11:17 pm

Good for you. Keep on learning and sharing your experiences so we can all learn along with you. I’ve owned a rental house for 10 years and have always wanted to try my hand at flipping, but never ventured into yet – yet. I have some friends who have not done so well – ended up holding on to several houses for a long time and didn’t really make any profit (the market totally tanked in our area – Michigan) and other friends in Kentucky and elsewhere who are doing extremely well with flipping. I’ll look forward to reading more of your journey!

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