I have a secret to confess. I have not been completely open and honest about all of my financial endeavors. Sure I’ve talked about selling my business, transitioning into part time work, and buying a rental property, but there is something I haven’t told you. Even before starting this blog, my husband and I were in the process of flipping a house. Why on earth, you ask? Good question. I’ll share some background on how this investment property project came to fruition.
The House No One Wanted
We started our rental property search in early 2012. Our realtor, who also does property management, brought a house to our attention. This deal was so good that she wanted a part of it herself, but needed an investor. Her idea was to flip the house, which means to remodel it and sell for a profit.
This house was in terrible, terrible disrepair. The roof was crap. The family room had mold. The flooring was covered in grime and cigarette burns.The decor was all from the mid-70’s, and the place was covered in nicotine stains. It also had a detached garage that was falling down. In fact, the only things that were in good shape were the foundation and the doorbell. However, the house was a good sized 3 bedroom/ 2 bath home. It had a wonderful yard with a sprinkler system that actually worked, and it was on the second most desirable street in our town.
The owner had been an older lady in poor health that had moved into assisted living and then passed away. My realtor had been involved in moving the lady’s things from the house after she passed. The house was inherited by a daughter who lived out of town. The daughter apparently did not have a good relationship with the mother and wanted to demolish the house and sell the lot. She had no desire to fix up the house, but it was going to cost $20,000 to bulldoze the place, so she agreed to sell.
Did We Want to Become Flippers?
At the time, we really had no interest in a flip. We were hoping for a long term investment, and I’ve seen those house flipping shows on TV. Something always goes wrong! If we agreed to this deal, we would put up the money for purchase and renovation, and our realtor’s company would be in charge of fixing up the house.
Ultimately, we decided to go for it. There were a number of reasons why.
We wouldn’t have to do any work ourselves. We are good at finish work, but this house was way beyond our capabilities.
We had known our realtor for a long time and knew she had done this sort of project several times.
The price was too good to pass up. We were able to purchase this house for $47,500.
- For experience. Honestly, the project excited us, and we felt it ultimately wouldn’t lose money. Even if we didn’t get rich, what a great learning experience.
How Did We Pay for It?
This might send some of you debt averse readers into a tailspin, but we took out a Home Equity Line of Credit. We have about $200,000 worth of equity in our house. Our bank was offering a fixed 2.99% rate on a HELOC for 24 months. By doing this, we put our house on the line, but our out of pocket costs would only be about $200 per month to cover interest. There were no closing costs and barely any paperwork. We agreed to invest a maximum of $100,000 on this project, meaning we had $52,500 remaining to put in after the purchase price. We were assured that it could be done for that amount. Our time line was 6 months. At that point, we hoped to list the house in the $160,000-$180,000 range.
As the investor in this scenario, all we have to do is sit back and wait to collect our money, right? With those numbers, there’s no way to lose. Maybe we’ll become professional house flippers! You’ll have to check back on Wednesday for the next installment to see if the project happened as planned or not.
If you have five minutes, you might find it fun to watch the before video. Keep in mind, we are not professional filmers. If I had any idea anyone might see this, I would have fixed up a bit more, and don’t laugh at my accent!
What do you think? Are we seriously smart or really crazy?
Image courtesy of ddpavumba / FreeDigitalPhotos.net