Wayne Clue - 1st Flip

Wayne Clue – Find it, Fund it, Fix it, Flip it.

The Skinny

Estate sale. Total rehab. $0 out of pocket purchase. $25k net profit.

Timeline: Dec 2021 - Jun 2022
Purchase: $348k
ARV: $550k
Rehab: $108k – 6 months
Sale: $570k

The Full Story

A relative reached out needing help with their property. Their mother-in-law had just passed away. They were to inherit a house that was outdated and in disrepair. They asked for help.

We were able to walk the property with the new heirs and gave them 3 options. They could sell it as-is on the market, work with a realtor to do minimal improvements and sell it for more, or they could work with us and sell it quick for cash. They chose to work with us because:

1. The relationship
2. They wanted to offload the property without any more additional work
3. They liked the idea of cash and a quick closing

An inspection of the property highlighted $26k in additional repairs that were not accounted for in the original budget. With the price adjusted we purchased the property for $348,000.

The Renovation

The day of closing our contractor got busy. Full demo of the house commenced. The project plan included replacing all the plumbing, all the electrical, the roof, a total facelift of the interior, and a new floor plan that added a new bathroom and a new bedroom. We were turning a 3 bed 2 bath house from the 80s into a brand new 4 bed 2.75 bath house.

The plan was scheduled to take 4 months and be about $85k in total cost. It ended up being a 6 month project and cost $108k. One of the largest setbacks was a bad acting electrician at month 3. We paid him 1/3 of his payment upfront and he didn't do his work. This delayed the 4-way inspection and all other project progress. We ended up firing him and hiring another electrician. We were out the money we had already paid the other guy and needed to start over.

The Sale

At the end we had all hands on deck knocking out the punch list in time to be able to close with the new buyers. We felt secure going with our buyer because they offered a competitive price for the market and we didn't know what rates would do if it sat on the market. Rates were continuing to increase which would make prices decrease and we were already compressed on our margins.

We sold the property for $570k on Jun 7th 2022. Our lenders and investor partners were happy. The new buyer was stoked with a completely updated home.

Our equity partners made an 11% return on their money in 6 months. That is a 22% annual return.

Deal Structure

1. Hard money at 85% of the purchase price
2. Equity partners on a fractional shared appreciation trust deed to gap fund the closing (the remaining 15% of the purchase price) and pay for the rehab (This means we had $0 out of pocket!)
3. Debt note to cover rehab overages
4. 0% Credit Cards to knock out the last few items

What We Learned

1. You can fix and flip a property with $0 out of pocket.
2. Have a good contract in place with your general contractor. That will motivate them to do the work and stay focused on your project. This made the project a success despite the obstacles.
3. Scope creep increases costs and causes delays.
4. Bad actors can cause significant delays. Work with referred vendors from trusted sources that have worked with those sources before.