Just saw a flip deal go up on the MLS that’s driving me crazy right now.
The flipper bought it six months ago for $725k. He relocated one tenant, superficially renovated two units, (presumably) fixed a big foundation problem, and painted it. Figure he’s all-in for $825k or so. Now it’s listed for $899,000, presumably in hopes of ending up around $925k after a bit of a bidding war.
After roughly 7% cost of sale, this guy is going to net $860,250, or a profit of ~$35,000. Not a great deal, but not bad for a few month’s work, right?
Wrong. This deal drives me nuts, because the opportunity was mostly wasted.
Here’s what should have happened:
- Buy for $725k
- Relocate three tenants (one unit was delivered vacant)
- Renovate all four units plus the exterior
- All in for a bit more than $1MM
- Exit at $1.25MM
- Profit of $160k in a bit more time
Why didn’t I do the deal? At the time, I had committed all of Fund 1 and didn’t have any dry powder. I tried to get one of our fee for service clients to do it, but couldn’t. So, I had to take a very hittable pitch for a strike, instead of knocking it out of the park. Ouch.