I am calling this the eon house, because it seems to be taking that long to close.

This is first house I will be buying since starting my new strategies. I had originally made the offer with the intention of this being a rental. However, I have now decided to attempt a flip for the first time.

The eon house is a 2,171 sq/ft houses in a decent neighborhood. This is a split level house that has 4 bedrooms and two bathrooms. It was a bank owned property and the tax assessed value is $102,000. The tax records show that it has a pool but that has been filled in. This house should rent for $950, and I have another smaller house down the street that rents for $900. I would not want to spend more than $55,000 on this house as a rental (about my goal of 60 times rent).

I now intend to flip the house so my buying strategy is a little different. I estimate that the ARV (After Repair Value) is $80,000. Since the bank is already involved I have an appraisal that gives this amount. I think this number is conservative and I may be able to sell it for more than this. My goal is to purchase at 70% of value, minus the repairs and closing costs. This means I would not want to spend more than $56,000 total.

I estimate the repairs to be $21,000 and it will cost about $2,500 to close. I have a contract to purchase for $33,250 which means I will spend about $56,740 – just a bit over my target for a flip.

I have a loan approved at a local credit union. They will loan 75% of what I spend on the house. This is a 10 year balloon at 7.5% with a 15 year amortization. However, it is initially an interest only construction loan while I renovate (and I can usually wait a few months to roll it to perm). Assuming it take 6 months from purchase to sale I will pay about $2,000 and another $1,800 in utilities. I am budgeting $4,000 for carrying costs.

The Numbers:

Purchase Price: $33,250
Estimated Repairs: $21,000
Closing Cost: $2,500
Carrying Cost: $4,000
Total Invested: $60,750
Resale Price: $80,000
Profit: $19,250

When I originally found this house it needed about $13,000 in work. This includes painting, carpeting, plumbing repair, patching drywall, and some additional carpentry work. The max I would pay for the house was $40,000. At this number, my total would be about $55k after repairs and closing costs.

The Negotiation
May 31 – The house was listed for $47,900 and I offered a $30,000 cash offer on May 31th.
Jun 2 – The seller countered with $44,547, and lowered the listing price to that amount.
Jun 2 – I raised my offer to $31,200.
Jun 6 – The seller countered at $43,000.
Jun 6 – I moved up to $33,000.
Jun 8 – The seller said they were tired of dealing with me and wanted my highest and best offer.
Jun 8 – I gave $38,200.
Jun 14 – The seller responded with $42,500 (I thought they were tired of this?).
Jun 14 – I moved up to $39,000.
Jun 20 – They accepted my offer of $39,000.

This was just the beginning of my problems.

I signed the contract on June 23. By now I had financing lined up. I like to offer cash but then finance it if I can arrange it by the closing date. The cash is a back up – the deal is not contingent on a loan. When I needed to change the paper work to include the loan the seller got upset, but they eventually agreed.

The Theft
One July 4th I was off work and decided to go by the property. This house had two AC units, and now one was missing and the lines for the other were cut. I called my agent and he said the listing agent would check it the next day. The next day, there were zero AC units. Two units had been stolen.

I informed my agent that I would be pulling out of the deal. I wanted the seller to replace the units or reduced the price. I will cost me about $6,500 to replace both units. I asked for a new price of $32,000, the original price minus the AC cost, and a little extra. Eventually, on Aug 9 (a month later), the seller agreed to drop the price by $5,750. Replacing the units will cost more than this – but then I will have new units and used ones were stolen.

The Wait
After agreeing on the price I had to wait for the seller’s attorney to complete title work. They required that it be done by their attorney and not mine (who can do it in 4 days). I had to sign several 7 day extensions, then on Sep 1st, I was informed that the seller was refusing to sign an extension because I could not close. On top of that, they wanted to keep my earnest money. Eventually, the asset manager was replaced and the new manager agreed to proceed with the deal on Sep. 9th. Since that date I have been waiting for the title work and signing extensions. It has been two months and they say they will still close.

I am still waiting to close. They have my $1,000 earnest money and claim that they will close. It was supposed to close this week but that looks doubtful.

When (or if) I close I will post pictures and a detailed repair estimate.

 

  4 Responses to “The EON House”

  1. I’d walk away from this one. These are not motivated sellers. You should be able to cancel the deal and get your deposit back. If they can’t or won’t close by the date in your contract, it’s void. Here in AZ, you have to give a Cure Period Notice, which gives the other party 3 days to fix whatever is holding up the sale, or it’s canceled and they have to return your deposit. After the sale is canceled, wait a month or two. If the property is still on the market, make them another, lower offer. See if they will be quicker in closing on that one. They are totally controlling this sale. You need to regain control.

    • This is a bank owned property and their bureaucracy in a nightmare (BOA). In fact, I have packed out once when the AC units were stolen. And I got a lower price. We are waiting on someone in the bureaucracy to sign a power of attorney.

      I still think it is a good deal, but I am thinking about backing out if they do not hurry up. I have already paid for an appraisal and owe some money to the closing attorney. I have signed an extension until the end of the month. I

  2. Hi Don,
    Excellent website, I also liked your house buying website!
    We are also real estate investors in MI. I currently have 15 rentals, and tried to flip one along the way, for us it didn’t work. We got it under contract in 2 days, but then the buyers financing fell through (we decided to turn it into a rental). Anyways, I noticed that your numbers above do not include any funds for the closing to the end buyer. For us this was about 10% (we had very similar numbers to you). Unless you are also an agent, how will you avoid this cost?

    -Josh

  3. You are correct – I forgot the closing numbers. I will be paying a 6% commission which will be $4,800. I posted this early on and I had originally worked the numbers as a rental. I just forgot this in the post during the transition to a flip.

    The repair estimate has dropped a little. The plumbing was not as bad as I had originally thought. I expect to now spend about $52k including closing costs. The agent thinks it would sell for $88k but the appraiser says $80k so I am using that.

    If I sell for $80k I should net $75k – a profit of $23k. I may have to add some seller concessions to that.

    Check out the bathroom hole house listing. I bought it as a flip and then numbers are better – the agent wants to list it for $149,900.

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