whats the address of #14?
PROPERTY #14
Home is off Fuerte Dr (for those that know La Mesa) down a semi-private road. Home has an electric gate and a private drive. Located on a flat useable 1/2 acre lot with lots of mature trees, citrus and fruit trees and some cool granite boulders. Pathways and landscaping is in good condition. House is a 3 bd / 2 ba 1600sf with a slight Mid Century Modern flair. Very private and very quiet. Clearing some trees out would gain a view up Mt Helix to the Mt Helix cross. Minor canyon view to Lake Helix area.
Here is what needs to be done to this house:
New roof - current cedar shake in poor condition
Open up kitchen and living room to create great room effect
Replace all doors and windows
Add about 200sf to master bedroom to create large master suite
Add a deck (only about 4-5ft off ground) to maximize views to Mt Helix
Spruce up existing outdoor living area with patio cover and possibly built in BBQ and outdoor fireplace
Clean up the landscaping a bit
Usual kitchen and bath remodels
HVAC (still need to inspect)
Replace some piers under house in crawlspace
Owner passed away and house is owned by heir who does not live in San Diego County. This house went on the market in early 2014. The listing agent had a couple of contractors come out and one of them discovered that there was an old septic system and then discovered new sewer lines. Turns out the prior owner had installed a full sewer system and then tied it in to a neighbor - without any permit or permission. It took the heir over a year and $30,000 to get the entire system legalized with documentation that will be transferred to me if I purchase the property.
Meanwhile, they went into contract with a Buyer who was patient. However, when they finally had the legal paperwork, the Buyer did not have the cash and could not perform. Since I had called the Listing Agent several times, she immediately called me to come view the house. It is still ‘pending’ in the MLS and she has agreed to hold it until Monday night for me. The Seller’s motivation is to just get rid of it, all cash, no questions asked, close as quickly as possible. Usually right up my alley!
The most amazing thing is… within 4 hours of making phone calls I have 2 private investors who are willing to give me all the cash to buy the house, plus some remodel cash so I can get started. My biggest fear was that I could purchase the house but would have to sit on it with large carrying costs until I can sell Liberace House and get through the entire escrow in order to have any cash to start renovations in La Mesa. So, not only do I need to borrow 100% of the purchase price, I will need about $40-$50k cash to start renovations.
Yes, I definitely would not be able to borrow through any type of regular bank at regular interest rates. These type of loans are called ‘hard money loans’ and I have to pay high interest rate. However, I don’t really like to use that term because it usually refers to loans with no collateral. I am offering a fully recorded Trust Deed (mortgage) on the house for the loan amount. The investors have protection. When I sell the house, they are paid directly out of escrow. Their loan has to be paid off before I can receive any proceeds. In the worst case, if I have to sell the house for less than the loan amount, I have to bring money to the table to pay off the loan in order to close a sale. Their only risk is if I drop off the face of the earth and never sell the house. They have a right to foreclose on the house for the amount of the loan.
I have never asked my investors to loan the full 100% of purchase price. They have both stated that they prefer if I have ‘skin in the game’. I totally agree with them, I should have skin in the game. Unfortunately all my skin went into the Liberace House, and then some. I would have to take my cash reserve for Liberace House renovations and throw a small amount to this purchase to have any ‘skin in the game’. That would leave me at a dead standstill on Liberace House.
Everyone keeps telling me I need to be doing more than one at a time, keep going after properties. Yikes!!! this is getting very scary and I could be making a big mistake. I could hardly handle the Pacific Beach remodel and one of my flip projects at the same time. At least I won’t have pressure from another homeowner with a deadline. I have been very honest with the investors that there is a potential that I might not be able to start work on the La Mesa house until September.
I don’t want to give out the address until I know either a) have decided not to make an offer or b) have gone into locked contract. I wouldn’t want any of you to suddenly start making offers against me 
just kidding
I’d be very careful to borrow the full amount in a flipping situation. At the best, I’d looking for equity partners. I know you can make more money by borrowing, but if you make that as a habit, it will catch up on you. Many developer clients made millions during the good time and ended up lost everything. Remember, real estate, like any commodity, goes up and down, it will never go one way or another foreever. Right now, it seems going up, but there will times that goes down. A player in the business will always have “inventory” in hand, if you cannot weather the down cycle, do not play.
Perhaps I am too conservative? I buy only if I have cash in my own pocket.
Yes, very scared about this. Most everyone who was flipping at the market crash lost their shirt on whatever inventory they were holding at that time. And, if they had borrowed and had to default or whatever, they lost their reputation, they had to file bankruptcy, and, if they borrowed against their home, they lost that also. I’m very aware.
My plan is:
I own most of the current project as cash. That project is going up for sale about September 15 to October 1st. As soon as that closes, I am planning to pay off the new loan for Property #14. So, I will be carrying the 100% loan for only 4 months on the property, but at a huge cost.
Just finished analyzing the carrying costs. They include:
Interest on Hard Money Loans
Interest on Renovation Money Loan
Property Taxes at new value (there is going to be a large supplemental tax bill, current value on tax roll is only $96,000)
Property Insurance
Utilities
These are the things I will have to pay, whether I start the project or not.
Cost = $4,650/month Yikes! Yikes! Yikes!
I expect to have to hold the house for 7 months
So, I need to weigh the issues of spending $4,000 / month for close to 3 months before I start the project (although I could be doing a lot of stuff with other subs such as demo, roofing, landscaping, foundation repair, deck building).
Versus going 2 months without a project, without generating any potential for income. The beauty about having this is we can move right onto this project while waiting for escrow to close on the other project. I usually have to wait 30 days for escrow to close before I can even start making offers on anything.
So, here is a somewhat long range analysis to consider:
One Project = 2 months to find + 3 months to remodel + 1.5 months to sell = 6-7 months
Let’s say it is a $60k profit in 6-7 months ($9,230/month)
Two Projects = 2 months to find first one + 3 months to remodel first one + 4 months to remodel second one (just to be safe with assumptions) + 1.5 months to sell second one = 10-11 months for two projects
Let’s say $60k profit first one, only $45k profit second one due to high interest = $105k income in 10-11 months ($10,000/month)
I think it’s a no brainer, especially if I can be careful with the purchase of the second one and hope for a higher profit than the $45k
Also wanted to mention. As an example, it took 7 weeks to purchase current Liberace House. And, that was 7 weeks after I closed escrow, so really 11 weeks after we stopped work.
I knew you’d come up with the perfect plan. Go for it!!
Assuming you are successful in flipping these two properties, what will be the next? Buy 3, so you can have a crew of workers to reduce cost? Have a warehouse of building materials? Suppose you can do that, what is next? Buy a piece of land and develop 10 units?
I can tell you an example for one of my client. he was so successful in development, he became the major developer of a condo project in a CA ski resort, not only he had his crew, but also he had a cement plant on site to pour cement. In addition, he had deals all over the Bay Area, with 100’s units in the progress all the time. He had creative financing schemes that no one can imagine. But he was walking on a thin ice, when the 2008 crash came, he lost every thing including those beautiful condos in the Ski area and his $2 million home next door to mine. Now he is working as a contractor in Montana.
Just add up the value of real estate you owned in flipping #3 vs #4 plus house #14, you will find your “Holdings” probably had increased three fold. Isn’t that alarming?
^^I don’t get the point of this post.
Personally, I like to sleep well at night. Whatever you decide, be sure your choice allows you to sleep well at night. When I can’t, I need to re-examine what I’m doing and risks I’m exposed to. Good luck in whatever you choose.
what will be the next? Buy 3, so you can have a crew of workers to reduce cost? Have a warehouse of building materials? Suppose you can do that, what is next? Buy a piece of land and develop 10 units?
good grief artlover,
Not all people get so caught up in the frenzy of making money that they extrapolate out too far and try and justify absurd expenditures.
I seriously doubt that coral will get too far out over her skis.
we’ll keep her in line[ jk]
I am risk avoidant, but those willing to take risks like this (which is small compared to artlover’s example) can do well. Look at many of the very successful entrepreneurs. While a downturn in the RE industry is possible, it shows no sign of cooling in CA, short of an earthquake or sometrhing, and I shutter at the thought. So its unlikely there would be a problem selling these properties, even in the several months it takes to finish the projects. Go for it, CB!
I am confident that the Point Loma market will hold up for at least 3-4 months to sell Liberace House. Then I would be holding just one property at risk. I would not take a risk like this that would require holding large debt for a long development period.
My loan to value spread over both properties is still only 65% of original purchase value (before fixed up value). Market would have to tank 35% in next 5-7 months to lose my shirt. Its a reasonable risk
Sounds like you have weighed this out carefully. Best of luck in moving forward. I’m sure you will make things work well!
Even though I am risk averse, like @jym626, it sounds like coralbrook has thought this through carefully. It also sounds like the second house is a perfect flip, without too much aggravation or “hard” stuff to fix. Given that the sewer problem is no longer a problem, my vote is to go for it. It’s too bad the timing is what it is, but I think if she can make it work, she should go for it.
It seems like a great opportunity, and I think if she passed it up, she would regret it.
I think you should go for it! That second house sounds too good to pass up. I think you can handle two houses. How long does it take to drive between houses? My only concern is that you’ll be so busy planning and overseeing renovations on two properties you won’t have enough time to keep us properly updated;-)
will you finish and sell the liberace house or sell it to another flipper? It sounds like there isnt a ton of work needed to get it in sellable condition, though converting that space to livable space is a big task…
I believe CB’s intention is to complete the Liberace house.
@artloversplus your experiences are not the same as CB’s. You don’t live in the same part of CA. im not sure what your posts are intending on this thread other than to point out that this is not what YOU would do.
NO WHERE did CB even imply that she would be doing two house simultaneously again…let alone three or more…and hiring a crew and getting a warehouse. Why are these ideas even being posted here?
CB…if the finances work…go for it. Of course I feel you will be prudent in how you leverage your money.
My intention is to focus on Liberace House because I have so many design decisions to make, drawing plans, going through permit process, etc. It makes the most sense to plow through as fast as we can to get that property to market.
There are some things that can be accomplished at La Mesa house without too much tight supervision. My intention is to demo out the house, clear up some landscaping to open up the trees to the view (so that I can plan windows and deck properly) and put on a new roof. My rough idea right now is to add about 100 to 200 sf to the master bedroom to make it a large beautiful space that takes advantage of the outdoor connection. So, if I decide to pull permits for that I can work through the permit process while we are waiting to start.
HOWEVER, I am working hard on my estimates for the remodel of the La Mesa house and it is getting very tight. There may not be enough margin for that property - I thought there was, but it’s not looking as profitable as I thought.
I will know more when I get through the comparable sale analysis and finish a thorough inspection Monday evening. My concern is that it looks like houses in the $700k+ pricing range in that area linger on the market over 30 days before they sell. I don’t want to be sitting on something with such large carrying costs (although by then I will have paid off major loan hopefully)