How We Flipped an Ugly House and Made $27,000
I placed my hand on the doorknob and bravely pushed my way in. All my senses were instantly engaged, but absolutely none were pleasant.
The smell of dog, cat and cigarette smoke struck me in the face. The lime green carpets were 40 years old at minimum. The ceiling fan was so low that it nearly struck me in the forehead when I walked in. All the walls had a layer of yellow on them — no doubt from the years of secondhand smoke they had endured.
The house was a mess, and I just couldn’t wipe the silly grin off my face.
Nobody would want this house. It was time to bid low and get a deal. And that’s exactly what we did.
My wife and I closed on the house in October. We fixed it up through the winter, and then we sold it the following June for a $27,000 profit!
Want to know how we flipped our first house and made $27,000? (And more importantly, how you could, too?) Here’s our story.
How We Flipped Our First House and Made $27,000
You might be rolling your eyes and saying to yourself, “Here we go again: another contractor that knew how to do all the jobs himself — that’s how he made $27,000 on one house flip.”
But that couldn’t be more wrong.
I work as a financial analyst during the day and run a personal finance blog by night. The only thing I use my hands for is typing on a keyboard, not tearing down walls or installing flooring. But my wife and I had a dream to make some extra money, and flipping a house seemed like the perfect way to do it.
We Watched the Real Estate Market Like Hawks
I had visions of finding a property that no one knew about, then swooping in unsuspectingly and buying it for well below market value. Well, come to find out, that almost never happens. And it didn’t happen for us, either.
We won big by evaluating the real estate market every. Single. Day. We looked at properties that were for sale in our city, took note of any price drops and mentally noted what we would be willing to pay for each of them.
If you want to find a deal, you really have to turn house hunting into your part-time job.
Watch For Houses No One Else Wants
We studied the market for months — nothing really piqued our interest. The market was just too hot; people were scooping up properties for more than we were willing to pay for them.
But then, a little three-bedroom, one-bath home caught my eye.
The house was originally listed at $109,900, which was slightly lower than market value. It was on the market for just seven days and then quickly dropped to $99,900. Either it was a complete dump or the owners wanted to get rid of it in a hurry, I thought. As it turned out, it was both.
The house was in rough shape (to put it nicely). The kids had no interest in keeping it. They wanted to sell it as is.
The carpets needed to come out, the paneling would have to go and the ceiling would likely need to be torn down. On the surface, the house looked awful. But you know what? The bones of the house were still in good shape, which meant that if we could get the house for a reduced rate, the risk would be slight and the potential returns could be great!
Be Ready With Cash
For those that have money, real estate is a place where they can get deals, earn an income and shelter their money from taxation. But many people try to buy houses with no money down, lose most of their earnings to interest and increase their personal risk tremendously.
If you’re interested in buying real estate to rent out or flip, I recommend that you do it with cash. I know, I know: You think I’m crazy. No one can possibly invest in real estate with cash!
But according to a recent Realtor survey, nearly 60% of investors buy real estate with cash. If you don’t, you’re the strange one.
Why is cash so great? Many reasons actually:
- No interest payments to the bank
- No appraisals needed
- Extremely low closing costs
- Discounted purchase price (the sellers know you’re serious and WILL buy the house)
- No mortgage/bank hassle
- A clear mind without worrying about losing another months’ worth of payments
When you buy with cash, everything is cheaper, the buying process is easier and your future will be incredibly simple — so much so that it’s honestly hard not to win.
How We Saved Up the Cash
OK, so cash is a great way to buy houses. But how in the heck does a normal working individual save nearly $100,000 to do it?
I know, the task seems insurmountable. But it’s really not. It’s just a matter of discipline over time. Here’s how we did it, and how you can do it too.
- Sell everything you aren’t using: furniture, cell phones, games, books, jewelry, lawn mowers, etc.
- Reduce your expenses by as much as possible: cut the cable, stop going out to eat, postpone your expensive vacations, sell your expensive cars with car payments and buy a $2,000 bulletproof Honda instead.
- Get rid of monthly payments by paying off all your consumer debt: I personally promote the debt snowball method.
- Take on extra side hustles to make more money: my wife does photography; I blog, write freelance articles, mow lawns and even flip cars!
Sound like a huge sacrifice? Yup, it is. Not too many people win in this world without sacrificing some good stuff.
We Negotiated… and Then Renegotiated
The house was priced at $99,900. We offered $80,000 in cash.
They countered, then we landed on $81,000 pending inspection. Of course, the inspection revealed some pretty serious issues (most of which we already knew about):
- Aged shingles.
- A sagging roof.
- An ancient water heater (30+ years old).
- Water damage in the dining room and rear mud room.
We called in a few professionals and got quotes. All the items above totaled about $20,000.
At this point, we had two options:
- Go through with the $81,000 offer and close the deal.
- Break the existing agreement and renegotiate for a lower price.
Given the scary inspection report, we figured that the seller would accept a lower offer. And we were right. We offered $75,000, and they immediately accepted.
How We Knew $75,000 Was the Right Price
It doesn’t take a genius to tear down paneling and paint walls… or take a crowbar to plywood flooring and install a fresh subfloor. In all of these areas, I knew I could YouTube the project, learn how to do it in 10 minutes and give it a shot myself.
For the bigger jobs (like shingling the house) we planned on hiring professionals. (Well, cheap handyman-type professionals that didn’t cost an arm and a leg). Even though the initial estimates came in at $9,000-$10,000, we figured we could find someone with experience but far less overhead than the big dogs — and therefore, a much lower cost. Our realistic estimate was $7,000.
The rest of the work would simply be a calculation of material costs. Overall, I estimated that we’d spend $12,000-$14,000 for things like the subfloor, laminate flooring, paint, doors, lumber and all the other miscellaneous needs that would pop up.
In total, we’d likely spend about $20,000 fixing up the house.
We knew we wanted to make at least $25,000 on the project, and according to our realtor, the house would likely sell for $135,000 after it was all fixed up.
Sooooo….$135,000 – (realtor fees and closing costs of $12,000 [typically 9%]) – (the $75,000 we spent on the house) – ($20,000 in repairs) = $28,000 in profit.
Even if we only got $132,000 for the house, we’d still earn a $25,000 profit. So, we signed the dotted line and bought the hunk o’ junk!
The 7-Month Fix Up
Our initial estimate for the fix and flip was five months.
Here’s the basic list of what we intended to do:
- Upper bedroom ceiling, then inspect the sagging rafters and secure/replace them.
- Carpet and subfloors (to get rid of the cat/dog smells).
- Wall paneling (and hopefully save the plaster behind it).
- Refinish the (hopefully beautiful) hardwood floors beneath the plywood.
- Paint walls.
- Install trim.
But here was the reality of the situation:
In some spots behind the paneling, there was a weird cardboard structure with wallpaper stuck to it; in other spots there was absolutely nothing. So the walls were a complete bust.
The hardwood floors were almost nonexistent. There was hardwood in both the kitchen and the dining room, but they were missing entire sections and replaced with plywood. It was not salvageable.
The bulletproof furnace broke three times while we were fixing up the property and cost us an additional $600 that we didn’t budget for.
We knew these bad surprises would cost us more, so we just decided to roll up our sleeves and do more projects ourselves.
I taught myself how to shingle the garage roof via a 10-minute video from “This Old House.” I rented the nailgun from Menards, borrowed a compressor from my Dad and had a buddy help me that wanted to learn how to shingle himself.
We tore down all the walls completely and put up all the drywall ourselves. Thankfully, drywall is relatively cheap (total cost was around $400), so all this really cost us was our time.
So instead of taking five months to fix this place up, it took us seven. It was a bit painful and strained our relationship some, but we were both looking forward to that big paycheck!
The Sale: Time to Cash In On All the Hard Work!
I often worked on this property early in the morning before my day job, late at night after putting our daughter to bed and even on the weekends when we had to get some of the bigger things done. When I drove home that final nail, I was physically, emotionally and mentally exhausted.
But it was payday. It was time to list the house and get that money we worked so hard for!
We Listed With a Realtor
We decided to list the home with a quality realtor — for multiple reasons, but mainly to:
- Advise us on the correct listing price.
- Get our house listed on the multiple listing service (MLS).
- Market the home for us and set up the open house.
- Negotiate on our behalf.
- Get feedback through her network of realtors for how the house showed and if it was appropriately priced.
- Help us through the closing process and ensure that everything was done properly.
Yes, it cost us some money, but I believe that her involvement earned us more when it came to the sale of the property and saved us from any potential mistakes at closing.
The Process of the Sale
Since the housing market was sizzling hot, we initially listed the house at $139,900 to see if anyone would bite. About 30 people walked through the house in the first six days, but we had no offers. Not a great start.
So, on the seventh day, we dropped the price to $134,900. Early the next morning, we got our first offer: $130,000. But since we were on the hook for the closing costs, the offer was actually more like $126,000.
After closing costs and realtor fees, this would have left us with an $18,000 profit. Not bad, but it wasn’t the $25,000 we were targeting.
This is when our realtor proved worth her weight in gold. We had an offer on the table, and she was sure to let all 30 of those other people that had walked through the house know it by calling their realtors. If any potential buyers were dragging their feet, she wanted them to know that it was time for them to either walk away or put in a competing offer.
Sure enough, we got another offer: a cash offer for $134,900, our full asking price. After inspection, they asked for some funds because of the ancient water heater, and they also wanted a one-year home warranty policy. All in all, they wanted to reduce their initial offer by $1,600. We gladly accepted.
The house was on the market for eight days. We sold it for $133,300 and netted a $27,400 profit!
Would We Do It Again?
So we put roughly 500 hours of our time into this project and earned $27,400 — that’s roughly $50 an hour. Would we do it again?
WHAT? SERIOUSLY? This is like a dream come true for so many people. The house flip! It’s exciting, it’s a big money-maker and think of all the stories you’ll have to tell your friends at the next dinner party! What could be better than earning $50 an hour and bringing an old house back to life?
In short… lots of stuff. You know, things like:
- Time with your wife.
- Quality time with your kids (i.e. not sleep deprived “play time”).
- Hitting golf balls, throwing frisbee, hiking through the woods.
Pretty much anything is better than sweeping dust and hanging yet another drywall board.
If you have goals of living in a better neighborhood, sending your kids to a private school or funding a better education for yourself, then by all means, flip a house, make some money and fulfill your family’s dreams! But if you’re flipping a house just to earn more money that you don’t really need (like we did), you might want to re-evaluate the whole idea of a house flip.
What are your goals? Why do you want to flip your first house?
Derek Sall is a personal finance blogger at LifeAndMyFinances.com. He’s been helping people out with their finances for over eight years now and just can’t imagine doing anything else!