As some of you know, I recently bought a home to flip. This is something I’ve wanted to do for a long time, and I finally made the leap! I wanted a way to share the process as I go along and hopefully be able give insight into home renovation, real estate investing, do’s & don’t’s etc. If you’ve followed along to see the project, thank you! Through the next couple of months I’ll be sharing updates. I would love to hear your feedback and questions!
With that said, I wanted to start with a little background on myself, how this came about, the purchase process and the prep work done before closing on the purchase!
My name is Jessica, I’m 28 and live in Bloomington, IL. I’ve been a realtor with Remax Rising for just under three years and also manage my four rental properties. What got me started in real estate was my interest in real estate investing. When I graduated high school I bought my first house. I was so nervous that I cried before I walked into the closing…not joking! After about a year it became my first rental property and now 10 years later it has allowed me to acquire three more investment properties, get started in my career as a Realtor, and have the financial ability to buy this flip house.
I’ve wanted to renovate a home for a long time. I had looked into it a couple time though the years but I never felt I had the right resources or connections. This past year I was introduced to a banker who opened up some new doors for me and made this a reality. After lots of looking and getting the green light from my lender, it was go time.
I had a couple of houses in mind, but kept coming back to this one. I had been in the house probably five or more times before putting in an offer, just scoping things out. What ultimately made my decisions was:
- Roof was in good condition
- Siding was in good condition
- Three bedrooms
- Old character of the home (it was built in 1825!)
- Newer furnace
- Resale value in the area (I have an advantage on this one being a Realtor)
I bought the home using a commercial loan. I say that my first house allowed me to do this because the bank used my home equity as collateral against my flip buy. Without that equity I would not have been able to do it. The benefit to the commercial loan instead a conventional mortgage is ultimately lower fees. I was able to forego closing and appraisal costs which saved me about $2,000. The downside to this type of loan is that it’s on an ARM (adjustable-rate mortgage). This means that after a certain length of time (mine was 5 years), your interest rate is subject to change where as many conventional mortgages are fixed-rate meaning your interest rate stays the same through the entire life of the loan. This loan also has about a .25% higher interest rate. Since I plan to have this property short-term, I didn’t have to worry about rate increases, and the extra interest payment would be minimal. I was also able to go through my same lender to get a note for renovation funds. All in all, I was able to spend less than $10,000 of my cash to fund my project.
In the 30 day pending period before I closed on the house I met with multiple contractors and suppliers to bid out almost every aspect of the project. While I plan to do some work myself, I wanted to know my options. I met with a plumber, electrician, painter, general contractor, priced flooring, cabinets, countertops and browsed the home improvement stores for prices on materials you might not initially think of such as light fixtures, toilet, outlet covers, doors, knobs, trim etc. I put a lot of time into making my budget. I don’t do good with surprises so I made my list and checked it twice…or twenty times! I actually had my budget down to dollars and cents. I don’t expect to hit that exactly at the end, but it will give me a good place of reference. In total I expect to have about $35,000 in labor, material for my renovations. I’ll keep you posted on this in about 2 months *nervous laugh*
What I’ve learned so far:
- There are creative ways to build wealth without spending a lot of cash reserves.
- Have a solid relationship with a banker– this is good for life in general.
- Surround yourself with good people (and ask them questions). I’m blessed to have co-workers and friends who have already helped so much with questions I’ve had, calmed my nerves, and motivated me.
- Do your due diligence. I can’t tell you yet if this will pay off, but I really can’t imagine not doing my financial planning for the project AFTER I closed on the sale.
- To keep reminding myself: “If it doesn’t scare you, it’s not big enough”
- Don’t cut a water line to get your sink out if you can instead unscrew the fitting. I’ll let you know later how much this will cost me!
- How to demo a kitchen, take out flooring, install replacement windows …more on this next week.
Thanks for following!