So, last week we CLOSED on a property that we are going to flip in Philadelphia! I did not know what to expect, this was my first cash deal, first deal with wholesalers, first deal in Philadelphia, first deal without attorneys – SO MANY FIRSTS. I want to share with you all exactly how it all panned out…
So, as we do, let’s talk Real Estate, let’s talk FLIPPING A HOUSE FROM THE BEGINNING – the tales of week one…
REWIND AND GIVE ME A RECAP OF THIS DEAL
Back on June 20th we signed a contract to purchase a home for cash, sight unseen, in Philadelphia. This property needed a total renovation. It is a 5 bed, 1 “bath” (there is barely a bathroom) house near Temple University that is in need of a full makeover.
SO, WE SIGNED THE CONTRACT – NOW WHAT?!
Upon the signature of the contract, we immediately wired over the required deposit (~11% of the purchase price). We then had 1 month to close the deal and source the remaining cash required.
WHAT DID WE DO NEXT?!
SCRAMBLE for funding… We would need to find the funds to purchase the property + the cash to renovate it. In this case the renovation costs are almost equal to the purchase price.
(By the way, for those who are interested in real dollar values here for purposes of analysis, please feel free to email me – I am happy to talk dollars offline!)
HOW DID WE ULTIMATELY FUND THIS DEAL?
Well as soon as we signed the contract to purchase the place I immediately went ALL IN on my search to come up with the cash required to close (purchase price + closing costs). I inquired about SEVERAL different loans types – hard money, private money, bank loans, you name it, I researched it.
Ultimately, we decided to use personal loans to fund this deal.
Why?! Two reasons stood out for us: (1) longer repayment period (2) lower interest rates.
I want to note that we HIGHLY considered using hard money which I TRULY believe has its perks (i.e. it’s not your $$, it’s not based on your credit or income, your deal is reviewed by others with REI experience, etc.). BUT at the end of the day we could not pass up the opportunity to borrow at a lower rate with a longer repayment schedule.
HOW LONG DID IT TAKE TO FUND THESE PERSONAL LOANS?
Well we took out two loans here so they varied…
(1) Personal loan with our personal bank : because we already had a banking relationship and were working with amazing advisors we were able to fund this in one week!
(2) SOFI Loan : this one took a BIT longer (3 weeks)– we actually did not get confirmation of funding for this loan until we were LITERALLY driving from Trenton to the title company in Philadelphia to sign the paperwork… but the point is it was approved and we could not have been happier.
As soon as we got confirmation and funding of our first personal loan (this was on a Thursday), I contacted the wholesalers and requested a quicker close date so we could get started. We agreed to close the following Thursday.
WHAT DID YOU HAVE TO PROVIDE IN THE DAYS LEADING UP TO CLOSE?
During the week leading up to close we provided the title company with a copy of our operating agreement, our tax documentation, and our banking information. Two days before we closed, we receive the final HUD statement with the exact amount of money we would owe on the day of close. I reached out to our bank Tuesday afternoon to schedule the wire transfer so that it got there in time for a 11:30 a.m. close on Thursday. On Wednesday afternoon I get a call from the acquisition agent stating that the HUD statement had been corrected and we actually overpaid by $2,000 (the title company would cut me a check as a refund at the closing). I was PUMPED at the time, but thought for sure it was too good to be true and turns out – it was. We later came to find out there was an overdue water bill we would have to pay for ~$2,000 which is why we were getting the credit, so it was not actually a “refund”. Anyways, because this was a cash deal we did not need to provide any loan documentation or proof of insurance. Speaking of insurance… we literally signed the documentation to finalize our Builder’s Risk Policy and General Liability Policy as we were WALKING INTO THE TITLE COMPANY.
IT IS NOW THE DAY OF CLOSING – GIVE ME THE RUN DOWN
This may be too much detail (apologies ahead of time)… We train down from NYC to Trenton (2 hours – got on the local which was dumb), drive from Trenton to Philadelphia (1 hour) and get to the Title Company 5 minutes ahead of time (thanks Laurie!). BUT we get to the title company and the seller is NOT THERE… we sign the documentation anyways (super quick, the title company was beyond efficient) and rush off to meet a locksmith we had set up to arrive an hour after closing so we could change the locks and get back to the city. BUT, like I mentioned, the sellers did not show up to closing, so guess what?! WE COULD NOT ACTUALLY ENTER THE HOUSE OR CHANGE THE LOCKS. Instead, we stand outside of the house for ONE HOUR while we waited for the seller to get to the title company, sign the documents, and get the OK from the title company that the house was officially ours. While we are waiting outside I notice the back door of the house is wide open, as are all of the windows upstairs, aka someone has broken in. SO what do I do? CALL THE COPS. The cops arrive 20 minutes later (I said it was a non-emergency) only to ask me to prove that I own the house. BUT remember I left the title company without a countersigned document so I had NO PROOF yet that I owned it…The cop agreed to search the house while I quickly called the title company and ask them to send me a copy of the signed documentation proving we had just purchased the property. The cops flashlight goes out (there is no electricity) so she calls for back up to search the property and her partner shows up in full bullet proof gear… Luckily, there was no one in there at the time but someone had definitely been there in the middle of the night. We talk with the neighbors and some cops for a bit who inform us that break-ins are super common for abandoned properties. At this point my anxiety is THROUGH THE ROOF. I am thinking WHAT DID I GET US INTO?! But we barricade the house as much as we can, lock it up, and head back home.
We would be back in two days to meet with contractors and check on the place…
FAST FORWARD TWO DAYS …
You guys, I need to get over this but when I tell you I did not sleep for those two days I kid you not, I slept maybe 4-5 hours total – I was beyond anxious. We bus down to Philadelphia, rent a car from Enterprise (thanks brother!), and head to the property to meet our first contractor. As soon as we arrive I immediately check the back door and guess what? SOMEONE HAD BROKEN IN AGAIN. Luckily the first contractor we met with was literally not scared of anything and went on in to search the house – but thankfully no one was in there. We ended up meeting with 4 contractors that day to walk them through and get estimates on what the renovation would truly cost us. After we met with all of them, we headed to Home Depot to get supplies so that we could try and re-barricade the place. The whole time we were working on “securing” the property we had people lurking around the house wondering what we were doing there…they were legit walking circles around the property. I can already tell you I do not think it will be easy to keep people out of this place until we start construction. I truly believe the neighborhood we are working in is TOTALLY up & coming, but it is obvious that it is still very much in transition. My hopes are that once we begin work on the house and people are in and out all day every day that this will stop?! Or die down?! There is a TON of new construction in the area so there is hope!
If anyone has any suggestions on how to properly secure your flips – PLEASE LET ME KNOW.
We are in the process of reviewing estimates from general contractors NOW – HOPEFULLY the next time we talk we will have someone lined up ! WILL KEEP YOU POSTED.
LESSONS LEARNED FROM WEEK ONE?
(1) No amount of reading could have prepared us for the events that ensued
(2) Get a TON of different estimates before picking your contractor
(3) Leverage the experience of other real estate investors
(4) Have an open mind
(5) TRY to stay positive
While this first week was NOT EASY by any means, and I know there are even HARDER times to come on this project – we are still BEYOND excited and cannot wait to share and learn along this journey with all of you (as cheesy as that sounds)!
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