Have a Plan
As I wrote in my last post, we pretty much knew what kind of home we were looking for, what our budget was, and where we wanted it to be. Now we just needed to find a home that fit all of our parameters.
We found a neighborhood we really liked just outside of Arcadia Light. Arcadia Light is a very hot real estate area in Phoenix that is full of young professional families and is quickly being renovated into modern, high-end homes. It is also outside of our budget. But just a couple of blocks away, we found another community that had many Arcadia Light attributes, without the full price tag.
In our new target area, all of the homes were built in the 1950’s by Allied Homes. Allied was a Phoenix “track home” builder and there are still a number of these communities around town. They were solidly built brick construction, one-story ranch homes and in the neighborhood we were looking at, all of the homes were on approximately ¼ acre.
There was also a fair amount of renovation happening in the neighborhood, with non-upgraded homes being sold at reasonable prices and the finished, upgraded homes going for a lot more. It gave us the price spread we needed to make a profit if we could find one we liked. All of these things were on our “Must Have” list for our first investment.
Patience
We found one home that we liked almost right away. It had just gone up on the market and looked like it hadn’t been upgraded since the 70’s. Perfect! But by the time we contacted the agent, it was already under contract. We could already see that we were going to have to be either quick or creative to get a home in this neighborhood.
As it turns out, there was another home that had been on the market for a quite a while--four months in fact--that we eventually turned to for a second consideration. Even though we'd been looking in this neighborhood for some time, the home was well out of our budget, so we hadn’t really paid it much attention. Plus, we knew that if there was any opportunity to make money on this house, it would have already been bought up. But then they dropped the price by $20K. That was good, but even with the price drop, it remained $40K over our budget. Besides, crunching the numbers, we still felt like it was overpriced and the profit margins would be way too tight. However, we set up an appointment to view the house anyway, if for no other reason than to get a really good feel for fair market value in the community.
Pay Attention to What You Will Need to Replace - And What You Don’t
The house was 2055 sq ft, 3 bedroom, 2 bath. Built in 1956 it was a typical Allied Home floorplan with all the bedrooms on one side of the house, a closed off kitchen, and no private bathroom for the master bedroom. It had obviously not been renovated since at least the 1980’s, and parts of the house even decades before that. It was dark, really dirty, and some of the rooms had popcorn ceilings. All of that would have to be fixed. But…
· The original Allied homes were closer to 1500 sq ft, so there was already an addition.
· All Allied Homes were built with carports, but this one had already been converted into a 2 car garage with an additional carport on the side of the house. Nice.
· It had a decent size pool.
· The landscaping was overgrown, but mature with a number of citrus trees.
· It had a new roof, new air conditioner, new pool pump, and new hot water heater.
All of this was great news! It looked like so many possible large expenses would be avoided. Plus, it fell squarely in our plan of finding a house that needed a lot of cosmetic work, but not so much additional construction. Now to get the price down to where we still felt it needed to be.
Stick to Your Budget and Don’t Be Afraid to Ask
Because here’s something else we learned: you just never know unless you ask.
We found out the home was a trustee sale which means the owners had probably gone into foreclosure, but the house hadn’t sold at auction. The agent knew that even with the price reduction, it was still overpriced and he mentioned that he had received some low-ball offers that had been refused.
But, it had been 4 months, and in a really hot market this was an eternity. We came up with a price that was another $70K below the asking price feeling like we really didn’t have anything to lose. It put the house squarely in our under $400K budget and gave us plenty of room to make the necessary upgrades and still make money.
Even though this sounded like a low-ball offer, we both felt really good about our chances of at least getting a counter-offer. And we still didn’t have a Buyer’s Agent, so that was going to save the seller some money.
As Is. Good Idea or Bad Idea?
The sellers came back wanting 10K more and the home was being sold As Is. We agreed. We knew that if anything really big came up in the inspection, we could still back out, but since we were going to be doing a lot of demolition anyway, we didn’t really care about the little stuff.
Our inspection went pretty well. We did find out the electrical was going to pretty much need to be completely redone, and the electrical box on the back patio was not up to code. The location of the box was going to have to be moved, and that was going to be expensive.
Don’t Be Afraid to Ask Again
Even though we had agreed to buy the house As Is, we still decided to come back to the Seller, explaining the electrical costs. These things were going to come up in any inspection, and would have to be fixed by the Seller in any other situation. We renegotiated the contract, and got them to drop the price by another $3700. Even though that wasn’t going to come even close to what our eventual electrical bill was going to be, we were able to get them to cover part of the cost which saved us some money in the end. With no reason to kill the deal, we were moving forward with buying our first flip house.
Get Started on Your Design
While the inspector was doing his thing, Lynda and I were doing ours. We brought a tape measure, a notebook, and a camera and we spent that time
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