Why,Gladly,Lost,000,Flipping,U finance, share, loan Why We Gladly Lost $20,000 Flipping a Utah Fixer Upper House


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In August of 2005, my real estate business partners and I were flush with cash. We had just made $45,000 from having just fixed up and then sold 2 mobile homes in St. George, Utah. The excitement of making so much money so quickly had gone to our heads. We thought we were invincible. We were about to learn the truth. After the mobile homes had sold my partners and I began looking for another fixer upper that we could flip. I wanted to move up into expensive houses, thinking that we could make more money that way. I was aware of a foreclosed home for sale in Santa Clara. Santa Clara is a small town, just outside of St. George. The bank had had the home had been for sale for about two years with no takers. It was a Santa Fe style, luxury home built in 2002. The home was 3000 sq. ft., had amazing views, slate tile throughout, a three car garage, 4 bedrooms, 4 bathrooms and tons of upgrades throughout. The home was unfinished and had never been lived in. It was clear that the builder had run out of money before he could finish the home and sell it. The kitchen was unfinished. The tile was cracked here and there from settling. The closets were totally unfinished. The yard was a jumble of weeds, mud and boulder sized rocks.  At the time that we looked at the home, St. George was coming to the end of an amazing run up in home prices, about a 1% increase in home values every week for months. My partners and I were aware that the market would slow down sometime in the future, but what we didn’t know when we bought the home, was that the market slow down had already started. Well, we made an accepted, full price offer on the Santa Clara home ($395,000). We made a full price offer because there was another buyer that was negotiating with the bank to purchase the home at the same time we were. We felt we could make money on the home and we wanted to make sure that we were the buyers the bank chose to buy the home. We ended up buying the home for $395,000. We also financed our closing costs, bringing our mortgage loan amount to $400,000. After the purchase, we invested $15,000 into fixing up the yard, about $4,000 into finishing the closets and another $6,000 in various other fix up / finishing costs. We put the home back up for sale, almost immediately upon buying it, for $525,000. We truly thought it would sell quickly for this amount when we were done fixing it up. The home was for sale the entire time we were working on it.  After the repairs were done, the home sat on the market for months. The St. George real estate market had ground to a halt during the time we were working on the home. We ended up having to make about $9,000 in mortgage payments while we anxiously waited for the home to sell. In March of 2006, seven months after the purchase, we were beginning to panicking because we weren’t certain we could make anymore mortgage payments. We didn’t want to lose the home and our investment, but the mortgage payments were eating us alive by this point. We were forced to gradually lower our asking price until finally we had our asking price at $430,000. In March we breathed a sigh of relief as the home finally went under contract at this price.  We sold the home in April 2006. Our costs to sell were about $16,000 including the $12,000 commission that was paid to the buyer’s agent. Here’s what the final tally on the fixer upper Santa Clara home was:
  • What we sold the home for………….………$430,000
  • Fix up costs………………………….........………  -$25,000
  • Mortgage payments……………………...…...    -$9,000
  • Commission paid……………………….....…...  -$12,000
  • Closing Costs……………………….......………     -$4,000
  • What we paid for the home……………... -$400,000
------------------------------------------------------------------ Total loss…………………………………… ($20,000) We felt very lucky to have been able to sell an expensive home when our local real estate market was so bad. There are a lot of investors that bought at the top of the market who haven’t been so lucky; people who are stuck with homes that they can no longer afford. These investors are wondering if their homes will sell before they lose them to the bank. Strangely enough we are actually looking for another home to fix up. We are going to stick with mobile homes or condos and just rent them out. The lesson that we learned is that the less expensive the fixer upper home is, the less risk there is to the investor.

Why,Gladly,Lost,000,Flipping,U

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