Summary: This deal of the week looks at a flip project on a residential property located just outside of Seattle. We discuss the challenges and successes of the flip project. Though flipping houses can be a risky business, it can also provide you with valuable skills and can be highly profitable if done right.
This week we are doing a deep dive on a flip project that is located in a town just south of Seattle.
What is a flip project? It’s where you buy a run-down property, fix it up quickly, and hopefully sell it at a profit. We say “hopefully” because you can lose money with flips. The keys to flipping for a profit are choosing the right flip project and keeping costs low.
With that, let’s dive into the details.
The Property
Address: 1153 S 299th Place, Federal Way, WA
Purchase price: $312,000
This property was obtained from probate, as the owner had died. It was in bad condition so it was purchased at a considerable discount. Comparable fixed-up properties (similar size, beds/baths) were selling for the low- to mid-$500s.
The property is a 4 bedroom, 3.25 bathroom, almost 3,000 square foot home located in a town about 20 minutes south of downtown Seattle. It sits on a large 12,000 square foot plot with average-rated schools.
Fun fact: the house even came with two Oldsmobiles and a boat!
Unexpected Challenges
Flips almost always have unexpected challenges.
As mentioned above, when you run into unexpected problems, these drive up your costs and can result in a flip going bad.
And in this case, there were several unique challenges that had to be overcome.
First, the property had a 1000 square foot pool building complete with jacuzzi, spa, sauna, and a full bathroom. The cost to rehab just this part of the property was $20,000 since there was a great deal of cedar refinishing and pool equipment that all needed to be repaired or replaced.
The second major issue was that there was a failed septic on the property. Though the disclosure documents said the house was on city water, the flippers later found that it was on septic and that the septic was no longer functional. In this case the city was going to require a connection to the town’s sewer which was 1000 feet away, so it was going to cost them about $100,000 to connect.
After several septic people told them that it couldn’t be repaired, the flippers finally found a sewer company who was willing to repair it for $10,000 and give them a clean bill of health.
The Outcome
Deal Analysis
Total cost: $467,000
$312,000 for purchase
$155,000 for repairs, holding costs for 8 months, and selling cost
Sales price: $566,500
The property sold 8 months after the initial purchase
Profit: $99,500
So How Does This Apply to Me?
If you’ve been following our blog, you’ll know that Kenji and I invest in real estate for cashflow.
So why are we talking about flips?
For two main reasons.
First, we think flipping is a valuable skill. Most of our properties involve some level of rehab so we’ve learned how important it is to keep a project on time and under budget.
Second, as you can see from the numbers above, flips can be extremely profitable. If you are short on cash, it’s a way to build up your cash reserves for a downpayment on a cashflowing property.
Though our base is always going to be cashflowing rentals, we see investing in flip deals as a way to grow our money and skills while actively looking for our next rental property.
More Photos of the Flipped Property
