OK, I haven't been able to get the detail I want out of my analysis, mainly because I'm having trouble entering all the stuff into Quickbooks, so I'll need to get with my CPA on that. (I could do it by hand, but my time is pretty limited right now.)
Anyhow, here are the numbers on this property:
Purchase Amount | - $128,00.00 |
Fix Up Costs | - $15,254.87 |
| Costs Subtotal | - $143,254.87 |
Selling Price | $181,000.00 |
| Late Close Of Escrow Fees Collected | $800.00 |
| Selling Costs | -$8,155.50 |
| Property Taxes | - $872.59 |
| Income Subtotal | $172,771.91 |
| Misc. LLC Expenses | - $500.00 |
| Profit | $29,017.04 |
| Time Property Held | 214 days |
Total Return (ROI) | 20.3% |
Annualized ROI | 34.6% |
Fix Up Costs include the repairs I made plus utility payments during the time I held the property. Misc. LLC Expenses include the costs of running the business - a fax line, office supplies, etc. While not technically related to this property, this is the only property I've sold this year, so the profits of the entire LLC are really the same as the profits made by this one property.
All in all, that's not bad. If you look back to the rough estimates I made when I bought the place (check the Comments section), it seems I was wildly optimistic :-) I guessed $2,500 for fix up costs and I went way over that. Part of that was a $2,000 loss to the first cabinet guy. I also didn't originally intend on replacing the cabinets, which was about another $5,000. Additionally, I didn't know the house had aluminum wiring that would need to be fixed to the tune of about $1,000. But even excluding those unseen $8,000 costs, I still was over my fix up estimate by about $4,500.
Of course, I was also off on my estimate of the time it would take to get the property back on the market. I figured 2 months and it was closer to seven! But again, 2 months of that was my own fault for letting the ordeal with the first cabinet guy drag on and on. (FYI, if I had not used the first cabinet guy, I would have saved $2,000 and 2 months, which would have brought my profit to $31,017.04 and the holding time would have been reduced to 154 days, giving an ROI of 21.7% and an annualized ROI of 51.4%. And if I hadn't had to raise my buying price by $8,000, I could have had even better numbers... Woulda coulda shoulda....) It's almost embarrassing to look at entries titled "House 11 Should Be Listed By This Weekend!" that were posted 6 months ago. I was so naive :-)
The good news is I was also wrong on my estimate of the selling price. I estimated it would sell for $149,900 and we ended up selling for much more than that. Part of this error was due to me basing my estimate on past sales in the area rather than current listings, and part was due to the increased holding time - property values were rising dramatically as the cabinet ordeal dragged on and I profited from that.
So my investors are happy, I learned a lot, and we all made some money on this deal. Now it's on to the next one!
13 comments:
WOO-HOO!!!!!!!
Glad to hear it, Shaun!
That $29k profit makes all those months appear in another lifetime, I bet. Onward to the next property.
BTW, the $29k was the pure monetary profit you made - I bet you earned $1,000's in "profit" experience, too.
Also, thanks for sharing your ups, downs, and personal details of this offer. It has definately been a great learning experience for your audience as well (at least, it has been for me)!
Great, Shaun! I have learned that the only thing you can count on in real estate is that it will always cost more and take longer than you expect. That's just normal stuff in our business. You've made it through. And, it was obviously worth it! Congratulations!
Great job! What kind of closing costs did you have upfront when you bought the property? Did you include them in your analysis?
My closing costs for the purchase were negligible. There was no bank loan, so there was no appraisal fee. I didn't pay commission on the purchase. The inspection was done outside of escrow and that cost was included in my fix up figure. The only additional costs in escrow were insurance, which was also included and $222 in title company fees. I don't think I included that, but it was such a small amount, it would have almost no impact on the figures. And since I paid for 1 year of insurance and I only used about 7 months worth, I'll be getting some money back from the insurance company, so it'll be close to a wash.
I've been following your ordeal for about six months, and would like to say congratulations on finishing the job. You've given your audience invaluable advice and experience.
congratulations.
you live and you learn. I currently have a house under escrow that i bought in april with $500 down. I lease-optioned it and was break even on the rents. the tenant decided to exercise his option. I should net just over 20,000 bringing my ROI to 4000%!!!
hey I should write that in my blog!
Sean, I have a feeling this is a stupid question, but will you have to pay taxes on the profit?
Susan - there are no stupid questions.. only stupid people :-) Sorry... I couldn't resist..
Yes, taxes will need to be paid on this gain.
We need more stories like this. The more people get into real estate, the more the value appreciates. Keep up the great work, and keep us all posted.
Congratulations Shaun!
I found your blog 3 weeks ago and have read all of your previous posts as well as the blogs by Trisha and Steve (due to the links on your blog). As a real estate investor myself, I get ideas and encouragement from reading what you (Trisha, Steve) went through to get the results. I may start a blog myself in the near future.
You guys are showing others how to secure their own financial future instead of relying on their increasing insure jobs or the government. Keep up the good work.
I started investing 17 months ago, starting with a bank foreclosure. Soon I realized some ways to maximize my profit:
1. I got myself a real estate salesperson license for the sole purpose of my investment and earn commission on each property I buy and save money on each when I sell. The education requirement for license force me to know more about real estate related laws. The disclosure before each transaction has not caused any issue at all.
2. I plan to keep my property rented for at least a year before I sell. This way, my long-term capital gain is only 15% instead of 28% or more and earn a year of rents. Better still, I am thinking of moving into the nice rental houses for 2 years myself and pay zero taxes when I sell.
3. I try use high leverage by borrowing most of the money from the Bank. The interest payment is deducted from rental income before reporting taxes, it's paid for by the renters.
4. I stay with local properties, this way, I can manage them myself and save management cost.
I realize that each person has different investment stragegy and goals. I am sure we can share ideas on our common goal: maximum and steady income streams that will eventually replace our salaries.
GREAT story. Do you have any estimate on how much time you spent taking care of this property? Just curious. You mentioned your investors, but how much do YOU get out of it? =)
I don't have any hard figures on how much time I spent on it, but it wasn't too bad. It took some time, but looking back, I don't think it was unreasonable. But more importantly, I gained tons of experience. I received a decent percentage of the profits on this deal.
Oh definitely, I forgot to add that I'm sure the experience was priceless. I mean, just reading it was worth something to me.
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