Example 4 Sometimes a real estate deal gets you more involved in the fix-up phase than you want to be. This can especially be the case with foreclosure property. This example is instructive in two ways. First, it is another example of Find, Fix, and Flip. Second, it is an example of getting too involved with the fix-up phase.

We found a property that was headed into foreclosure. It was a four-bedroom, three-bath,2,700-square-foot, single-family home in a good neighborhood. The property was vacant. Again, we wrote our offer for 65 percent of the retail value. We felt the retail value was $200,000. Our offer was for $130,000, cash.

We felt we were getting a great deal. We thought we would spend $20,000 on the fix up and sell the property for at least $190,000 to $195,000.We would get our $20,000 fix-up money back plus make at least $40,000. Unfortunately for us, that is not the way the deal turned out.

Our $20,000 fix-up budget blew up in our faces. Once we started tearing the house up, we found mold and dry rot. This was not good. We wound up spending closer to $30,000. Still, we felt we would be all right. We would just make less profit.

At this point in our real estate investing, we were doing the major fix up. We would buy the property and do all the fix up. Then we would sell the property to a retail buyer homeowner. We felt this was the way to go because it was how we would make the most money.

With this property we had gotten into major remodeling. It was the biggest fix up we had ever done. We realized too late that we were no longer real estate investors on this property; rather, we were in the remodeling business. Instead of doing the remodeling for a homeowner who was going to pay us, we were the homeowner!

We had another problem with this property. We had one of the best properties in the neighborhood. Ninety-eight percent of the properties in the neighborhood were not as nice and were priced less than the property we were trying to sell.

We first tried to sell the property for $200,000. No offers in 30 days. We lowered the price to $190,000. No offers in two weeks. We lowered the price to $180,000. Again, no offers in two weeks. We were starting to get nervous.

Potential Profit

Value of House Purchase Price Potential Profit

$200,000 $130,000 $ 70,000

It had taken us 60 days to fix up the property. We were now another 60 days into the mission. We were making payments on the $100,000 first mortgage held by the bank. We were making payments on the $30,000 second mortgage the seller had carried back for six months. We had almost $30,000 out of our pocket in fix-up costs.

We finally sold the property, right at the six-month deadline, for $165,000. We lost money on the deal but felt fortunate that we got most of the money we had put into the property back. Right then and there we realized we never wanted to be in that position again. We knew real estate investing worked. We knew flipping worked. We decided owning and fixing property didnt work.

We are now going to get into the foreclosure arena. Starting from the basics, we will show you how to apply the Quick Cash strategy to your foreclosure investing. For those of you who are knowledgeable about foreclosures, we recommend you go to chapters that grab your interest. May we suggest Chapter l4, Flipping Foreclosures. For those of you who are new to the foreclosure game, we recommend you read straight through the book, continuing on with Chapter 2, What Is a Foreclosure?

Our Profit

Payments Our Profit

Sales Price Purchase Price Fix Up

$165,000 $130,000 $ 30,000 $ 6,600 ($ 1,600)