I am very excited about this post as this is my first deal with Curtis and Gabhart Investments. As I mentioned in an earlier blog, I am very new to real estate and am interning with Curtis to learn the ropes of flipping houses and how to succeed in this market. This deal was not only exciting, but also unique in that the property was flipped so quickly and with no work or construction. It was valuable learning experience as I learned it is possible to flip a house, make a profit, and no work in less than 30 days. Below is the step by step process of the deal.
stay tuned for our most recent acquisition at 6600 Shannon, 92115. Well be adding square footage and re-configuring the floor plan to turn it into a 4 bedroom 3 bath from a 2 bedroom 2 bath
– Brad Talbert
Back to our message folks…
So the property we picked for $320,000 on the 26th of October in Ocean Beach, we just sold it for $400,000 on the 18th of November.
Here’s how it all began!
Once upon a time at a faraway place in Point Loma Hieghts…
WHAT & WHERE – 706 Sq Ft, 2 Bed/1 Bath in 3952 Coronado Ave, San Diego, CA 92107
DEAL POINTS OF PURCHASE
Executed contract date – October 11, 2010
Escrow length 15 days (Oct 11 to Oct 26 – We closed early)
Deposit – $10,000
Down payment – $90,000
Loan Terms $230,000 seller carry back @ 6% interest only, 1 year term. $1500 in loan fees
Purchase Date October 26th
Purchase Entity- Gabhart Real Estate Opportunity Fund, LLC Series 2
DEAL POINTS OF SALE
$400,000 Net to Fund
Executed contract date – October 29, 2010
Escrow length – 20 days (Oct 29 to Nov 18)
DEPOSIT – $80,000 NON REFUNDABLE UPON ACCEPTANCE (WE gave him all the due diligence & disclosure up front)
Loan- none, all cash transaction
Close of Escrow (sale date) – November 18, 2010
None. We only went inside the property twice.
HOLDING TIME: 23 DAYS
RETURN ON EQUITY (approx) 77%
ANNUALIZED CASH ON CASH RETURN (approx) *A BOATLOAD
(CG-*Remember it is unlikely/ impossible that your money works 365 days a year doing investments. It would mean the day you closed escrow you bought another property.)
HOW WAS IT FOUND
Through our website. Seller contacted us after seeing our posts at sdcia.com
Way back when on the 8th of October Curtis received from his website that a person wanted to sell a property in Ocean Beach.
After calling and qualifying the seller as to why he was selling (he just purchased and didn’t want to drive an hour each way to fix it up and decided to wholesale it instead) and some other important questions so we didn’t waste our time chasing our tail .
Basic property info
Bed/bath, square footage & any recent improvements
Why are they selling & for how much
When do they need to close
And who else are they talking to (this he lps with negotiations)
This is important so we don’t waste time and have a good understanding of the seller and the property.
Ring a ding ding and a ching ching we got an email from our website that someone had a property for sale.
Action time! When getting deals ACT QUICK ! AFTER you qualify
How did the deal transition from purchase to sale (Step-by-Step)
1. The first thing we did is logged on MLS and other sites to compare the property and compile a few comparable which to evaluate and compare to the Coronado property.
a. ALWAYS do this before you get in your car and drive a property, your goal is to eliminate as many wastes of time unqualified properties as possible.
waste of time – the devotion of time to a useless activity; “the waste of time could prove fatal”
waste, wastefulness, dissipation – useless or profitless activity; using or expending or consuming thoughtlessly or carelessly; “if the effort brings no compensating gain it is a waste”; “mindless dissipation of natural resources”
2. Upon arriving at the property and beginning our inspection, we were pleased to see the property was in fair condition. (our definition of condition is probably different than most. In this case it was standing and we didn’t have a previous kitty farm, we didn’t have to jack up the house, etc.)
a. We noticed instantly the house needed a new roof, but other than, that the outside would be an easy fix. (on our first inspection we use a form from winforms that is used when doing a move in/out inspection for tenants. The form has each area broken down and items for each area. For example each room has a spot for baseboards, doors, hardware, lights, etc. We fill in the form with our notes on what needs to be done and when we get back to the office we input the information into our initial estimate spreadsheet to see how much construction is going to be)
b.Basic paint and landscaping would be the extent of work needed on the exterior. Create nice curb appeal by bringing attention to the front porch and door, adding some river rock as a wainscoting up front and just bringing back the character of this style of house.
c.The floors needed to be refinished (almost any condition hardwood floors can be made to look like new Curtis says), and a complete new kitchen with appliances and a couple other minimal touch-ups throughout the house was all the inside needed. We were thinking of redesigning the kitchen, filling in a door that had no real purpose except to take up precious wall square footage int he kitchen.
d.The backyard was big and spacious, and needed only a basic cleaning up.
e.A new front lock would also be replaced, as the current one was a bit cumbersome.
3.Upon leaving the property, we met a neighbor who informed us that other investors had been inspecting the property just an hour before. The race was on and we were off to drive the comps.
a. The majority of the day was taken by driving & walking the property and driving the comps. One of the comps we drove was a recently rehabbed property which we had put in an offer, but did not get the deal. The two were very similar, yet we felt more comfortable with our new subject property.
b.While both properties have 2 bed / 1 bath, the new one had less square footage. Our subject property we were buying did have a much much larger lot and was on a better street. Additionally our subject property had the add-on room, which was not on the tax records. This wouldn’t be beneficial for the appraisal but would act as incentive to a buyer.
c. We try to drive, video tape, and take notes on each comparable property. Curtis mentions that you always want to try to look at it from the eyes of a buyer understanding that the buyer wants the best value for their money. Ask yourself some of these questions on each property you look at.
Street – equal/better/worse
Neighbors – equal/better/worse (sometimes it is worth it to pay to paint a neighbors house or clean up their yard. Curtis has done this on other projects)
House – equal/better/worse – We look at properties that are in similar condition and don’t compare ours to fixers since when we go to sell it typically it will be fixed up. We also see if there are things that can’t be fixed like street noise, yard size etc.
In the video recorder we verbally give our assessment of the property so we can review it later. In addition this can come in handy dealing with appraisers later since many times they don’t look at the interior of the comps and you may need to justify your price to the appraiser with this being your back up.
4.Once back in the office, we run a proforma and play with the numbers to see if this venture is profitable. We start by running a quick back of the napkin proforma using the age old 70% ARV (after rehabbed value) minus costs for improvements. We quickly realized that this is a good deal, so we work to lock up the property.
(we also do this real quick before we get in the car to try to eliminate wastes of time. Once we have looked at the property we give it a more thorough analysis before we put in our offer. It is important if you get your offer accepted you close so your pre-purchase due diligence is key)
a. The project is so versatile, as it lent itself to many exit strategies.
i. One possibility is to put it back on the market without doing anything or wholesaling it. The factors here are how much we would make and how quickly.
ii. Secondly, would be to add minor paint and a roof and let the next owner really do the rest of the work.
iii.Thirdly, we could fully rehab everything, including a full kitchen package, refinished floors, new windows, landscaping etc. The final option is to try and build and add anywhere from 500 to 1500 sq. ft.
5. Once we ran our proformas and realized we had a deal, Curtis called the seller. We verbally offered $310,000 and he asked if he could call us back at the end of the day, as he wanted to see if anyone else would offer $320,000.
Curtis decided it wasn’t worth the risk of losing it and gave the seller 2 options. (by talking to the neighbor Curtis happened to get out of him the name of the buyer looking at it earlier and knew him. Because of this we knew we had to act quick and didn’t want to risk losing $60,000 – $100,000 on a bet when it worked at $320,000)
1. $310,000; all cash quick close
2. $320,000; assume the financing the seller had for $320,000 at 6% interest for only 1 year. This reduced our hard money costs and ended up netting us more than offering $310,000 and also allowed the seller to get his price.
6.Curtis immediately wrote up the offer and sent it over and got a response that night. With the $320,000 and 6%, it was really a wining situation for everyone. We put in the offer at $320,000 and had it accepted within 24 hours. The terms were a price of $320,000 and the seller carry back 6% interest and only $1500 in fees for 1 year term. We had a 15 day COE (Close of Escrow) in which we closed in 12. As it was, by having the seller carry back the financing, we were able to save money which in turn positioned us better than the $310,000 all cash quick close option.
Coronado was now a GII Property
Once we locked up the property, we began calling a few agents in the area to firm up what was happening in the market. We attempted to find out:
Are their listings getting offers and for how much?
Are they receiving close to asking price and if not, what do they think their property is really worth?
Information on the sales prices and condition of the property, financing, concessions if it was a sold etc.
We decided to let two of the local agents know that if we received $400,000 net commissions, we would sell and walk away. If not, we would let them know in 30 days when we were done rehabbing before we put it on the market , so they would have a chance to bid on it.
We came to this conclusion as we figured that a full rehab would net us about $80k or $110k and would take about three months. If we sold for $400,000, this would net $80,000 in a week, which greatly increases the returns on the property. (See post about velocity of money)
Ultimately, this was a fantastic property to find, and we are lucky we could flip it so quickly. It took less than 30 days from when we received the tip, to closing the property to the new buyer.
The transaction went smooth with few headaches. The best part of the deal is we now have a trusted professional acquaintance in North County who we will hopefully be able to exchange deals with in the future, and a buyer who is an agent will also send us deals in the future (your reputation is important and San Diego is a small town, so treat people right. Do what you say, and in the long run it pays off)
This was sent to Curtis after we had bought it from the Seller.
Thanks for purchasing the home on Coronado Avenue from me. You promised a quick and easy close and you delivered on that promise. We actually closed 3 days early on a 15 day escrow! You are to be commended on your honesty and integrity in this business dealing. If everyone involved in real estate transactions performed as you have, it would make all of our lives much easier. You may use me as a reference for anyone who wants more knowledge of this transaction. Thanks again, Larry C*
By the way stay tuned for our most recent purchase at 6600 Shannon, 92115. This will be an interesting one since we are adding square footage to the property and re-configuring the floor plan.
For the most updated information & news on real estate & Gabhart Investments go to our Facebook & twitter pages
So a little bit about me; hmmmm where to start? Well first let me make it known I have no, prior real estate experience. Prior to moving down to San Diego, I studied International Business at Pepperdine University and then went into wine sales. I was involved in a small family winery in the heart of the very beautiful wine country of Paso Robles, CA. I decided I had drunk enough wine and moved down to San Diego with my best friend to start my MBA studies at USD (University of San Diego). However, that path quickly changed, and I found myself of a path of real estate. I added an additional year to my MBA studies by enrolling in a Real Estate Master’s Program (MSRE) at USD. It was at the beginning of the program in which I took and interview for the only non-paid internship position offered (all other internships were paid). That was on 9/22/10
1. Why did you choose to intern with Gabhart Investments?
It was very simple for me to choose to intern with Gabhart Investments (GI) as this internship was more encompassing than the others which I interviewed. I liked that Curtis’s business model allowed for a hands on approach involving every stage of flipping a property. I knew I wanted to learn several aspects about how flipping properties, from how to acquire to how to sell. Other internships however were more focused and would have been for too narrow in what could be absorbed and learned. Finally it was the reading of Curtis’s and Nick’s blogs and bios which sold me on joining Curtis’s team. I felt I would be a good fit after getting to know both Curtis and Nick a little better.
2. How did you hear about the internship?
The internship was an opportunity presented to us through our program director for the MSRE program at USD. She simply emailed the description and contact information. I then reviewed the web site, made an appointment for an interview, and the rest is history.
3. Why would you work for free?
The fact that this internship was unpaid wasn’t really an issue for me. I figured going in that any internship would be unpaid. If I landed an internship with pay, then it would have been an added bonus. However this dilemma did present itself. GI was the only internship not offering any sort of compensation. My dilemma was to take an internship with Pacifica Company, which was paid, or interning with GII.
I chose GII because I figured the value of what I could offer, and receive, was greater with GI without compensation, than that of Pacifica Company. What could be taken away from working and learning from Curtis seemed much more practical and something which could be readily applied.
4. What are you trying to accomplish?
I am trying to accomplish several things while interning with GI. First and foremost is to learn as much as possible about how Curtis does business. By working side by side and going to the different properties and being involved at all the different stages, I will be able to determine if this is a field of real estate which I will pursue. If this is something I find I want to pursue further beyond this internship, then I will also need to land a position either here with GI or with similar firm here in San Diego.
5. What were your views and perceptions before you started? Are they different today from 30 days ago?
In as little as just 30 days my views have changed dramatically. Prior to starting with GI, my perceptions were that flipping houses was relatively easy and that raising the capital would be the only thing holding me back from being able to do this on my own. I figured it couldn’t be that hard to by a property, hire a general contractor to fix it up, and then sell it. I wish I still believed it is all just that easy.
All ready through working with Curtis, I have a new respect for being able to be successful through flipping houses.
6. What tasks have you worked on so far?
As mentioned in the previous answer, I addressed just how my perceptions have changed in the first 30 days. So far I have only worked on the beginning of the process, acquiring the properties. Primarily I have worked on comps for the most part. This is searching MLS and other websites to find similar properties and estimate what the property would sell for once rehabbed. We find the comps in order to run our proformas to determine whether a given deal would produce the necessary returns for our investors.
7. What have you learned? Is there anything in particular that stands out?
SO far I have learned how to run comps and proformas. I look forward to the coming months as more properties are acquired and learning how to rehab the properties.
What stands out so far is how to run comps when there aren’t many similar properties in a close area to the subject property. This means how to use properties that may not be identical and how to adjust the value of such. For example if I am running a 3/2, I could use a 3/3 comp and figure that extra bath adds about $15,000 to the comp, or I need to subtract that amount from this comp to be comparable to my subject property. This could be a bath, bedroom, garage, etc.
I am also starting to learn how to deal with realtors and how to get them on our team so that they can bring us deals to buy. Curtis is great at this, because he develops a sort of loyalty with each individual agent. When an agent brings us deal, say they are representing a seller of a distressed property, Curtis will have them represent us as buyers and Curtis also promises to re-list the property with the same agent when it is time to sell. This is a great incentive for realtors to bring us deals, as they make commissions on several ends of the deal. Usually at least 2-3 times during the process, which means 2 -3 times they receive commissions.
8. What is the most important thing you have learned so far and why?
BY far the most important thing I have learned so far is hat speed is critical in this business. Curtis takes a red-light/green-light approach. Basically this means trying to find out quickly why a deal won’t work. This is a crucial skill to have and to be able to determine if a deal is worth pursuing very quickly.
Perfect example is the property we picked up on Coronado. Curtis received and email from another individual who flips houses in North County and had a property in OB on Coronado. We received the info about 10:00am. We quickly got onto MLS and searched any comps to come up with a value for what we could offer for the property. It is important to look at comps on MLS because from the comps we can roughly estimate what the property would sell for once rehabbed. If we can determine that the sell price wouldn’t return the IRR for the property we can just cross it off now, before wasting time driving the property
We quickly determined that the property, based on the comps and given rehab estimates would work for us. It was now time to drive the property and comps. Once we get to a property we can get a better feel for what rehab will be needed and more importantly, how much money is needed for rehab costs. While we were at the Coronado property we talked to the neighbor who informed us that other flippers were looking at the property just a few hours before us. We quickly drove the comps, returned to the office and were running proformas and coming up with the best strategy to acquire this property. Our first negotiations began around 2:30. Not sure what time the deal was agreed upon, by the next day when I arrived Curtis already had an agreement to purchase the property.
Because how lucrative these deals can be, speed is crucial. Had we not moved so fast on Coronado, another flipper would have picked it up. On Coronado, the property was purchased for $320,000 and with-in two days we may have it sold for $400,000 (net to us) with no work needed. $80,000 for moving quickly isn’t a bad pay day for a few hours worth of work.
For the most updated information & news on real estate & Gabhart Investments go to our Facebook & twitter pages
Over the past eight weeks, the interns at Gabhart Investments, Anthony Espinoza and Seth Struiksma, have learned the nuts and bolts of renovating residential properties in San Diego and have made valuable contributions to the development and growth of the business. In addition to interning at Gabhart Investments, both Anthony and Seth contribute much of their time on the Board of Directors for the Real Estate Society of San Diego State University. The main duties for the interns are to assist with acquisition research, frequently update the website blog, and ultimately create a personal business plan to use as a guide for the future. At the inception of the internship, both interns contributed their ideas and efforts towards writing the Gabhart Real Estate Opportunity Fund business plan. They were instrumental in finalizing a plan that would eventually be sent out to investors. Once the Fund was established, Seth and Anthony assisted with design ideas and materials for the property renovations. Throughout the entire internship, the interns documented the processes, procedures, and skills they learned on a daily basis. For more information on the Real Estate Society at SDSU, go to: https://www.realestatesocietyofsdsu.com
Ok enough with the fluffy crap, Here is the no BS Curtis version…..
Those two spent there summers with a fat grumpy dude learning how what it takes to buy properties in this market WITHOUT GETTING PAID (the fat grumpy guy is me). The fact that they were willing to put in all that work without getting paid to learn the business shows me that they are serious about making it in life.
Personally I know my greatest rewards have coming from putting my balls on the line with the understanding that I may not succeed but if I do the rewards will be great. Not everything has always worked out the way I wanted but in my opinion it’s not whether you fail that counts it’s whether you don’t give up and keep going until you succeed that makes you a success (it doesn’t have to be money. Do you have any idea how hard it was to land my wife??? Now I have her though and she’s stuck.)
I have had many ventures that have made me fall flat on my face.
When I was 6 I decided to sell used books door to door. This was my first lesson in keeping the overhead low. I hired this cute 6 year old girl as my secretary and paid her a dollar a day. I think she ended up making more money than me.
Also looking back at it I wonder what the fudge was my baby sitter thinking letting me sell books door to door when I was six???? Can you say Chester the Molester? I’d be kicking some babysitter ass if they let my daughters do that.
Over the years I mowed lawns, painted and even bought 12 coin operated alcohol breathalyzers from ebay that I thought would make some serious coin by putting them in bars.
Well the only thing I got out of the breathalyzer business was a video of me opening the boxes, plugging all the machines in and watching all the pretty lights flash on them… The best part was when I talked to the video camera saying “if these don’t work out my wife is going to KILL ME!”.
Well needless to say the first bar I brought them to (a biker bar in spring valley) a drunk came up and thought it was a game and started drinking shots and blowing into the machines to see how high he could get his alcohol level. Needless to say I figures the liability would outweigh the potential money.
There were many many more adventures like that which I won’t bore you with until I found a niche I could do well in. That niche was Real Estate and I busted my hump and worked for free for a long time (and a lot of nagging from the wife) until I finally made it.
It hasn’t been an easy journey and I can’t say I never lost any money because I have. I can say that I love what I do and if I didn’t do this I would probably be working in Taco Bell still (my first legal job).
Well in summary I think they learned a lot and even if they learned that they hated the business (which I don’t think happened) it’s better to find that out before you go and make a career out of it.
I just want to thank both of them and let them know that they have a lifetime of free advice and help (it’s probably worth what they are paying me for it).
From our last meeting together Seth is actually interested in getting into the commercial brokerage business which I highly recommend and Anthony is going to Spain for a semester to drink some sangria’s and decide on what he is doing.
So in summary – A+ (even though I never got an A or a B or really many C’s)….
BTW – if you enjoy these posts at all do me a favor and click the sharing button and share. If you don’t like it and think it’s crap share it and let them know my name is Jon Jerome.
For the most updated information & news on real estate & Gabhart Investments go to our facebook & twitter pages