Not all investments go as planned, which was the exact case with one of our investor’s properties in Woodinville, WA. There were quite a few bumps in the road, but they were able to adapt the renovation plan and budget to accommodate unexpected issues, and ultimately make a profit.
From the outset, this looked like a great deal for the right investor; a 2,200 square foot home situated on 2.5 acres set into a private, wooded area close to Woodinville’s coveted wine district. The original house had 3 bedrooms, 2.5 bathrooms, and a 600 square foot detached garage. The home was a foreclosure sale, it was dated and would need a lot of work, but it looked like a great opportunity for the right investor.
Purchase Price: $530,000
Renovation Budget: $150,000 ($25,000 for landscaping)
After Renovation Value: $875,950
Projected Return: $73,000
Timeline: 6-7 Months
The house was generally in good shape, but the interior needed a cosmetic remodel. The layout of the home had a number of interesting characteristics, including a sun room off the sunken living room. Most of the budget for interior renovations was going to towards new paint, updating the kitchen, and a few other minor updates. Most of the budget was initially allocated for the exterior of the home, which needed all new decks, a new roof (big ticket item), windows, exterior doors, and garage repairs. One of the best features of the home was its privacy and seclusion on a large wooded lot, the investor wanted to put a lot of the budget into landscaping as well as updating the exterior decks so the buyer could truly enjoy the exterior of the home.
Flipping a home like this, in a high-end area, means that the updates to a home need to be the right kind of updates. Buyers in this area savvy; they’re looking for a home that is stable and built to last. Because of this knowledge of the local buyer pool, the investor knew they needed to look into the roof and ensure the initial budget included fixing the original roof line. This was an expensive fix, however, it’s the kind of repair that buyers in the area and at this price point would expect.
What actually happened…
In January of 2019, the market hit a giant pause button. After three years of upward trajectory, property values started to drop, and this Woodinville property was no exception. It was estimated that the value of this home after renovation dropped 7%-10% off of peak pricing. The investor tried to sell the property without any luck, months were ticking by and this investment was getting held up with permits and attempts to sell. Looking at a potential loss, they tried to get earnest money back, but the $20,000 was non-refundable. Another inspection of the property revealed a septic system that was faulty and did not pass the second inspection. It was back to the drawing board. A new plan was needed to find how to avoid a loss on this property.
Our team reassessed the value of the home, the scope of work needed, and finally they had no choice but to extend the timeline. The team decided that this home was going to need a lot more work than was originally expected if they were going to place it in an entirely new price bracket and capitalize on everything the lot had to offer.
The New Plan:
The renovation budget received a $70,000 increase, now budgeted at $220,000,with all work to be done in a 10 month time span — extending from the 6-7 month original timeline — to bring the projected ARV to $995,000. Pouring more money into this project would make it a considerably larger undertaking, but the ROI also increased by an additional $10,000, and our experts were also banking on a more stabilized market by the time the project was completed.
Due to the change in project scope, which was now approaching the $1 million price bracket, it was time to reevaluate some of the finishes and to design a home with the custom luxury expected at that price point. Some of the items affected by the budget increase included:
- Metal Roof (doubled the cost).
- Black windows (20% increase)
- Pre-finished wood floors (33% increase)
- Upgraded kitchen layout (30% increase)
- Solid core doors (30% increase)
- Upgraded appliance package ($5,000 increase)
- Metal Railings ($4,000 increase)
- Farm house siding ($15,000 increase)
- Fixture upgrades (100% increase)
After 11 total months of holding time, the investor was able to list the property at $999,950 – nearly $100K above the projected list price. After four days on the market, the house went pending, and eventually sold for $1,050,000, above the expected amount at 105% of the list price. In the end, the investor made a net profit of $109,561 after lending costs.
Projected: Actual: Purchase Price: $530,000 Purchase Price: $530,000 Renovation Budget: $150,000 Reno. Budget: $232,000 Timeline: 6 – 7 Months Timeline: 11 Months After Renovation Value: $875,950 After Renovation (Sold) Value: $1,050,000
Interested in renovating your own modern farmhouse? Give us a call to find out how we can help you get started!
New to investing and not sure where to start? Check out our Investor 101 Class held bi-weekly at our office in Bellevue. Our co-founder James Dainard will walk you through the steps to start investing in all aspects of real estate.