Today we celebrate the 50th episode of the FortuneBuilders Real Estate Investing Show!
JD Esajian and Dan Wright from CT homes present a property case study of a home that they recently renovated and sold in San Diego.
Listen to the Podcast Here:
Property Case Study
All right. All right, everyone. You’ve got your good friend, JD, Esajian here on the FortuneBuilders Real Estate Investing show. And once again, I want to remind you and introduce you to my partner in crime Mr. Daniel Wright. Hello, JD. Hello, welcome. Once again, we’ve got a powerful action-packed show. There’s not as much action as in the Fast and Furious franchise, but we’ve got some tie-ins with Fast and Furious and a lot of action on this podcast nonetheless. We’re going to do another case study for you today. I’m talking hot off the presses just closed in recent market dynamics that we’re going to talk about. We’re excited, we’re anxious, we’re ready, and we’re gonna get after it. So hold on to your pants. Hold on to your seat.
Word of the Week
Before we do, we have to talk about the phrase or the acronym or the Word of the Week, which speaking of Fast and Furious as you just watched this movie, it’s one of those things when you’re flipping through cable, and you see Fast and Furious 2 or 5. You’re like, oh, man, what’s happening with Dom and the guys and gals in this one? I did. I did watch 5 or 6 or 7. I don’t remember exactly. But the word or acronym of the week is DOM. No joke, ladies and gentlemen. We’ll talk about what that stands for later on in the show. Let’s get after it.
Aquiring the Deal
Dan, why don’t you add a little color around anything unique around the negotiation with the agent or anything there that people can learn from?
We purchased it on the 25th. It was listed on the 11th. When John did his morning filter process, and it’s an agent that we’ve always wanted to work with. He does a lot of listings. What helped us, as you mentioned earlier is we know this area very well and probably better than any other investor. Our confidence when we make offers on a property like this is extremely high. We were also excited because it’s a four-bedroom house. This area has a lot of three bedrooms. This model which we renovated the exact same model before, it’s got that fourth bedroom, which is kind of a den in front of the house. So it’s a very appealing layout.
And that helped so we could tell the agent we have renovated this exact model before and it shows him our competence level. He knew we hadn’t seen it yet. We called because we just saw it. We’ve renovated this before. We know the numbers. He listed it at 899. It was a very attractive price, a good list price. So back in January, keep in mind, different markets back then when we actually could have paid more than 966. Now it’s like you have to have your threshold. You have to draw the line somewhere so that you’re not getting too silly with overpaying because the market can shift which we’ll talk about. So we made our initial offer at 966. And so it was listed on Tuesday. We all got on it on Tuesday and Wednesday.
He did want us to go see it, which is fine. This is in our backyard. It was a five-minute drive. So on Friday, John drove to the house to walk through it. It’s what we expected and what the agent had in the confidential remarks. So this is in the listing. It doesn’t get syndicated on Zillow, Redfin or other websites. He put this in the confidential remarks and this is great. I’m going to read this.
“Sellers to review offers on Monday the 17th, but feel free to make a great offer and tempt them to accept you sooner”. That’s great. I don’t think we’ve ever seen that kind of communication in the confidential remarks of a listing.
So John on our team did tempt the seller, and back then we did put an expiration on it. So we knew we’re coming in 67,000 over back then. I know they had over 20 offers. So we put like, here’s our offer, and it expires on Sunday. We don’t want this to get to Monday. And they took our offer on Sunday, the 16th. It never got to that fact where when people see this, they might think, okay, I’m just gonna submit my offer on Monday. That’s too late. As far as terms go, it was cash as is. And we offered a 9-day close, it was already vacant was choice. The seller’s choice was already vacant, they wanted the 9-day close. So we open escrow on the 16th. And we closed on the 25th.
Let’s go ahead and shift to the renovation. I’m going to talk about some of the numbers on the renovation and then we’ll look at some photos. I would call this a heavy cosmetic upgrade. Sounds about right, right? We didn’t do really major layout changes per se, but it needed renovation everywhere. It needed a new kitchen, new bathrooms, and flooring. It was really dated, which we’ll look at here in a moment, our budget was 140, and we did spend a little bit more than that when it was all said and done. We had to go back and do a couple of things before we found our buyer, which we’ll talk about and get to the sales side. We had a four-month timeline. We stayed pretty close to that. We had a good timeline for the renovation that we met.
We have had the end in mind. Now you should always have your finished product in mind. The reason I put that there in this particular example is Dan knows and we’ll talk about in more detail and get to the sales side after we look at the pictures. But, there’s this particular model home that has some good things going for it in the four bedrooms, it also has some things that I’d say are less than ideal for the way buyers live today. The layout and living room in this particular home I would say is awkward.
It’s not uncommon in this neighborhood. But we’ll look at photos, you kind of walk into the living room. And that living room is your family room kind of TV room, and then it moves to the kitchen real quick. But there isn’t necessarily a great feel in this model. And it’s kind of odd the way you walk into the room. And you’ll look at that. In fact, let’s look at photos now for that reason. So with regards to the renovation, having the end in mind, and this example means
“You can solve a lot with staging.”
You can also hurt your finished product with staging as well in this particular house. I wouldn’t say we hurt the finished product when we staged it initially. But we didn’t hit it in the bullseye. We didn’t help it. We didn’t help at any point in staging. And that’s the whole point of staging. And really that’s on me in terms of managing the sales.
Selling the Property
So we ended up bringing it on the market initially on May 31st, 2022. Our original list price, which in hindsight was a little hot, was 1,259,000. Now, almost right around there is when It’s kind of shot up and things slow down. So in hindsight, which you don’t have the benefit of when you’re there, we would have listed a little bit lower, but we decided to give it a shot and see if we found the buyer that that was maybe had locked in their interest rate lower and wanted to.
And in fairness, the house across the street was just a little bit bigger but outdated. It almost looked like how ours looked that closed in May for 135. So it’s like, alright, it’s a little bigger, but data that’s bounced that out across the street, buyers and agents should see that as a comp. But like you mentioned, things shifted so much, who knows what that guy’s rate was when he locked that up in April. So it made sense at the time looking back.
We could have done things differently. But it didn’t make sense. We gave ourselves a chance. 1,259,000 was our original list price. Before we sold the home, we ended up having 10 open houses. We originally received our first offer on the 18th of June. So very short, not too far after our original list price. And again, in hindsight, the original offer that we got was from that first buyer, which didn’t end up working with was 1.2. Now, if I were to go back, I would have worked a little bit harder to create a middle ground. They were kind of stuck at 1.2 and I was not ready to come down to that number at that time as I was negotiating, so we didn’t end up coming to terms with that buyer.
Ultimately, for the buyer that we did work with, we accepted an offer of 1,212,500. Now, again, learning lesson here, we don’t get a chance to go back in time and change our decisions. But I’m going to teach around that now. If you get a strong buyer, and you’re in a position to make money in any market, you want to make it happen. We had an awesome speak personally with what the market had been doing. Even though I’ve been investing now for 20 years, you get kind of caught up in the hype of the market. And personally, I would have worked a little bit harder with that original buyer at one to try to get them up because of our additional hold time and holding costs, we would have probably ended up at the same kind of number profit-wise, but you live and you learn. And that’s why we’re doing this as a case study.
Something else you look at too is the inventory. When we have that offer, and we look at inventory and say, well, what else are they going to buy for 1.2 or 1.259? Or somewhere in the middle? Nothing. There were higher houses at one three that were sitting actively. When we bought the house in January, there were five homes available in that area five. And so, when we make this decision, and, at the time, there was maybe 15 or 20, that’s still super low, very low. So it’s like, well, okay, they’re gonna go buy something else, which there isn’t, or you’re gonna pay our price. And it’s a good reminder like you said that the market talks to you. If that’s what you’re getting, and you have no other offers, then that’s a good sign of what’s gonna happen.
From when we listed it to when we ended up accepting our offer and closing, rates had gone up two points. You don’t often plan for that in your analysis. But again, that’s why Dan and I decided to do this as a case study because you gain experience over time. The market does go up and down. Markets changed and are changing. You want to factor that into your pricing. You may even want to look at your cost basis on a property and what the market is doing. Are you okay putting it out there just to break even because you see the market trending down as it is in many areas? I don’t want anyone to lose money, and I certainly don’t even want people to break even, but it might be an appropriate exit strategy for you if you’re not planning on renting it. It’s something to look at.
Thank all of you for watching, supporting, subscribing, and liking. Again, if you’re listening to this, and you’re not watching it, I would highly recommend you go back and watch this episode for a lot of reasons. The things we talked about will make more sense the learning lessons will be ingrained deeper. We’re super happy to bring this 50th episode of the FortuneBuilders Real Estate Investing Show. For the record, JD, you look much closer to 40 than 50.
Thank you. I feel much better now that you say that. I try. I put Sabra hummus on my face every night to tighten the pores. And some of you like is does JD really do that? Well, you’ll have to tune into our other podcast to find out. Thank you for supporting us. Share this, like, subscribe, give us comments and feedback about what you want to hear more of, and share the word for us here at the FortuneBuilders Real Estate Investing show. Thank you, everyone. Hopefully, see everyone at Ignite later this year. But you better believe we’ll see you on a future podcast. So take care, everyone.