JD sits down with Dan Wright to talk about one of CTHomes’ latest deals. Tune in to hear about CT Homes’ full process of how they found and purchased the property, up until they sold it. JD and Dan discuss the systems the team used to assess market value, how much they spent on renovations, and how much they sold the home for. Don’t miss this case study to see before and after photos of the property and learn about the systems CT Homes uses to find success.
Listen to the Podcast here:
CT Homes Case Study: A Flip From Start to Finish
Hello, everyone, and welcome to the FortuneBuilders Real Estate Investing Show. If you’re looking for Jeff Rutkowski, he’s not here today but you got JD Esajian and no flattop like Jeff does. He’s got great hair. But you got me today and I’m excited to be here. We got a great show planned for all of you watching and listening. It’s actually a first-ever on the FortuneBuilders Real Estate Investing Show. We’re gonna do an in-depth case study of a recent CT Homes property and I’m not flying solo today. I’ve got my sidekick, my good friend, my business partner, Director of acquisitions, Mr. Daniel Wright, aka the right stuff. Oh, man. Well, thank you. Thank you, JT, and brother in law, can’t forget that.
Fellow Del Taco lover, we got a lot we’re going to cover today. We may even get into the different hot sauces that Del Taco has to offer, whether it’s the del scorch show or the just if you want to go at the basic read very tasty. We could literally talk for 45 minutes about Del Taco, no joke. But we’re going to get into a case study that we recently completed at CT Homes that we sold just days ago. Break it down from start to finish.
Word of the Week
Before we get there, we got to talk about the Word of the Week. Ladies and gentlemen, viewers and listeners the Word of the Week is ADU. That is an acronym. Don’t think it’s adieu. No, it’s French JD, French.
It’s French for “I don’t know what that means”. ADU is the Word of the Week. It is an acronym, an important acronym in the real estate space, especially in recent months and years. We’ll talk about what that is. We’ll talk about how it relates to the case study we’re going to go through. So let’s get into it.
Finding the Property
Let’s talk about the acquisition strategy, and how we bought it. So what we’re going through now, we don’t own this property anymore, because we sold it. 3501, Grim in San Diego, California, 92104. Correct? That’s correct. North Park is a neighborhood in San Diego, a very popular neighborhood. For those of you that aren’t familiar with the San Diego market, I’ll show you where it’s at. But first, I should say the three words that or the three things that make real estate very attractive or that people always talk about being important are location, location, location.
It’s funny, JD we were actually yesterday talking about the L-word. That is the most important right now in real estate and you would think it’s location. It’s “liquidate”. We need to liquidate so you can buy properties that buyers are having to do right now. Liquidate, liquidate, liquidate.
That’s a great lesson. That is also important to give everyone a visual. For those of you that are watching, for those of you that are listening, the home is pretty centrally located in the San Diego market. We have a lot of unique neighborhoods in San Diego, not unlike other cities across the country. But San Diego for those of you that have been here or haven’t we have got a lot of great coastal properties. We have some really, I don’t like the word trendy, but cool neighborhoods. Hipster. Yeah, you get your beard wax and you twist up the ends and may do that. So I’m trying to, I just don’t know what kind of wax to use. But I’m working on it, fun neighborhoods, great restaurants, walkability, older homes.
Again, this isn’t unique to San Diego, but this particular home is smack dab in the middle of I would probably say if not the number one, maybe the top three, cool, hipster, trendy fun walkability neighborhoods in North Park. This particular home is very close to Balboa Park, which is where the San Diego Zoo is, and many other cool features. You can literally be at the water, whether it’s Mission Bay, or at the ocean very quickly. So again, very well located and those of you that are watching right now are seeing where it’s at on the map.
We’re going to talk about a couple of numbers and dates of when we bought it, Dan, why don’t you break down if you would please, how the property came about where we located it, and the marketing strategy a little bit about the seller and the acquisition and negotiation so we can teach the group about that.
This property was listed on the MLS, multiple multiple listing service, another acronym, and it was listed by an agent that we hadn’t worked with before. We knew his name, he does a lot of listings. We learned over the years that he doesn’t like working with investors, as some agents are that way. That’s just how they are but that doesn’t stop us. We’re still gonna offer on it if we see the potential. So on this house, it was listed at 755. He priced it right. It was a clean house. It showed pretty well. He had solid floors and it was clean. He did know that it had some foundation issues. It had a crack stem wall that was disclosed to us at the time we spoke.
Because we called and we wanted to find out more about the property and see if it could be a potential fit for us, he told us that three sisters had inherited the property and it was a rental and he was the property manager. So we’re starting to hear some motivation. Everyone’s listening or watching right is starting to develop here with them sharing some of the motivation behind it. So he knew a lot about the house because he managed it for years. He knew the ins and outs of it. But he wasn’t the most friendly. He’s like, “ah, you guys, I know how investors are” and he just had a bad stigma with investors. Our goal was to change his perception, as we like to do with agents. He told us no blind offers, you guys have to go see it, which is fine, not uncommon to want that to happen. And he was adamant that it’s an as-is sale, you will not come back asking for any reductions, any credits, any price adjustments, what you offer is what you’re paying. He was absolutely adamant about it. Just black and white. No question. There are no games. He’s like this is how it’s gonna be. I can respect that. So I’m sure some are sure. A lot of agents will say that. And some actually, obviously, in his case mean it. Others understand that. That may not be the case. But right. You got to listen, not only to the words that someone says but obviously between the words and how they say them.
That’s why he had a bad taste in his mouth from investors because other investors would play games. And that’s frustrating. So our goal was to make it a nice, easy transaction. So we went over, we went to the property, we walked it. It was perfect. It’s what we expected. He had disclosed it to us and he actually had it in writing in the MLS. But the seller says the main sewer line has been replaced with ABS plastic. Okay, that’s a good thing to know. So property, it’s pretty much the only unknown we didn’t know physically about the property. We saw the cracks in the foundation. We submitted an offer at the list price. He said that that’s a good offer, but it’s not going to get it done. Okay, at any color commentary he did he said he had higher offers. So in this market, that’s no surprise at all, he priced it right. 755. Yeah. He said he had end-user offers up to 800.
Okay, strong. Those of you that are listening and watching and are currently in the market, understand, and probably those of you that aren’t, I’ve heard, it’s extremely competitive out there right now. I mean, it’s definitely a seller’s market. And what Dan’s describing is that with this fixer, basically, it wasn’t torn up. We’ll look at some pictures soon. I’ve said it before. So before Dan finishes, I want to drive a point here and this is a key lesson, I can guarantee everyone watching and listening. If you never write the offer on the property you won’t be able to buy it. I can guarantee you that.
Making an Offer
No matter what the condition is, or what the seller is saying, or whatever the situation is, you have to get the offer and follow the guidelines that the sellers or the agents are giving you. This is an example of how sometimes the right offers before we go into the home. But that wasn’t the case. So we had to get over there. Do all of our analysis, boom, make sure we get the offer in. But when we hear “no” or “you have higher offers than what we wrote” doesn’t mean we’re done with the deal.
Yeah, it means we need to have further discussions or discussions to help guide us to where we need to be. So it’s all in the follow-up. You can’t just formulate your offer, send it to the agent, and then hope the phone rings saying, “Hey, congrats, we’re taking it”. It just doesn’t work that way. It takes three to five calls to keep asking, “where do we need to be? What are the other offers look like?” And not every agent shares. Exactly.
“With the right questions, we can get guidance to where we need to be”
It’s a great point, everyone, that’s listening and watching: three to sometimes four conversations on these transactions with the seller and the agent to get to where we need to be by asking the right question. He had told us they had up to 800, but the three sisters who inherited it knew about its foundation issues. Financing could be difficult for a traditional buyer. The agent had told us if we were within striking distance of 100, close, maybe somewhere between where we were and they are, we could get a deal done.
Okay, excellent information is very helpful. That number was 785. We asked him “would 775 get us in the water?” Yeah, testing it. He’s like, “not quite, you know”. We add another 5k on that and we arrived at 785. He’s like, “Hey, if you guys are at 785? Put it on paper. I think they’ll take that” Okay. So it’s like, all right. Well, we’ve heard what we needed to hear. We did that. He reminded us again, that it’s an asset sale. Don’t ask for anything. He definitely wanted to drive that.
On this one, we got the numbers up perfectly. You can see there, that the contract price was 785. That’s what we offered. He didn’t want to represent us on the purchase, and some agents are wanting to, some don’t. We always ask. It’s up to them. Their option, give them the option to make that decision. In this case, he did not.
He said, “you know what, I have three other properties that I’m going to sell for them. Those aren’t a fit for you guys. Those are nice properties” But this one, he’s like, “I don’t want to do that. I don’t want a conflict of interest. You guys represent yourselves”.
And that’s good to just stop there. And I can elaborate on that some agents, not all of them, but some look at representing both sides as a conflict of interest. You can look at it that way. I think if you do it properly, it isn’t. But some agents just don’t want to do that. So don’t automatically assume that. The lesson there (for those of you listening or watching) is don’t automatically assume that every agent is going to need or want to represent you. In some cases, they don’t. And this is one of those.
Selling the Property
Okay, so now onto the last piece here sales, and then we’ll share some key takeaways before we wrap up today’s show. Selling a home is a lot of things. First off, you have to get people to know about the home and that’s marketing, social media, online, the MLS is a must. So writing and crafting a great listing is vital. Creating emotion, urgency, how you write the description, the photos that you use, how you take them, the order of the photos, all these things.
There’s nothing neutral when you list it. I’m very particular. I love listing homes on a Tuesday or Wednesday. We’ve tested and measured and sometimes we’ll list homes later in the week. In our experience, when you list homes in the middle of the week (Tuesday or Wednesday) a lot of agents and buyers have a weekend hangover on Monday. On Friday, they’re already on the weekend. When we list in the middle of the week (Tuesday, Wednesday) we typically get more momentum towards the weekend. If we’re doing open houses, more momentum towards more offers, we can get into escrow faster. There are just a lot of good things that happen. So again, there’s nothing neutral on a listing.
Here you’ll notice (well, if you’re not watching, you’re not seeing this) that we listed the home at $1,199,000. That’s different from what we estimated the after repair value to be because markets change. They go up, they go down, they go up, they go down in this market or in this current environment that we’re in many times they’re going up. Dan, why don’t you talk about what we do throughout CT Homes so everyone can hear it. Hopefully get in your notes and implement in your business, how we stay in touch with the market on let’s say a home like this on Grimm as we own it to determine what the value change could be (up or down) during ownership.
What I do after we buy it, is I go back to the MLS and I create an auto comping filter. It’s similar to how agents are working with buyers. They set up a search that’ll feed the buyer properties to look at. It’s similar to that but it’s comping for this property. I set up a search for what the comparables are. I did two of them. I did single-family and two-unit and I wanted to see both.m Throughout the entire process actually, as soon as we open escrow, I create it so we can see what happens during escrow. The whole time, whenever there’s a new comp in the neighborhood we get notified, and then we can see values are creeping up. Then, we can confirm if we haven’t started the rehab, we could change our scope of work if we want to.
Pulling Comps
Throughout the whole process, we’re watching the comps change so that when we go to list it, we’re not surprised by what the new value is so we’re prepared for it. For this one, prior to listing it, I went ahead and called so I had the comps and there were some pending comps in there. We don’t know where the pendings are going to close or what price they accepted. This is a good lesson for everyone to hear. There were three good pendings that just went pending. And they were right around 1 to somewhere 1.5 and they all sold quickly. We know that’s gonna be pretty strong. They probably got an offer above, definitely at and likely above what they listed at.
This is a phone call. This is not an email where you email “hey, what price are you in escrow?”. I call the listing agent on their pending sale and find out what it potentially is selling for. This is a money question. This is not only a big-time gathering information for our property. As an investor, it gives me another reason to talk to an agent to see if they have a fixer we can purchase. It’s a dual-purpose call. I’ll call the agent and they were listed at like 1.3.
I called him and I said, “Hey, we have one coming up on Grimm. Yours is a great comp”. And he said, “we’re in escrow at 1.6”. I was like, bingo. They were 150,000 higher than the next offer. It’s good to not just find out the price, but what was your overall activity? How many offers did you have? Was one guy way higher, and everyone else down here? Was everybody higher? Gather information. That house was in a little bit better location and a little bit bigger. So that’s why one-six was justified.
There’s another one that I called that was very similar. The primary house was a three-two, we’re a one and a half. So, it was a superior property. He said he was pending at 1.5f and had six offers. They actually had a higher cash offer that they didn’t take, or no, I’m sorry, they took a cash offer. They had a higher financed offer that they didn’t take. And I told him about ours so it’s a win-win call. Not only am I calling for information to get from them, I’m asking them if they have a fixer, but I’m also offering them an opportunity. If they have leftover buyers, they can bring them over to our property. That’s why they’re more willing to share information. So we’re adding we’re offering something first as opposed to asking for something, and the ability to buy another property they have coming up, bring their buyers over to our new listing.
That’s and that’s kind of the last thing I asked. I always call and say why I’m calling like, “Hey, we have one on Grimm coming up, we just finished it. It’s renovated. I’m pulling comps now to confirm values. It looks like the markets are pretty crazy. It’s hard to nail down a list price, how did your strategy work?” and then and then they just start talking.
To those of you that are listening or watching, understand that we’re feeling pretty good about the value of our home at this point, because we had an estimated 1,030,000 ARV, after repair value, not to be confused with MLS (multiple listing service) or ADU (accessory dwelling unit) or JD, which just stands for JD. We’re feeling very good about our ARV – meaning the value of our home now is clearly worth more than when we bought it. Now, that’s partly because of what we did to the home. But it’s also because of what the market is doing. Dan’s gathering intel helps us define. It will help you define what you should bring your property to the market for and what you can expect to sell it for.
So that is with that information, why we listed the home at the number that we did 1,199,000. Now we also felt that we would sell higher than that. But we had this range in the conversation of what we thought we’d sell it for from 1.2 to 1.4 is kind of what we had thought originally until talking to the pendings. Then it was “alright, this is gonna be between 1.4 and maybe 1.5. From the previous listings we’ve had, we’ve learned that if you’re making the calls, it’s better to price it a little bit lower to get the interest because a lot of people aren’t even on the speed with what the market is doing in real-time now. It can be (in some cases) a disadvantage to list the home at what it’s worth because it might scare some people off from even getting there to see the home to see how good it is.
There’s a pricing strategy, depending on what your markets are doing in a fast appreciating market, like a lot of us are experiencing. Now, you don’t want to be super low, but you want to be low enough to where if they’re going to go out and look at houses, they’re definitely going to look at yours, they’re not going to leave it to the end because it’s out of their price range. They’re going to fall in love with it. Then if the agents are knowledgeable of the marketplace, then they’re going to educate them on what the markets are doing and what they need to come in at.
It also helps get more than one offer, potentially, which it did here, and put us in a position to find the perfect buyer, which is really the goal of any sale. Sales are about momentum, how quickly you get it done, of course. Once you’re done, when do you list it? How do you do the open house? How do you create the marketing plan? How do you counter offers if you’re getting offers? How do you discuss and communicate with the agents that are bringing their schedules and showing the urgency that you create an emotion at the end of the day? One of the things I’ll share that we do is craft a description that creates an emotion in your property. Not a newly finished garage, a newly painted house, or a newly renovated kitchen. That is not emotion, that’s redundancy because they’re seeing it in the photos.
Ladies and gentlemen, this is emotion: “A charming North Park craftsman. No wait, hold on. Charming North Park craftsman. Don’t miss the opportunity to own this beautifully upgraded craftsman with a positive passive income opportunity. This two-on-one property is modernized with custom finishes while maintaining the original style and craftsmanship that this historical area is known for. These homes are highly rentable, as each home has a separate entrance, low maintenance, landscaping, and is located a short distance to restaurants, brewery shops, Balboa Park, and downtown San Diego airport, and are easy for you to access. Come explore all that this property has to offer”.
Good description. That’s good stuff. That’s poetry in motion, folks. Um, we’re joking a little bit, but we’re actually not. These are the kinds of things that when someone’s reading the description, they’re looking at the photos of your next renovated home, they cannot wait to get to the home. Then when they get to the home, they feel like they’ve been in the home because they’ve read a description of you walking them through the home. They’ve seen the photos. Now all of a sudden, you get a strong offer, you get multiple strong offers, or you get 41 offers like we just got on the property we listed last Friday.
Not this home, but last Friday, a couple of days ago, listed the home. Within days, we have more than that now. I’m not guaranteeing when you write a great description you’re gonna get multiple offers, but it will help. The other thing is that we got three offers on the property. We would have gotten more, but the offer that we ended up accepting was with a real estate agent that I had known from a previous transaction because he and his clients wrote that it was also a two-unit property. They wrote a super-strong offer, but they did get beat out by another super stronger offer. When that happens and I have another property or you have another property coming up that could meet their needs, I let them know about it.
I told Rick, “Hey, Rick, we’ve got another two on one possibility on Grimm for your clients. Go by and look at it”. He did that. So, he already knew about the property and he called me two or three times before after he lost out on 31st that he offered on with his clients to when we were done asking me when Grimm was going to be done. I gave him the details as soon as it was done. He went over there. Pretty much as soon as we listed it, he wrote a very strong offer in the high 1.3 range (right around 1, it was in the high 1.3 range). I asked him if he wanted to take it off the market price. We discussed that. He said yes. We ultimately ended up accepting an offer and going into contract at $1,415,000. That was before the weekend.
That’s good, too, right? Because you listed on a Tuesday, buyers are motivated to get it into escrow because the last thing they want is it is about to hit the weekend and there will be open houses. I create urgency. It’s a good deadline whether imaginary or not. Most deadlines are pretty much imaginary to some degree, meaning they can move. There might be consequences. Creating a deadline and using it to help in the momentum of negotiation in the transaction is another lesson here on the sales side. The last thing I’ll leave you with on the sales side here and some learning lessons (I’ve talked about this before on different podcasts) is we do something within our program within our sales cycle (you should as well). We offer some things that aren’t normal or customary to offer right out of the gate. We “certify” our properties. What that means for us at CT Homes, is we provide things that they may not get looking at other homes. We prepay for our home warranty for our buyers. We, in some cases, not on the case of Grimm here, but in some cases, we’ll get a home inspection on the home once we’re done for them. They may opt to not get their own home inspection, although most people will and should. We already have an escrow open (in most cases). We already have a title pull.
These are the things that we’re going to either have to do anyways. They’re gonna get negotiated in the transaction, as Dan knows. We take care of them ahead of time. Again, momentum, urgency, race to the finish line (for those of you that just got done watching the Olympics recently). When you have momentum, and you have the wind at your back, or in the case of the recent Olympics, the wind in your face, you create that momentum, and you get to the closing table a lot faster. That’s what the certified process is. Bring in this thing. Speaking of the finish line, Dan here’s our final wrap-up and our final numbers here of this first-ever CT Homes in-depth case study with Mr. Dan Wright.
Final Profit
As a reminder, we bought the home for 765,400 and that was after we took the commission that we talked about in the beginning as me representing CT Homes as the buyer and put it into our back into our cost basis to lower the cost basis. We bought the home at the end of March of last year with an original ARV of 1,030,000. We talked about how that value changed and why and how we assess it. Our market value at the time of sale was a sliding scale. And I’m not saying that to be vague but the properties that were pending hadn’t closed yet. We felt good about the property being able to trade in the 1.4 (maybe plus) range.
That market value was definitely based on recent sales at the time of listing, so that’s like sold are good, but what’s happening now is pendings. The market value was definitely correct based on current solds. We spent 140 on the renovation, we literally sold it days ago. The financing costs were 66,000. (For those of you that aren’t watching, I’ll read the numbers). Financing costs is the cost of money that we borrow from our bank and our private lender in second position. Transactional costs (commission, closing costs, escrow title, those kinds of things) were 46,000.
These are estimated numbers because we don’t have all the closing papers. Well, actually we do as of this morning, but they actually came after the show, because that’s how recent this is. So about 46,000 in transactional costs, utilities, insurance, etc. We sold the home at 1,415,000 American dollars, and we sold the home on February 18 of 2022. The estimated profit on this case study that you’re learning from and have multiple nuggets to apply to your business (this is estimated because we haven’t closed everything out yet) Is $375,000. It’s not a bad profit. Not a bad day at the office, ladies, and gentlemen.
Summary
I hope everyone enjoyed the learning lessons in this case study, for those of you that were watching the photos, for those of you that are listening, obviously the points that Dan and I brought out that you can implement on your next transaction. This is something that we’re going to do more frequently. I’m going to shoot for once a month. If you like that idea, give us some love in the comments. Tell us what you might want, and what type of case study you might want to learn more about in terms of residential or small multifamily transactions, we’ll definitely try to oblige those requests.
Let us know if you like this show. Dan, thank you for joining me. Thank you for having me. And well, great job today. Thank you, same to you. Thank you. Appreciate everyone tuning in to listen or watch. We really love doing this and we really love having you a part of this activity. I’m excited for everyone to implement what we’ve learned on this show and excited to see you on the next podcast. So take care, everyone.
