CT Homes’ very own JD Esajian and Dan Wright come back to dive into another case study of a property they rehabbed and sold successfully. They discuss every detail that went into their newly sold San Diego property. Find out how JD and the team used their established systems to get the highest return possible on their investment as well as the aspects of this property that presented issues during the rehab. Listen through the episode to hear what surprise the team received when closing the deal.
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CT Homes Case Study: How to Flip a Unique Home
Alright, everyone, welcome to the FortuneBuilders Real Estate Investing Show with the shortest name and podcasts. We’re here to talk about real estate today. Once again, this is the second time we’ve got a great case study. A CT Homes recent case study. When I say recent, I mean hot off the presses wouldn’t even describe it. It really just closed. There are a lot of learning lessons that we’re going to get into. Got another great guest, Dan, Mr. Wright, right here in the studio with me, and we’re going to cover this case study from top to bottom like we did a few weeks ago.
Word of the Week
Of course, as always, we got to talk about the Word of the Week. And the Word of the Week today is compaction. Not to be confused with compacted because that can be what happens when you don’t consume enough fiber in your diet. I did not say compassion. So not to be confused with compassion (which is another important word) or compacted when you don’t have enough fiber.
We were talking last time about eating Del Taco and the hot sauces. You rack up those hot sauces, you can get compacted or the opposite. Depending on your internal workings it can go the other way. We’re not going to talk about hot sauce, we’re not going to talk about being compacted. We’re more compassionate, although we will talk a little bit about that. The Word of the Week is compaction. Here it’s directly related to this particular case study that we’re going to go through. All joking aside, the definition of compaction, if you read it online, is the exertion of force on something so that it becomes denser. Solid definition. Sounds like something your wife would do to you. It could be we’ll talk about how it relates to this particular property. What we did in relation to that and how we affected the sale because of it, all of that on this week’s show. So let’s get into it.
Challenges of the Property
When this was built kind of on a slope they do a cut and fill on the side of the road. Once I get cut, once I get filled, we were on the fill. You can’t know every street in your county on what it’s cut and filled seriously, so that made more sense why we had foundation issues because we were on the Phil side of the street.
That’s important information. When you hear something like that, or see evidence of foundation issues, getting an engineer out is the right thing to do. We’ve renovated 1000s of homes and we’ve dealt with not everything, but a lot of foundational issues. Even when we suspect something like we do here, we bring out a professional because we’re not the ones that are going to write the report or monitor the compaction, which is, of course, the Word of the Week. That’s what we had to do here. We brought out an engineer and with that information in a report, we went to ask the seller for the necessary dollars to be able to take care of those issues properly so that when we sell it to the next person after we’re done with it, we have a clean bill of health on that, and they can we have reports to showcase
That’s exactly what we did. We got the engineer’s report. We knew what the solution needed to be for the foundation issues and to address the compaction or lack of compaction. That was $20,000. We did ask the seller for a credit of $20,000 to account for this. We love the agent and it was pretty funny. It doesn’t happen very often, but when Beefcake called the agent to have this discussion, because this isn’t something you do over email or tax like you have to call and talk our way through it. He went ahead and paused the phone call and merged in the seller. Then beefcake got to do a classic reduction call with the seller on the iPhone.
It doesn’t happen often, but as we know it can be very beneficial in most cases to learn how to communicate when you’re talking directly to the decision-maker. I didn’t hear that call. I’m sure it didn’t hurt.
It helped actually help. The seller got to hear directly from us and he had the reports to back it up. They did have higher backup offers. They had the right to go in that direction, too, but they didn’t. They knew if it was an issue for us, it’d be an issue for the next guy too, and we had a plan to deal with it and we were still committed to closing and we just needed to account for that financially. It isn’t always the case when there’s an agent involved that we get to talk directly to the seller or the decision-maker, but when we do, and when that’s possible, it always helps if you can communicate the right way.
(Looking at the pictures of the property) the seller did have a lot of belongings and he definitely loved his outdoor space and his plants and there are a lot of them there. This isn’t the local nursery in your neighborhood, this is the gentleman’s backyard. That’s like a commercial-grade nursery right there. Holy moly, that’s legit. Now the home we don’t own anymore, but it certainly doesn’t look like this now. What we want to do is open up the space and have a blank canvas. The demo is a cost you have to account for all that etc. My gosh, I forgot how much stuff he actually had back there. This gives you an idea and a flavor of the home and what we were dealing with when we bought the home. Those of you that are watching or seeing those and those of you that are listening really should go back and get a replay of it because it’ll show you what we’re talking about on the acquisition side before we discuss the renovation plan.
After they agreed to the credit of 20,000 at that point, it was just smooth sailing and we told the seller we will close whenever you are ready. I think it took him about another month until everything was up and cleaned out. As the house goes, it was a two-bedroom house on tax records. All the comps showed we needed three bedrooms there. There was a third room there that was more of an office. It didn’t have a closet, but it was a room. It wasn’t like a room you had to walk through to get to another bedroom. It was its own standalone room. We knew in the renovation we would either have to change that or market it differently to make sure that we can promote three bedrooms in the house.
That’s a good point: the specs of the home on tax records was a two bedroom two bath that you talked about that third room and obviously what we needed to do with it to make it a three-bedroom. Our goal and our plan was a three-bedroom, two-bath 1,324 square feet. Built in 1961 with a two-car garage. The lot size I would say was one of (if not the best) features of the home. It was just over 16,000 square feet (a third of an acre) and that’s not common in San Diego Metro by any means. As you get further outside of the town lots can get bigger and land gets bigger.
That is one of the best features of this home. We wanted to accentuate that which is another reason why we needed to address that compaction issue in the pool. “Compaction” this week, how many times can we say it in the show. It was something that we were going to put a lot of value on – the yard. We needed to make it something that people could use and then add to it if they wanted to, whether it was adding on to the home or adding an ADU or whatever it may be.
That was the renovation plan. kitchen remodel, two bathrooms make the third office that they were using into a bedroom (and that can be accomplished by framing in a closet or adding a removable type closet or a temporary dresser would accomplish the same thing). Of course, heavy landscaping here because we have to get rid of a lot of things. We had an original budget of $162,000. To do that work landscaping, we had to tune up the driveway because it was pretty rough getting into the property, remodeling the kitchen, and addressing the foundation issues. Do the bathrooms put the closet in flooring and paint. Stylistically it is a very unique home. What would you call this JD?
I would call it a cabin A-frame, that’s kind of the closest name I can get to I mean, it really didn’t have a defined style. It is kind of a conglomerate if you will. Suitable styles. What would you call that style?
It definitely has that A-frame feature. The rest of the house had a flat roof on it. It was like a mid-century meets A-frame meets a coastal A-frame. It’s not something Frank Lloyd Wright designed. I wouldn’t say that’s in his repertoire. It did have a unique style which ended up being a benefit for the ways that we renovated it. It was unique in a good way.
That’s a good teaching point there. Obviously, there are many styles of homes, and then there are homes that don’t really have a defined style. You have to factor that into your decision: how what you’re going to do to the home may do to the value.
With acquisitions, I was a little concerned about the style. When you look at comps, you want to make sure you’re conforming to the neighborhood and what the other comps have, and there was nothing else like it. I personally don’t like the style of this house. I’m biased and that plays into your decision-making. You have to put your buyer hat on. There are people out there that like this and the true values of the home, location, yard, the view out the back and exaggerate those. Some people do like unique homes. And that’s what this is.
There were a lot of people who liked this unique home. We’ll talk about the sales side and how many offers we got in the range. We had projected five months for the actual work. That’s not net, that’s not ownership, because we didn’t know exactly how long the seller was going to take. Five months for the work. We ended up spending just over six and a half months’ worth of work. The additional compaction did take us a little bit longer. Some of the foundation work like tuning up the drainage and a little bit of the cleanout did take us a little bit longer and we ended up spending a bit more (195,000). Now, the reason we spent a bit more is that we decided to do a few additional things on the outside of the home that we felt would bring the value some more. Landscaping is a lot so those things cost more money but we made those decisions. Do you remember some of the other things we ended up making?
We ended up repaving the entire driveway. That big tree in front and those roots were causing quite a bit of damage. It had a breakdown and it got down to it where once the house looked almost done and beautiful, you have this busted up driveway. Then it was like well, we kind of do need to cut for this now.
We looked at the comps to support if we were going to spend in this case an additional $33,000? Or did we feel that we needed to do those things? If we did them, we were going to get that money back. The answer is we did.
“We made calculated decisions”
Sometimes you uncover things that you just have to do. There isn’t a decision. In this case, most of these were decisions based on the comps and other things that we’re selling and what we felt we could recoup. If that wasn’t the case, we would have pumped the brakes, as they say, on some of those things.
Those are some of the adjustments to the scope of work. That’s what it looked like when we bought it, believe it or not, this is what it looks like today. Now, if you’re listening to the show, you didn’t just get the impact of what I just showed you. If you’re watching it, I’m going to show you again, because this is not a different house, it’s not in a different neighborhood. It’s the same home on the same lot that we sold a few days ago, on Towie. Now you’ve got style, still unique, but we’ve accentuated the best features of the home.
For the reasons we just mentioned a moment ago, we added or tuned up some of those planter boxes in front that went a little heavier on mulch than I would normally go in the front on sale. Apparently, a lot of mulch was on sale during the time we renovated this. We put greenery in the appropriate places in front of the house. Then we really spent our time and money in the backyard. That’s what you’re looking at here. Arguably the home was a cozy 13 and change square feet and three bedroom two bath not unlike your average home (not that this home was average by any means).
The true value of this home was the location (as we already talked about) and the backyard. That’s why we spent the extra money to get that pool abandoned properly, put in a little more turf back there, rock, and poured concrete for the fire pit in the back. Beyond that (you can see now because we cleaned it out) it has a very unique location where you have a view. It’s not the ocean, but it’s not the backside fence of your neighbor’s property.
Something to keep in mind too: you mentioned mulch. We knew that this house had some drainage issues and one of the things the engineer suggested was to keep water away from the house. We don’t have real grass. We have the rock and the woodchips. We really wanted to minimize the amount of watering that would be required. It also helps with the fact that we’re still in a drought and water is expensive.
You are correct. I know by looking at my bill every time it comes. Those are all good points because those were recommendations from the engineer. While you could argue that we could have put more greenery and plants and real grass, those are all valid points, but for the reasons we talked about, we didn’t do that. We kept it more of a blank canvas, but very usable.
Closing the Deal
So breaking it down, we had listed the home and 89 because that was a little bit below what we felt the comps in the market supported at the time that it sold. The pendings were pointing towards a million. We had an ARV originally of 850. We had spent a little bit more, but we knew we’d make back that 30k. How much more? We didn’t anticipate that happening. That was the feedback that we got.
We knew that the outdoor space and the location were going to be attractive. It certainly was. We ended up discovering that because of the things that we did to the home and the way that we blended the styles together, people really appreciated the uniqueness of the home. That isn’t always the case.
In this case, because it was different in a good way when you’re in the home, people really liked that. That was one of the reasons we got so many offers. There was not a lot of inventory in this market. It was well placed in a private cul de sac. It turns out that one of the strongest offers that we got was from a gentleman and his wife (and I know that gentleman because he works in another business that we do business with CT Homes). I saw his name, I recognized it, I gave him a call. We countered the strongest offers.
We didn’t counter all 51 offers because some people came in and they weren’t qualified to even get towards some of the offers. We countered the top 10 or 12 offers that we got that were the strongest financed or cash at the top end of the offers that we had, and that we felt were the best fit for the home. One of them was this gentleman and his wife. I called the gentleman and I explained to him the situation. He was represented by an agent, but because I know him from another business and I call them directly.
I didn’t necessarily look at every name of every offer. It was a lot. Even our main listing agent was having a hard time keeping up. Our inbox was getting blown up on this particular home. He put two and two together and recognized that it was a CT Homes sell. He ended up messaging me saying, “Hey, I offered on your house on Towie”. It was very smart of him because they’re now moving into this home. reached out to him and found out what he and his wife were looking for.
Accepting the Offer
Clearly, I know they’re interested because they wrote an offer. I was also very upfront. I said, “I’ve never experienced this many offers on one single-family home and that quick of a timeframe”. I told them “I can guide you within professionalism and within reason as to where we need to be”. Ultimately we had other offers that were close to this number, but the strike price ended up pointing towards a one-two sales price. That wasn’t just because that was the number we wanted. We had a lot of offers at a million. We had a lot of offers above a million. We had a lot of offers above one as well.
Did anybody offer below list price? We did receive an offer below the list price, at least they tried. It just shows you the range of offers that we got below listing price and then up into the one range and so that’s why we were selective on who we countered. For that reason, long story short, they really wanted it.
We gave them the number that they needed to be at and their agent wrote up the counter and we ended up opening escrow at 1,200,000. The time between when we listed it to when we sold it was 22 days. The time between when we opened escrow (with this particular buyer) and sold it was 16 days. That’s quick, JD, very fast. That’s front loading. That’s pre-opening escrow. That’s having the title ready. That’s having escrow, having all of our documents. That’s having all of our disclosures ready.
Dan, any final thoughts on this particular transaction? I think we covered it pretty well. There’s a lot to learn there. So hopefully everybody listening took down some good notes. If you didn’t, you should go back and listen and take more notes. Or if you’re listening and not watching.
Again, I’d recommend you watch this one because there are some great photos that will showcase the scope of work dynamics that we talked about that really won’t come out here. Looking at the photos, we’re certainly going to do this again. As I said, we’re gonna shoot for once a month. We’re two for two here. So that’s a good start. We’re going to keep going and continue to break down unique examples of properties that we buy, fix and sell at CT Homes.
Dan, thanks for joining me. Always a pleasure to have you. I appreciate you joining and dropping some bombs. To all of you, I appreciate you watching, listening, supporting the show, and giving us some love on social media. Tell us what you like and what you want to hear more about. We certainly appreciate that feedback. Ladies and gentlemen, all of you watching and listening. We’ll see you on the next podcast.