House #9 – 2702 Drifter Overbooks – Letting Go of Another Money “Factory”

by Stealthy Rich · Published December 7, 2018 · Updated May 18, 2020

May 2014

Another House Flip to Generate Cash

Hindsight is 20/20 yo.

This mindset is the phrase that comes to mind when I think about house #9. We found 2702 Drifter Overbooks through our yellow letters campaign. An old, tired landlord contacted us and wanted to sell. D negotiated a fair price of $71,000, and we were on our way. The house was a gem. It was built in 1982 and had three bedrooms and two baths, so it was right in our wheelhouse of what we consider a “liquid” house. It had experienced some settling but had been repaired and had a warranty that came with the house. This house also included a tenant. They were paying $1000 per month, which was just a little under market. Our initial plan was to buy the house and then make the tenants sign for a bit more rent, something like $1100. Very similar to house #8.

Financing

We got a loan from our local bank for $56,800, which is 80% of the value. This type of note means we had to kick in $14,200 of our money. The loan was 20-year amortization and at a rate of 5.175%. This calculation means our payment was roughly $580 per month.

Sell! Sell! Sell!

As soon as we got this one financed, we got the bright idea to sell it. We were again at the end of our cash reserves since we had just pumped in about 14k to buy it. We were approached by a hedge fund that offered on a few of our current properties. The hedge fund offered us $90,000 for this house, which was too good to pass up. We made a quick $16,000 after we paid commissions and closing costs. However, I felt terrible because we had promised the tenant we weren’t going to make them move, but then we decided to sell, and the new owner, who was some fix and flip company, promptly kicked them out. Sadness. 🙁

We now can look back and see how much this decision to sell house affected our future, much like house # 6. At this time, we still hadn’t figure out how to “Catch Them All!” (Pokemon style) So it was always painful to part with one of our money-making factories. We couldn’t grow without the cash we got from the sale, and we also needed the equity tied up from putting down 20% each time. Otherwise, we wouldn’t be able to close the next deal. It was a vicious cycle of which we were trying to claw our way out desperately. We will soon find the solution, but not for this deal, unfortunately. The houses were so good; we had to find a way to keep them!

Let’s Do The Numbers

Fast forward to the end of 2018 (4.5 years later), and let’s see how much money would’ve made from this house if we had not sold it. You might think this is crazy, but we, on average, get a 25% cash-on-cash return from our properties. (This is why we love real estate) So we will apply this average to this house as there’s no reason to think we wouldn’t have treated it any differently. In the end, we were able to crush a $16,000 profit in just a few weeks. It quickly allowed us to fund the next two deals. $16,000 today is better than future cash flows, especially as we were in the mega-growth phase.

What do you think? Have you had any similar growing pains as you try to decide what’s best for your money?

2702 Drifter Overbooks	Sell	Keep	Comments
2014	$30,000	$-16,000	When we sell it we get back 30k in capital, 16k in profit and 14k of our equity to deploy elsewhere
Future Rent 2014 half	0	$2,000	Assumed a 25% cash-on-cash return
Future Rent 2015	0	$4,000	25% return
Future Rent 2016	0	$4,000	25% return
Future Rent 2017	0	$4,000	25% return
Future Rent 2018	0	$4,000	25% return
2018 house value	0	$64,000	Appreciation on the house over 4.5 years. Roughly 135k, purchased at 71k
Total Cash position change	$30,000	$2,000	Would've been cash positive after 4 short years
Total Net worth change	$30,000	$76,800	Its hard to track exactly what we did with that 30k instead, but in a vacuum here's what it woudlve been