Doubling My $125K Investment to $250K in 1 Month
I thought that flipping one of my out-of-state properties for over $100,000 in profits in under 4 months was out of this world! While I wasn’t wrong about its success, I also never expected to beat that accomplishment in such a short period of time. The punch line? I doubled my $125K investment to $250K in just 1 month! In today’s post, I talk about my original plan for the investment, the numbers behind it, and why it was so profitable.
The $125K Investment
In August 2020, I entered into a purchase contract for a new construction in Phoenix, AZ for $500,000, with a 25% down payment in the amount of $125,000. The home builder anticipated construction to take up to 1 year.
My intent for purchasing this property was to use it as a long-term rental. However, the projected cash-on-cash return was lower than desired, roughly 6%. I usually aim for a minimum of 8% cash-on-cash return, meaning an annual 8%+ return on investment. If it doesn’t meet that criteria, then I see it as a losing investment because the stock market returns 8% on average every year.
Nevertheless, it checked all the other boxes for a solid rental property:
Positive cash flow
Great schools
Location
Solid demographics
Low vacancy rate, high rent
Historically fast rate of appreciation
Plus, I only had to invest $7,500 to lock in the deal. A year from then, if housing prices and/or rents dropped significantly so that the numbers made even less sense, then I could walk away from a bad deal, losing only $7,500. The investment was analogous to a stock option (which I won’t go into today).
Market Updates
In March 2021, I had reached out to several local realtors in the area to provide me with their estimated market values and rents for my property. Independently, all 3 of them gave me identical information, a consistency I was pleasantly surprised to see! Market value was around $550K, and rent was about $3,200.
By July 2021, the same 3 realtors estimated market value to be between $550-570K and rents between $3,200 and $3,500. This meant the housing market was leaning more in my favor as time progressed.
In early August 2021, just weeks until the home was projected to complete, market value jumped to $600K due to a spike in recent home sales in this community! Rent did not change and stayed between $3,200 and $3,500 per month.
After just a few more weeks, my primary realtor told me they now believed the home to be valued at $650,000! I was blown away. How could the home value skyrocket so quickly in such a short period of time? Well, more and more comps were getting sold for well over asking. And as the saying goes, a rising tide lifts all boats.
My Home Sale Game Plan
At an estimated home value of $650,000, it no longer made much sense to keep the home as a rental property. I’d be better off selling the home right away to unlock all my equity to invest it elsewhere.
After weeks of preparation with my realtor, we had a game plan for my home sale. We would prep the home for sale ASAP and list the home on the market the following week. I didn’t want to list the home for sale on Labor Day weekend, thinking families would be on vacation. Well, here’s what happened:
Tue, Aug 31, 2021: I became the homeowner.
Wed, Sep 1, 2021: A day later, my realtor sent in a professional photographer to get photos uploaded to our MLS listing.
Thu, Sep 2, 2021: We listed the home on the MLS as “coming soon.” That afternoon, several interested buyers toured the home.
Fri, Sep 3, 2021: My realtor said she thought we were getting significant foot traffic into the home, despite Labor Day weekend coming up. So, we pivoted and decided to change the status of the home on the MLS from “coming soon” to “for sale”!
Saturday and Sunday were open house days, garnering over 20 buyers coming through the house.
Tue, Sep 7, 2021: We received an outstanding offer of $655,000! There were a few minor items in the offer that we decided to counter. Our counter offer would expire the next day.
Wed, Sep 8, 2021: The buyers accepted our counter offer!
Plans for My $250K in Proceeds
Selling a home with just 5 days on the market is incredible. It’s definitely a sign of a strong sellers market. While I took a risk deciding to purchase the new construction last summer, I was fortunate to have been on the winning side of the deal.
Overall, I invested $125,000 into the home, sold it in a month, and came out with $250,000 cash on hand. I couldn’t be happier with a 100% ROI (return on investment) in such a short period of time!
So what’s next for that cash? Well, I certainly have to earmark some of it to pay Uncle Sam for capital gains taxes. The rest will either be used to pay down my outstanding hard money loan for my 4th out-of-state flip that has a 10% interest rate, or I will throw it into the stock market, which has been down in the past month. Either way, I am confident the proceeds will be used very efficiently!
