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A Tale of 3 Flips: #1 for 71% Return

[fa icon="clock-o"] Feb 21, 2019, 7:12:00 PM [fa icon="user"] Brent Maxwell [fa icon="folder-open'] rehab property, rehabbing, Fixer-upper, real estate investment, return on investment, flip

Flip #1 in a series of 3 blogs: 71% return in three months 

5305 Cecil Street, Southwest Detroit ~ Lights flashed and sirens blared, as six police cruisers carrying 24 special ops police officers, followed by me in my hulking black Ford F-150, approached 5305 Cecil in Southwest Detroit.

police raid on cecil

We pointed all the vehicles at the ailing property, bailed, and clambered to the building. Led by an officer with a battering ram, we climbed to the third floor. 

Junkies, hookers, drug dealers – 15 people in all – were scattered across the one-bedroom apartment of an old three unit building that we had just purchased. The cops cuffed every single person – some listless and unaware, some fighting back in broad daylight.

Needles littered the floor. There were holes in the walls, rain dripping from the ceiling. The cops hauled every squatter out of the building. I stepped into bright sunlight, stretched my arms overhead, victorious.

Then I noticed them. The family next-door, a little boy kicking a soccer ball in his backyard, a mother crying. “Thank you so much,” she clutched at my hands. “Thank you for cleaning up that house.”

cecil drug house

For obvious reasons, obviously no one wanted to buy 5305 Cecil.

A three-unit brick house, it was offered on the market but a non-paying tenant in the second unit turned buyers off, along with the chaos on the third floor.

Even to look at the house, to consider it for purchase, buyers grew scared. From the second floor, anger and hostility emanated and anyone who would take ownership of this classic Detroit property would have to wrangle with the woman who lived there and refused to pay rent. They’d also have to evict some pretty rough people, clinging to their habits and their johns.

The 100-year-old house was owned by an investor from China. Out of sight, out of mind – by a long shot.

But the property is in the midst of a family-friendly neighborhood of primarily Mexican immigrant families and faced a grassy playground full of children. The location beckoned so many potential buyers, but no one made an offer. It was too much work to contemplate taking such a blighted property in a potentially fantastic location and bring it up to its true potential.

We have a different perspective. All day long, we’re scouring for deals. When properties come on the market in our target areas, we immediately get notifications. We drop everything and follow up. This one came across my desk, and I sent it to one of our field reps. They moved on it immediately, and it became ours.

Access to the market, central location and speed are how we find great deals.

In this case, there weren’t many people willing or able to handle a project like this. It needed a considerable amount of work. We purchased it for $38,000 and spent $9,331 rehabbing and stabilizing the property.

Our haz-mat team cleansed the third floor to make it habitable again. We paid the second-floor tenants to leave. The whole process, start to finish, took three months. We invested $47,331 and sold it for $81,000. That’s a 71% percent return on investment in just three months. $33,669 profit with an annualized return of 763% based on 91 days of exposure from acquisition on July 13th to sale closing on October 12th. 

chart

In just under one quarter, we stabilized the block, made families in the neighborhood feel safe, created functional housing and made money for our partnership.

Now, the hipsters are moving in. It’s becoming the edge of hip. And we got there first. 

Brent Maxwell

Written by Brent Maxwell

Brent Maxwell is the founding partner of IPS Realty

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