Investment Update: Results of our second Colorado spec house
In the final hour of 2020 we closed on our second spec house in Colorado. If you were on my initial real estate investing call, I talked through the details of our first spec house (watch the replay here if you missed it) and I mentioned that I expected to make a much bigger profit on this house.
My goal is to be transparent with my investing experiences: the good, bad and ugly, in the hopes that it inspires you to pursue your own real estate investments.
A quick refresher: we purchased our first lot in 2018 for $42K cash. We used this as the needed 20% equity to apply for a construction loan. Once it sold we got our initial $42K investment back plus about $25K in profit. Not too shabby, but we knew we could do better with all that we learned on the first one.
Very soon after we bought the first lot, we decided to buy the lot right next door. We paid $8500 as our down payment and took a loan on the remaining $34K, knowing it would be awhile before we were ready to build on it.
At the beginning of 2020 we applied for and received a second construction loan to get started building. The lender made a tinsy mistake at closing and bundled our existing loan on the lot into the construction loan with only an additional $8500 down (instead of having us pay off the lot first). This is important to note when we look at our return on investment, we started with a $17K investment (initial down payment of $8500 plus $8500 to close on the construction loan) instead of $42K like the first house.
Fast forward to the end of 2020 and a lot changed in the construction and real estate industry. Lumber costs increased, subs were delayed due to Covid, and the real estate market in Colorado (and much of the US) was so hot we decided to list the house higher than any other house in the neighborhood.
This part is wild:
Our first house sold for $295K in 2019. Our second house (which is nearly identical) sold for $349K (full price, cash offer on the first day).
I saw a quote recently that went something like this: You’re kidding yourself if you don’t think there’s a little bit of luck in every success story. I wish I could remember the source. A year apart, the same dang house: the first we had to lower our price and wait 6 months for a buyer. The second? We increased our price by $54K and had a cash offer in 24 hours.
A little bit of luck mixed with good timing and a sound investment. This is why it’s so important to run your numbers conservatively when looking at an investment property.
So, where did we end up?
$17K on the lot and closing on the construction loan (our initial investment)
$236K construction loan
$21K to sell the house (realtor fees, closing costs)
$7K on interest payments throughout the year
The house sold for $349K
In the end we made a profit of $68K.
Before you get too impressed, remember our flip house? We poured our blood, sweat and tears (not to mention way more money than we planned for) to essentially make zero profit.
That’s the name of the game when it comes to investing - you spend money with the expectation that you’ll make more: sometimes you do, sometimes you don’t and other times you nearly triple your profits on an identical investment one year later.
However, you won’t do any of that if you don’t just get started. Our initial investment in 2018 with the first house lead to a 60% ROI, which allowed us to do again and get a 400% ROI.
The investment we made in 2018 took two years to pay back.
But it was so worth it. What action can you take today to get started investing? I'm here to help if you have any questions, till next time!