Experienced Fix & Flipper Retains After-Repair Property To Maximize Returns

Sky Fox Stays

Knoxville, TN

Deal Overview

Sky Fox Stays, a Knoxville, TN based real estate investor known for repurposing properties for short-term rental use embarked on an ambitious real estate project, transitioning a rural 1.17 acre facility with multiple existing buildings into a profitable short-term rental.

Sky Fox Stays first discovered this unique property on a local Multiple Listing Service (MLS). The property was a nice fit for their fix & flip acquisition requirements, indicating a sizable profit within six months if the property were renovated and sold:

- Purchase Price: $525,000 (with $15,000 seller-paid closing cost credit)

- Estimated Construction Costs: $210,000

- Financing Costs: $45,000 (accounting for six months hold time at 2 points + 12% interest rate)

- Estimated After Repair Value (ARV): $1,000,000 (confirmed via private appraisal)

Further analysis was performed to determine the financial outlook of retaining the property if they chose to retain it:

- Refinance Costs: $15,000 (1.5 points on a $1,000,000 refinance amount)

- Estimated Gross Rental Revenue: $120,000 - $140,000/year

- Estimated Cash Flow: Approximately $5,000/month after all expenses, including PITI

Sky Fox Stays decided to retain the property long-term for rental purposes following the rehab. Doing so would allow investors to recoup their initial down payment and secure additional cash out upon refinancing at 80% LTV.

Project Financing

Due to the property's condition and required improvements, conventional financing was unavailable.  The company secured short-term, hard money financing through the Investor Loan Source Private Money Fix & Flip lending program.  The initial purchase price was covered at 90% with estimated repair cost draws of up to $210,000 to be reimbursed as the renovation work was completed. The total loan payoff would be repaid upon sale or re-finance following the renovation.

The financing was primarily based on Sky Fox Stay’s track record of exceeding financial projects on their prior projects.  Plus, the strength of this deal looked outstanding.

Lessons Learned

The project encountered a significant hurdle due to an oversight regarding a TVA Transmission Line Easement that conflicted with the planned septic system installation. The company had to relocate the septic system, incurring additional time, effort, and money that could have been saved had a thorough survey been completed during the due diligence period.

Furthermore, winter conditions negatively impacted the original project timelines. An historic 10-day freeze halted work and delayed material shipments. The shorter, colder days required additional setup and takedown time for heaters and lighting, contributing to a 1–2-week delay. Planning some flexibility into work schedules for winter renovation projects can help real estate investors accommodate unforeseen circumstances and avoid potentially devastating financial consequences.

During the project, Sky Fox Stays also leveraged their experience in flipping properties by using some materials left over from past projects.  This helped reduce construction costs significantly, bringing them in well under budget for some of the completed repairs.

Conclusion

Despite the challenges they encountered along the way, Sky Fox Stays is poised to turn a good profit on this project at or above initial plans.  The longer-term financing of the property will generate capital to be used for further real estate investments and the lessons learned will surely aid their future endeavors.

This project highlights the importance of careful due diligence, creative problem-solving, and adapting to unforeseen circumstances.  Despite the hurdles that sometimes rear their ugly head, savvy real estate investors like Sky Fox Stays can stay the course and drive substantial financial rewards.