How NOT to Flip a House: An Embarrassing Story of Wasted Time, Money, and Opportunity

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This may come as a shock to you, so you may wanna take a seat… but ….

I make a lot of mistakes.

I know – calm down people – this is not news that you wanted to read today. But it’s the truth. I screw up, make mistakes, lose money, and …

I’m okay with it.

As I’ve mentioned on the BiggerPockets Podcast a few times, I’m a big fan of just moving forward until something stops you. You might get 1/2 way to a deal and get stopped by something. The next time you might get 3/4 of the way there. But eventually, after each problem that stops you (and you learn from) you will get there. (Of course, I’m not advocating that you just go out there unprepared. I’m just saying don’t let analysis paralysis and the desire to know everything stop you.)

So, today I wanted to share a quick story of how NOT to flip a house. This was a flip I attempted to do several years ago when I was still figuring things out – and I learned a TON from my mistakes, which I’ll share throughout this post.

Hang on – and perhaps grab a tissue… this is going to be a sad story!

The Ugly Princess, the Hero, and the House

She was absolutely ugly.

You know the type. Ugly paneling, ugly landscaping, ugly layout. She was a 3500 square foot beast of a house that was just begging for a hero to come and rescue her from her despair and make a ton of money in the process.

I was that hero. 

Let me show you just a few pictures of what the house looked like:

collage

The home was a duplex located at the top of a large hill, with views on the top floor that you would kill for. It overlooked the entire town with sweeping views of the ocean harbor I live near. It was perfect.

My emotions were already involved.

Even more so – I had an incredible deal.  I had negotiated the bank down from around $80,000 down to just $45,000, simply by being patient. This was in the absolute bottom of the market, and I got a killer deal.

The home was actually lived in up until the point that it was foreclosed on. It may have been ugly – but it was functional. I had considered the idea of simply a “paint and carpet” flip on the duplex and maybe I could turn it into a great rental.

After all, I could have put maybe $15,000 into it and had a $60,000 duplex, in a great location, that would bring in around $1250 per month in income, easily meeting the famed “2% Rule” and providing incredible cash flow. Even with the 50% Rule (which I talked about in this video post) this thing would have made me a lot of monthly income.

But no… I wanted to be the hero.

The Plan

She wasn’t going to be a cash flow friendly virtual ATM for my rental pool… she was going to be beautiful.  In fact, I decided what she really needed was to not be a duplex – because I wanted to have the highest chance for getting a great price.

After all – you mean ol’ investors always want a great deal – and I didn’t want to sell a deal. I wanted to sell a masterpiece.

I decided to convert the home into a single family house.

No problem… just gotta remove a staircase and build another, demo some walls, and bam – I’d have a single family home worth much more than a silly duplex…

Here was the break-down of my numbers:

Purchase Price: $45,000

Closing Costs/Fees/etc: $3000

Repairs: $25000

Total investment: $73,000.00

After Repair Value: $110,000 – $120,000. 

Total profit, after all selling fees: approximately $26,000 – $36,000. 

Screen Shot 2013-06-22 at 10.50.19 AM Okay – I know what you are thinking.

Pretty good flip, right?

This is something even J Scott would be proud of!

I was ready to continue with my plan.

I was already cashing that $25,000 in my head.

A trip to Italy sounded nice…

The First Sign of Trouble

The first sign of trouble should have been when trying to get financing.

I had no way to get a normal bank loan, having recently quit my job to go full-time in real estate. So I turned to my favorite hard money lender and showed him the deal.  I showed him the numbers and my plan to turn it into a single family home.

I waited for him to tell me just how great I did! I was like Ralphie on A Christmas Story, waiting for the A+++++++++ from his teacher.

However, I was shocked to hear the last thing I expected:

“No way.”

What?

Was he joking?

Nope – he said it was too big of a house. It was too big of risk.  He couldn’t do it.

At this point, I should have taken a hint. However, I decided to push forward. I searched the internet high and low for a hard money lender (which, I wish the BiggerPockets Hard Money Lender directory was around then!) until I found one that would agree to drive out to my town to look at the property.

After several conversations, this lender agreed to fund the deal, and even agreed to fund the repairs.

Awesome!

I closed on the deal and began construction.

If You Give a House a Cookie…

Several weeks ago on the BiggerPockets Podcast I made a reference to the children’s book “If You Give a Mouse a Cookie,” which is about a mouse who, when given a cookie, asks for a glass a milk – which prompts the mouse to ask for a straw, followed by a mirror, and so on and so forth. The reference was made about tenants and not giving in on late fees and other penalties, but I think the analogy works here as well.

I gave the house a cookie.

With new stairs, it only makes sense that I re-do all the drywall in that part of the house. After all – I want it to match, right?

  • and if I do new drywall, I might as well do new electrical…
  • and if do new electrical, I might as well do a new heat source…
  • and if I do a new heat system, I might as well do new wood floors …
  • and if I do new wood floors, I might as well do windows, granite, travertine,…

You get the idea. I gave the mouse a cookie… and she kept asking for more.

Pretty soon, my plan had completely changed.

This wasn’t going to be a quick flip … this house deserved much more. This was going to be a “high end” flip.

There were no high-end flips in my town. None. So clearly, this house would sell for so much more and much quicker than the other homes. This was going to be easy, plus it’s going to look incredible.

So as I changed my plan, I also altered my After Repair Value.  This thing could fetch much higher than I was thinking. This could get $150,000 or maybe even a bit more. This could really be something.

I’m going to make over $50,000 on this flip…

Italy, here I come!

Working on the Flip

I began working on the house every day, tearing out walls (finding hundreds of 1960’s adult magazines in the process, stuffed in the wall, as well as a diary from a 9 year old girl from the 1920s.)

Ah, the fun of remodeling a home.

Now… I may have tried to distract you there with the fun fact about the magazines and diary but did you notice what I just said?

I began work.

Yep… me. I began working on the project, with my own two hands.

After all – think of how much money I could save by doing all the work myself!  I can do pretty much anything with construction, and since my budget (which had now increased from $25,000 up to about $40,000 with the great new features I was adding daily…) was based around the idea of me doing most of the work – I really didn’t have much of a choice.

So day after day, I worked tirelessly from dawn to dusk.

After three months of working on this home, I realized an important fact that somehow slipped my mind during the planning…

The house was big. Well, “big” is an understatement.

3500 square feet is huge. It’s gigantic. It’s monstrous.

Now, I’m pretty good with math, but somehow the simple fact that 3500 sq ft is almost three times bigger than the typical 1200 sq ft house that I’m accustomed to remodeling for a flip slipped my mind.

It also costs three times as much to remodel and takes three times as long.

So to speed things up, I hired a local handyman to help me out. He was an older gentleman who was good with a hammer and knew how to do everything.

Finally, I could rest some. After all, I was now working “on my business” instead of “in my business.”  He could do almost everything. Rather than spending 7 days a week working at the home, I dropped down to a more normal five day, 40 hour workweek.

Nine Months Later…

Yes, you just read that correctly.

Nine months later.

A full 12 months we spent working on this job, from the day I destroyed the first wall to the day my Realtor put the sign in the yard. The final three months of that time were spent with myself, my wife, and several friends (and the old handyman) all working 12 hour days to finish the job.  I lived, ate, breathed, and dreamed about that house.

In the end – we put a little more than $50,000 into the rehab, most of which went toward material since my wife and I worked for free for this entire year. With a $45,000 purchase price and $50,000 in repairs, (plus the hard money points, closing costs, and holding costs up to this point) we were into the project at right around $105,000.

The market had begun to slowly improve, and there were comps in the area showing that similar houses were selling for $150k-$170k. It was incredible! We were sure to get an offer quickly and I’d have over $50,000 in profit on this deal. All my hard work would finally pay off!

Before I get to the sad part of this story … let me first show you some photos of how the project turned out:

Screen Shot 2013-06-22 at 10.01.28 AM

Screen Shot 2013-06-22 at 10.00.32 AM

Screen Shot 2013-06-22 at 9.59.43 AM

Screen Shot 2013-06-22 at 9.59.33 AM

Screen Shot 2013-06-22 at 9.59.18 AM

Screen Shot 2013-06-22 at 9.58.55 AM

The Results

After no bites at $170,000, we dropped the house to $165,000 within a couple weeks.

Still nothing.

A month later we dropped it again to $155,000.

Still nothing.

The house was being shown occasionally, but no bites. Finally – success! We had an offer for $150,000 but after a whole month of hassel and being “off the market,” the buyers loan fell through and they backed out.

And so we re-listed it and dropped the price.

Nothing.

And so we dropped the price again.

And again.

And again.

Over the next nine months, we dropped the price of the home every month or so, but still it sat – beautiful and depressing.

Finally – one full year after listing the house, we received an offer for $125,000 and took it. After paying the Realtor fees and the closing costs – we received a check at closing for under $10,000. However, we had spent $10,000 in extra holding costs for that year of time – leaving us with…

absolutely no profit.

Nothing.

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I still don’t know exactly why the home only sold for $125,000. The comps still value it around $150,000. Even the appraisal came in around that price. The buyers got a killer deal (congrats to them!) and I ended up getting out alive. Plus – I gave a local handyman work for 9 months, a couple Realtors made some money, and I turned the ugliest house on the street into a beautiful home for a nice family. Yes, I tell myself those things so I can sleep better at night about it!

Top Eight Lesson’s Learned About this Failed Flip

So, one year of work and another year of waiting… and we made nothing. We were lucky to have escaped this flip without any major losses but the time I spent on this project and the missed opportunities I experienced because of this flip – were huge.

However, as I mentioned in the beginning – I am a big fan of moving forward and learning from one’s mistakes.

People have asked me if I regret this flip – however, it’s difficult to regret something which brought me to the place I am at today. However, I can say I learned a TON from the experience about how not to flip a house and through my experiences, it’s my hope that the lessons in this story can at least save other people the drama I experienced during this flip.

Here’s a few major lesson’s I learned:

1.) Don’t Try to be Original – No one was flipping homes in this style or price range. I thought being the only one with a higher end flip would make it easier to sell. It didn’t.

2.) Don’t be the Hero – As I mentioned earlier – this home would have made an incredible rental property. The 2% would have easily been met and I’d be collecting hundreds of dollars per month in cash flow right now. Instead, I tried to turn it into something it wasn’t simply because I wanted to make something beautiful.

3.) Size Matters – Don’t make the same mistake I did. A house 3x bigger than normal costs 3x more and takes 3x longer than normal.

4.) Listen to Your Lenders – My hard money lender has been in the game a lot longer than I had. When he refused to fund it, I thought he was crazy. Now I see why. Listen to your lenders – they probably know what they are talking about.

5.) Have a Plan Before Beginning - The more I did to this house, the more I wanted to do. I doubled my budget because I wanted it nicer and nicer. I should have had an exact plan and stuck to it. Don’t improvise.

6.) Don’t Do All Your Own Labor – When planning the budget for this project, I planned on doing most of the labor myself. Again, not realizing the size, this became overwhelming. Maybe I can swing a hammer, but as an investor, my strengths lie in the numbers, in the deal making, and in the management – not in the construction. I should have budgeted for a construction crew to come in and take care of this thing.

7.) Speed Matters – Additionally, the handyman I hired to work with me was good and relatively inexpensive – but he was slow and the house was large. I should have had this home remodeled in 3 months and on the market, but instead we crawled along slowly for months and months. I missed the “summer selling season” the first time around, which was a major contributor to my 12 month selling season.

8.) Know Your Market – My market was incredibly slow during this time. My house flip was not the only one that sat for so long. Many houses sat for 6, 9, or 12 months trying to sell. The inventory was too high, the credit market too dried up, and the buyers too fearful. I probably should have purchased this, rented it out for a few years, and worried about “the flip” later on.

FLippingBookAd300x250Let me just end with a pitch here. I honestly didn’t write this post for this reason – but I can’t help but bring it up. When I first read “The Book on Flipping Houses” by J Scott several months ago, nearly every chapter I cringed and thought “Oooh… I didn’t do that back then. If only I had…”

Had I read it then, I wouldn’t have made the mistakes I made on this project. Every one of the eight mistakes I outlined above could have been avoided.

So if you haven’t picked up a copy yet – please do. Read it twice. Take notes. Teach others.

Flipping houses is not what you see on TV.

However, it’s not a complete gamble either. It’s a business – and had I run this flip like a business I may have succeeded.

Either way – I still went to Italy .. and it was terrific.

Italy

Do you have a similar story? Have you ever “wasted” a chunk of your life for no profit?

Share your thoughts, comments, questions, or jokes at my expense below!

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About Author

Brandon Turner (G+) is the BiggerPockets.com Senior Editor and Community Director. He is also an Active Real Estate Investor (Flips, Apartments, and Buy-and-Hold), Entrepreneur, World Traveler, Third-Person Speaker, and Husband. Come hang out with him on Twitter!

82 Comments

  1. Hey Brandon! Thanks for putting your ego aside and sharing this story so others of us can benefit from your mistakes.

    Question: How did you handle the hard money lender? Most only lend for about 9 months to one year, and you must pay for extensions. Did this one let you keep extending for all that time? Or did you have to pay it off? Or maybe you got a longer term initially. I personally thought the sad ending was gonna be the lender foreclosed on you. Just curious how you handled that part of the flip.

    Thanks!

    • Brandon Turner

      Hey Sharon, thanks for reading. Yeah, it wasn’t an easy article to write but I figure if I save one person from the mistakes I made, it’s worth it. As for the lender – great question.

      I took out a one-year loan on it, but as work was progressing, around the 6-month mark, I talked with him about the project and the extra time and the lender was generous. I was making the payment early each month with no problems, so he was happy to continue the relationship for as long as it took. I think he enjoyed the 12% interest, but just felt bad for me that it was taking so long!

  2. Great share Brandon, thanks. Your “gave the house a cookie ” “might as well”, I call the “while I am at it” sickness. Both can be quite devastating to your budget. Oh well, at least you live to play again another day.

  3. Brandon,
    The house looks great after the repairs! Curious why you chose to discount and sell rather than keep and rent? Don’t know the area so…

    Kevin

    • Brandon Turner

      Hey Kevin,

      Thanks so much, that’s nice to hear.

      And as for turning into a rental – honestly -I probably should have. I wasn’t sure I could get financing (I probably should have checked) and I was really afraid of a tenant wrecking all the hard work I put into it. I guess I got to emotionally attached, and I know the wood floors would never have looked the same, the stainless would be scratched, and it would just be sad. But, I could have broke even the same way, but had a cash flowing property with potential equity when the market turned around. Hindsight is 20/20. Oh well!

  4. HaHaHa LOL HaHaHa! And a week ago I had to talk you out of another one just like this – only 20 TIMES WORSE! HaHaHa Mr. Turner – your wife is right about everything…listen to her LOL

    Love it!!!

    • Brandon Turner

      Lol thanks Ben – you were right and my wife was right. That said – she was on board with this flip in the story, but that’s because I talked her into it. She learned her lesson. I have a harder skull.

  5. Thanks for sharing, Brandon. It’s very easy to share about the things a person does that go well, not so much for the lessons we learn the hard way! Major cudos. I agree about not regretting these kinds of things, and focusing on what we learn from them instead.
    -Harry

  6. Appreciate you sharing this story. I’ve been thinking of going the flip route on a property lead I got thru my yellow letters, but realized after seeing the GC’s numbers that flips usin other’s labor needs to be a heck of a deal. So your story is timely an a nice reminder to estimate conservatively and keep expectations modest.

    Mike

    • Brandon Turner

      Hey Mike, thanks for the comment. Yeah, I am always shocked at just how expensive some GCs are, and just contractors in general. The other day I needed some work done. First contractor was $2100. Second was $3500. Third was $1000. And I feel that I, personally, could do the work in a day or two. That’s why it’s so tough to pay others cause I know I can do it cheaper. But then you get problems like I talked about in this post. Ugh.

      I hired the $1000 guy and he did great!

    • Brandon Turner

      Hey Brian, because my hard money lender only wanted to hold this short term, I couldn’t sell on terms (unless you know a way?!) I suppose I could have found an investor to fund the deal long term, and sell on terms but I just wanted to get rid of this thing. After all, Italy was calling! :) Thanks for reading and commenting!

  7. john milliken on

    very similar to what i did in 2008…
    the house was 2985 sq ft. largest house i ever renovated. since i know how to swing my hammer also, and think nobody can do it better then me,i figure a project of that size will take 4 months tops. 5 months if i feel like sleeping in til noon everyday.
    once i got into the ugly house, i did the same thing, might as well redo all new drywall, and if i’m doing that, new electrical, new plumbing, etc. like you brandon, i’m doing the work myself so i’m saving right?
    well, 9 months later (funny that your project was 9 months also,lol) ,and double my budget, the ugly duckling was a swan. got done in oct 08, missed the selling season, and the house sat for about a year before it sold. didn’t know what being in the red was until this project.
    i wouldn’t trade the hard knock lesson for anything else in hindsight. i now know my limits, and how far i want to go on any project(s). it had to happen, and i’m glad it did.
    thanks for the story brandon.

    • Brandon Turner

      Hey John – That does sound super similar to my story! And I’m with you – I value the lessons I learned, so I won’t make the same when I’m dealing with 7,000,000 properties some day! Thanks for reading and sharing your story John!

  8. Brandon-

    I rehabbed a big old house that had been badly duplexed — once. It was in a historical area which had it’s own challenges. My story was very similar to yours. I considered myself lucky when I got out with a few thousand dollars profit in the end. That cured me of “big old houses”.

    I forgot the some of the main rules for success.

    1. Buy where most folks want to buy houses.
    2. Buy easy to sell houses; bread and butter 3 bedroom houses over 1000 sf.
    3. Buy houses that fall within your median price range of homes in your area.
    4. Do a good job, but forget adding things (upgrades) you don’t need for that particular area.

    It’s fun to buy those big old houses but they always cost more, take longer to sell and they don’t appeal to the mass of the buyers. Great reminder Brandon.

    Sharon

  9. Stephanie Dupuis on

    A generous article – you are a class act, Brandon! Thank you for taking the time to write this.

  10. Brandon,

    With a little paint, some cheap laminate floors and a few flowers outside the place would have made a great low income duplex. :)

    Did I ever tell you about the house I bought for $1 in a two house purchase, that I spent $70k to renovate? The only good part of the story was the entire project was financed by a $95k non-recourse home equity line of credit placed against the same $1 house.
    I don’t think the banks will ever be that stupid again, what I can’t figure out is why I ever used any part of the $95k to renovate the house.

    Just think about the trip to Italy that $95k would have funded.

    • Brandon Turner

      Hey Dennis – The funny thing is – for about $500 I probably could have kept it a low income duplex and I would have been laughing all the way to the bank :)

      And a house for $1!? But the $70k remodel doesn’t sound fun. And yeah, I don’t see the banks returning to that way… at least until they all forget what happened last time! (I give it 8 years!)

      • Yes, $1 the place was worth about 50 cents. The only saving grace in this rehab was my only contribution was installing a scratch and dent boiler bought for $100. All the rest was contracted out to others. If I had know the place was going to eat $70k I would have offered the place for fire fighting practice to the city. The building had a bad foundation, we didn’t figure out about that until the rehab was started to fix the foundation the entire of the cement around the house needed to be removed including two flights of stairs, the patio, etc.
        Then we found the old termite damage, the bad drain lines, 8 layers of shingles, etc…

  11. I too bought a big house on 15 acres in 2006. Every time I turned around values kept going up, so wasn’t in a hurry to get done. Cookie here, cookie there, had the cash to do a complete inside and outside renovation. When it was finish came out great, didn’t list it for a couple of months to avoid capital gains ($70,000). Well I forgot that my dad was Murphy, and the bottom hit big time. Being experience, rented it out, still waiting for the market to go up.

    Lesson learned: buy only 3-4 bedrooms homes around 1800 square feet in family neighborhoods. Don’t make it the most expensive home but the nicest. My motto- KISS.

  12. Brandon,
    The rehab turned out beautifully and at least you did escape without any major losses, learned good lessons, and still went to Italy. Thank you for sharing your experience. Loved the Ralphie video! Too funny!

  13. Brandon,
    I am certain I was interested in a house that looked very much like that in I think hoquiam or aberdeen. Near some old psych ward (or hospital). Anyways I didn’t attempt because of the distance from me and a buddy of mine from montesano saying I probably wouldn’t be able to rent it out.

    Hey I don’t think you failed at all on that one. In fact it looked like a great deal in the end to me. You did a great job on the remodel. I think your failure was only the exit strategy. Should have sold on lease option or something similar for full price. Refinanced the loan as soon as the construction was complete.
    Every property I rehab, I intend to refinance immediately after the construction if it hasn’t sold yet. Throw a leaser in there with a solid contract and do a rate and term refi. That much equity it should have been fine. Of course you didn’t have a job so Im not sure where your income is at but paying yourself for the construction through an llc or c corp preferably would keep your income high enough. I guess 6 to 9 months of pay is fairly high though for adding to that loan.

    Regardless, the house looked great.

    • Brandon Turner

      Hey Rook, thanks for the comment. Yeah, this one was up on Martin St (or Ave? Don’t remember!) There are so many of those big huge homes here on the Harbor, and they are all in need of a lot of work. And yep – I agree – I should have refinanced it. At the time I didn’t really know how, but even if a bank wouldn’t have lent on it, I could have added a partner and used their equity to refi it. 50% of a future sale would have been better of 100% of no profit!

      Thanks for reading and commenting!

  14. Best post I’ve read in a long time…anyone who reads this should immediately increase their investing skill by several notches!

    • Brandon Turner

      Hey J, thanks so much! That really means a lot. I know while I was waiting for this flip to sell is when I found your blog. I remember reading it thinking, “oh man… why didn’t I do it that way!” I guess that’s why I like the Book on Flipping so much – cause I know it could save people trouble I went through on this one.

  15. Great post Brandon. I haven’t had your situation happen to me a rehab, but I’ve worked some complicated legal and probate deals that took years with little or no pay-day. I call it title rehab. One deal took two probate cases, one civil suit, having the estate sell and carry back a note in order to settle the civil suit, and then closed the probate (and paid the attorneys) 4 years later. I think I ended up with $5K, but I was SO done. That’s the trouble with deals that start in 2008 and end in 2013. :)

    The rehab looks so good and looks like so much house for the money. I think your buyer got really lucky. Can I ask about the bathroom tile? Did you use 12″ or 18″ for the tub surround, and is it the same tile as the floor? The surround looks great. Did you do that yourself?

    • Brandon Turner

      Hey Kristine, I feel your pain (and lack of gain!)

      And I used 18″ Travertine tile, bought at Home Depot. I think it was $2 a square foot then, but I think it’s up to almost $3 now. Beautiful stuff though. I used it on the tub surround, both bath floors, and kitchen floor. I love that stuff. Thanks for the comment!

  16. Awesome Post Brandon?
    I may have missed it in the blog post itself, but what was the average DOM for comparable properties in this area? Maybe this was a red flag. Just trying to add my .02,

    • Brandon Turner

      Hey Samantha,

      Before the flip, I didn’t do that research (another mistake) but after, I believe it was like 8 months or so, maybe a little longer. It was pretty rough for a while, especially with the higher priced homes like this one. But yeah – definitely a red flag!

  17. Hey Brandon,

    You did make a very beautiful house. I totally appreciate the article and admire your openness about the project. On the positives, you got a great deal on that house and you made it to Italy!!! Woo wool!

    Thanks for sharing. I have no interest in flipping although many people seem to be great flippers, I feel it’s not my thing. I would love to hear tips on how to get good prices all day long. Thanks!

  18. Wow. Not the best ending, but great story. Thanks for sharing… My first venture into real estate was a total renovation – as in the house was stripped to the studs when I bought it… The amount of education one gets from doing that is priceless; I’ve drawn from those problem-solving issues, project management skills, bank draws, bidding jobs, permitting, etc. Glad ya’ll took the Italy trip anyway.

    • Brandon Turner

      Hey Isaac, thanks for reading this long post! Yeah, I learned so many lessons (and skills in construction – I can build a staircase now!) so it wasn’t a complete waste. But making profit would have been nice!

  19. This is a great article and I can definitely understand the temptation to “over rehab” a project. Because, after all, if YOUR name is going to be attached to something you want it to be perfect and a shining example of the kind of work you do etc. That kind of emotional attachment (sometimes disguising itself as pride of craftsmanship/wanting to do it “right” etc) can be very dangerous.

    I also really appreciate people being willing to talk about the times things went poorly, and I get very suspicious of anyone who is selling the story of how everything they touch turns to gold and money falls out of the sky without a care.

    Oh, and yeah Italy is amazing, including the Colosseum, even during tourist season.

    • Brandon Turner

      I agree- emotion is so easy to get into the mix because it reflects my abilities as a carpenter. Ah, something to get over. And yeah – the Colosseum was amazing – even though I got pooped on by a Pigeon right before that photo was taken!

  20. When someone does a Rehab I ask them “Is it Drug or Alcohol?”
    Thanks for sharing, I like to do minor repairs and rent for cash flow or flip wholesale.

    Sam

  21. Great post Brandon, I currently have a flip that is on the market and have experienced the same. You are dead on with each point made. Very valuable information for all investors considering exit strategy for a deal. You won’t learn this stuff at a guru seminar. Thanks

  22. The same thing happened to me. I made a low-ball offer on a huge single story short sale in the suburbs and I got it. We did a great rehab with all new flooring, granite, paint, etc. I bought it in the spring, tried to do a lot of the work myself, took too long to get it on the market and ultimately it took a year to sell. On the positive side, we made a profit and the profit is taxed as long-term cap gains since we had it a year. On the down side, all my money was wrapped up in this deal and I missed out on several other deals because of it.

    Great article and lots of valid points. Size does matter.

  23. Great article! And all true, true, true!
    One of the most important take-aways is that it didn’t stop you! Reminds me of the pottery analogy in Failing Forward by John Maxwell.

  24. Thanks for sharing, Brandon! A lot of the house-flipping stories I’ve read online have been disappointing because they don’t include enough details to be useful. This article, however, was fantastic! I love that you included all of the costs and the breakdown of the process. It’s a big help to newbies. (Also, your wife is gorgeous.)

    Britta

  25. My first flip was a great learning experience as well. The numbers looked good, even with outsourcing the work. Unfortunately, the guy I hired had no clue what he was doing. Every time I went to the house I found something he did wrong or poorly and he would have to redo it. I should have let him go early on and found someone else, but I felt like he was ahead of me. Eventually I just told him he was done after using up my original rehab budget. I ended up spending an extra $10K to fix everything he had messed up or not completed. That, coupled with the extra holding costs, ate up most of my profit.

    I learned the hard way not to throw good money after bad. On the plus side, once everything was complete, the house sold pretty quickly it at my estimated ARV.

  26. Awesome article Brandon! Thanks for being so detailed and allowing a novice like myself to learn from your mistakes. I know I could easily fall into the same problems you had because I’m a perfectionist and I also know how to do all the work myself. A potentially deadly combination!

    Thanks again.

  27. Good post Brandon.
    I too made a mistake renovating a BIG house.
    Here’s what happened:
    – when I acquired it, the ARV was $400K and I bought it for $250K
    – I estimated it needed about $20K in repairs
    – after 1 month, we finished renovating it and spent about $25K (actual – which is 25% over budget)
    – BUT, then came the crash and the same house is now worth $250K not the $400K I was expecting
    – the house sat vacant for 6 months with no takers because we were trying to sell it above market
    – we end up renting the house for $2000 a month and made breakeven cashflow on it
    – I quit claim my interest on it to my partner who put up the money to buy it so that he will at least make money from it
    – he then sold the house after 1 year for $320K when the market recovered…

    This may not be as bad as your experience but it kept me awake at night for several months. The lesson I learned here is that bread-and-butter houses are a lot easier to sell and will also cashflow if I am forced to rent it. The higher end homes tend to fall steeper when the market crashes.

  28. Hey Bud, thanks for this article. It’s easy to lose motivation when we lose money on a deal but its helpful to hear the stories and challenges are not mine alone.

  29. Excuse me, but “flipping houses” sounds so, well, flippant. It seems that a lot of the problems in the housing market were caused by greedy realtors who do little for their commissions. It sounds like you did a lot with TLC, as we have done, but TLC does not necessarily have a $ value, does it? I guess the only value of that is being able to take a loss on taxes.

  30. WOW and ouch. Great job fighting back Brandon and not giving up after that grueling experience. You did a beautiful job on that house and Like you said what and experience how much you learned what not to do. Its situations like that which make us stronger and although we don’t see it at that time we certainly can reflect back and see why.
    Typical hard money loans have a 12 month balloon. Was yours longer or did he just extend loan for you.
    Thanks for sharing and hopefully others will learn from it.

    • Brandon Turner

      Hey Michael, thanks! And yeah, the HML extended it for me, which was nice. I think he was happy getting the monthly payment. I had another lender interested in funding it if I had to, but luckily it never was needed. Thanks for the comment (And the great podcast the other day!)

  31. Really honest piece. Thank you for sharing. I have done a variety of flips, but all around the same size, same area, and same game plan. Good things to consider when going outside of your norm.

  32. If you’re going to flip houses, why not get your real estate license? You figure most of the time that’s 3% or so that you’d save and if you find the buyer yourself, that’s a full 6%. It could mean a decent amount of change if you do this again. I’m glad to see you tell the full story. I’m sick of these shows on HGTV that glamorize the process and leave out the closing costs, commissions, etc, making it look like the people are making 50% returns sometimes.

    Anyway, my site http://realestatelicensebystate.com (a Pat Flynn-esque niche) has the details on getting your license if need be.

    One other thing… as you flip these houses, you also build really good relationships with suppliers which really helps in the end. Imagine if you paid half on the flooring because you were buying in quantity. It all adds up in the end. Even though this one wasn’t the return you had hoped for, it really did turn out beautifully. Just think about it this way–there’s a family loving that house because of the work you did. You’ve added value to the neighborhood and that’s worth something!

    • Brandon Turner

      Hey Chris,

      Thanks for the comment! Yeah – the story of me and my real estate license is a sad one. I took the class, studied for it, and … never took the test. Got busy flipping a house and kept putting it off. Then the time expired which I had to take it, so then I paid for the class again… and didn’t even do it. I found Pat Flynn instead and decided blogging sounded more fun! But yeah – I’m sure I will get it at some point. I could have saved a lot of money over the years and had so much more control.

      Thanks for the comment Chris!

  33. Hi Brandon,

    I’m working builting my rental business but I do purchase properties that need rehab so I purchased the two set book you marketed immediately after it became available and it was a very good decision. There are a few books on Amazon focused on flipping and I think J Scott’s book is the best. It’s very process oriented and it has helped with my rehab process and make me a more confident investor.

    I’ll carry onto this book as I build my business, great buy.

  34. Steve Johnson on

    Great story! Very intense learning experience for yourself. If I ever do get into flipping I’ll make sure to have read through the book on flipping homes.

  35. I’m a Hard Money Lender here in So Cal and part of a team that has “flipped” more than 1,000 houses in the past two+ years, 2011-2013. Your experience is on point and should be a mandatory read for anyone wanting to start flipping. Well written.
    If I may, I’d like to add two experiences:
    1. In a slow, albeit positive real estate market, and, on the theory that more real estate agents visiting our property will bring in offers, we have held firm on our initial asking price and added round trip airline tickets to Hawaii for two. In slow down markets we also added a one week stay at a time-share. THE RESULTS: More traffic and sales always near asking.
    2. When houses were as large as your project we staged them, filled them with furniture. We found many buyers are intimated by large empty spaces—even, as in your case, the end result was showcase beautiful.
    Good luck with your next project, if sharing again please send me an update.

    • Hey Jock – thanks so much for the awesome comment! I love both your suggestions. I should have definitely done both. On later flips, I added some more incentive for agents, and I think it’s worked well. I should have definitely staged the entire thing – I just didn’t wanna spend any more money! But… I suppose looking back it would have been well worth it!

      Thanks for the comment. Also – make sure you and your HML company are listed on our Hard Money Lender directory – http://www.biggerpockets.com/hardmoneylenders

      Thanks! Keep in touch!

  36. Good Morning Brandon,
    I should have mentioned we’ve “staged” in two different ways: [1.] We’ve used a staging company with great results, however, as you’ve found, it can be expensive. [2.] Found furnishings to stage with, by networking with friends, clients and relatives. We were amazed to discover how much “stuff” sits somewhere not being used. The cost? A rental truck, a couple of strong backs [mine excluded], a roll of duct tape to note the owner’s name on the bottom of each item, a digital camera to record the condition of the used item, and lastly, copious amounts of copy paper to print out two sets of pictures; one for inventory control purposes and one for the owner.
    Think eclectic at its finest.
    Also, get ready for each “furniture lender” to claim that it was his or her family’s heirloom that sold the house. It was easy to spread the credit to all that helped.

  37. Hey Brandon,

    This is truly a great article that I can assume will save others from suffering a similiar fate. One thing I still am trying to wrap my head around is:

    Why is making your house stand out from the neighborhood not a good idea. The analogy of staying away from placing granite in a remodel because other houses do not have granite makes it hard for me to understand. Is it because of the type of people each neighborhood attracts? Or that for specific neighborhoods, granite counter tops just isn’t a thing that is highly sought for?

    • Brandon Turner

      Hey Ruslan, Thanks for the comment! I don’t think it’s bad to stand out. I think it’s actually good. However, it is bad to overspend. There were about 50 areas of this project where I went above and beyond – but in the end, the house just didn’t need it. I thought it would be worth, but I guess hindsight is 20/20! And yeah, in my area – granite is not really that common so, while it did make it look good, it wasn’t needed. It would have probably sold just as easily without. Hope that helps!

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