Many times when we talk on the BiggerPockets Podcast or even when we read blog articles, the contributor seems to share mega success stories. At times, it can seem like flipping homes or buying rentals is a piece of cake—a magical world where people never lose money, never get frustrated, and never feel like fools.
Other times, all we read is a cesspool of negativity. There is no shortage of folks who tried their hand at house flipping only to flop. Lots of things can—and do—go wrong.
So, what’s the truth?
Any Seasoned Real Estate Investor Will Tell You This
As a newbie on the outside looking in, it can be super difficult to know if you should take the plunge. Is “action” what’s needed? Is education what’s needed? Do I need a partner? A mentor? Another course? Another book?
The truth is, those experienced with real estate investing have learned and accepted that things will often go wrong. They’ve made peace with the fact that sometimes things can’t be prevented. You can’t take the good without the bad. In the same way, you’ll often sell a house for much more than you thought you could, you may have to sell one for less than you expected.
The trick is to do it enough times without getting wiped out that the bad breaks are outnumbered by the good. That’s the real secret to lasting success. You want to be able to stay in the game long enough to learn from your mistakes so they don’t wipe you out.
Some Investments Will Blindside You
A partner and I recently flipped an older home in the San Francisco Bay Area. This was a deal that on its face looked pretty simple. A two-bedroom, one-bathroom home under 1,000 square feet on a big lot. A property right across the street sold a week before we bought it for well over what we paid. This looked like one of those routine, standard deals. So much so, I barely paid attention to it.
The rehab was easy to determine. Knock down some walls, make the kitchen twice as big, and move the laundry room into the garage, plus a new kitchen, new floors, new bathroom, new paint, and some nice new accents. We’d also clean up the yard, fix all the dry rot and pest issues, and get the thing on the market in 30 days.
The rehab went even better than we thought—at first. We budgeted for four weeks, but the team had it ready in two. The biggest hurdle most flips face (complications during the rehab) was already avoided right off the bat.
After we bought the house, two more comps sold for $25K over what we were expecting to list at—another score. Things were looking great. It wasn’t until a week before we were supposed to be finished that things took a turn for the worse.
First, we had rain. Heavy rain. In California. It’s not like we never get rain in California. We do—but just about as often as your grandma sends you home without feeding you first. It’s pretty rare, you know?
The rain revealed several problems we were not expecting:
- The roof leaked.
- The property had zero drainage in the backyard. The entire yard flooded.
- The property did not have a drainage system to carry the water from the area around the house to the street level gutters.
Once we realized this, it was back to the drawing board. We had a roof specialist come in and repair the roof so it wouldn’t leak. We had to dig several tunnels in the backyard and install piping to carry the water that had pooled back there to the front yard. Then, we had to create a system to move the water from the front yard to the gutters on the street.
This process took several weeks, and of course, more money. Unfortunately, it didn’t do much to add to the value of the property. These are the kinds of repairs we try to avoid when flipping homes.
Once the repairs were made, we listed the property and had an offer within two weeks. We went into escrow, and the buyer started the inspection process. Two weeks into the escrow, the buyer decided they didn’t want to move into this area and backed out with zero notice.
We went back on the market and reduced the listing price, hoping for another quick sale. A few weeks later, we found another buyer. This one was a bit pickier. After several rounds of going back and forth regarding additional requested repairs, we were finally ready to move forward and close.
Until… the sewer line problem of the year appeared!
The buyers’ inspector found the sewer line was backed up and not working correctly. At first, this didn’t appear to be a major issue. It wasn’t until the buyers requested a $15,000 credit that we realized the problem might be bigger than we thought.
My partner sent his plumber to the property to check it out. This is what he found!
What you are looking at here, folks, is a sewer line (the part that carries the waste from the property out to the city line to be disposed of) completely overrun by a tree’s roots. This is what caused the massive backup, and why the property’s sewage was draining so slowly.
Just look at that mess!
As it turns out, water and sewer lines can occasionally crack and leak with age. If there are trees with roots nearby, those roots will be drawn to the water and moisture coming out of the lines. If the roots make contact with the moisture and grow toward it, it’s possible the roots can actually grow into the lines themselves. This is what created our big problem!
In this case, tree roots went into the sewer line and grew deeper and deeper until they had taken over the entire thing. As you can see from the pictures above, it got pretty gnarly. Our plumber had to cut out the stuffed line, hack away all the surrounding roots, then replace the line with new stuff that isn’t cracked. He told us it was the worst clog he had ever seen in his career.
Luckily, the buyers waited for us to make the repairs and the house should close soon.
Due Diligence Is Key
This problem is a great example of the stuff that pops up when flipping houses or buying fixer-uppers. There is always more due diligence that can be done. We could have had the plumbing lines scoped by camera. We could have had a roof inspection done before closing. We could have had an architect check the backyard to ensure the slope was not an issue for draining. There is always more that could be done.
The point is, don’t let that hold you back from taking action. Even though we had several unexpected hurdles, we will still make money and close this deal. Even though we didn’t do everything perfectly this time, it’s still better than if we did nothing. Even though we had a tree growing through our sewer line, I still ended up with a pretty awesome and fun blog post!
I hope you found this as entertaining as I did, and you walk away shaking your head at that insane tree growing out of our sewer line. House flipping is hard to predict. There are a myriad of variables that can pop up unexpectedly, and you really have to move forward, looking at things with an open mind.
Just remember, no matter what the problem that pops up is, someone else has fixed it before. You can, too!
Do you have any entertaining stories of unexpected property issues? Or have you heard any through the grapevine?
Let’s laugh them off together. Share below!