Hello BP! I need some consolation, wisdom, and maybe pizza. My dad just completed his first flip. After all was said and done, he lost over $3k. We're not white collar people, so $3k is a lot to us. I tried telling him that $3k is a small price for the education he received, but all he can see right now is how hard he worked to lose $3k. He's discouraged and upset, and I'm both sad and annoyed that he's not seeing any of the positives. He's made comments about what he'll do differently for "the next one," but as convinced as I am that REI is the future for both of us, I don't know that flipping is wise for him. He took a risk and can't seem to accept that loss is part of the risk. His capital is limited, and now its been reduced. I believe it's around $40-45k now. He's getting older (54), his job isn't viable in the long term (he hauls trailers and campers. It's unhealthy, not rewarding, unsteady, and the expenses make it barely profitable) he's trying to find some magic path to high reward, low risk. Obviously, he made a lot of mistakes that he knows not to repeat. In addition, I'm now active on BP; I wasn't when he first started. But I won't know how to deal with him if he tries again and loses more. Maybe our market isn't right for flips. I don't know what we do from here other than spend some time on BP, learn about different ways to get into REI, and find out if there's a better one out there. I'd love for him to help me with my long term plan (become a full-time landlord through SFH, MFH, and vacation rentals primarily through buy and holds, using rental profits to save up for more downpayments on more houses, then bring him on as property manager). Sorry if this is jumbled; I feel jumbled. I will say that the stress of having this off our shoulders and not have to hear him stressing out about it every single day is almost worth the $3k to me.

Our first flip flopped. Now what?

Attorney · Northbrook, IL · Member since 2017 · 719 posts · 549 votes

9y

@Nicole Heasley Beitenman Honestly, it's very hard to turn a profit on your first flip, I usually tell my clients to expect to break even your first time out. The smallest details can really add up and result in losing money. Try to learn what aspects of the flip got away from your projections. Typically its one of two areas. Many first time flippers look at the potential profits of the flip without accurately reflecting the amount of closings costs when they sell. Almost all first time flippers are overwhelmed by the little costs that add up in finishing a project and getting it to completion.

When doing the numbers on your next project, adjust your spreadsheet to learn from your mistakes and you'll be fine. Honestly, I've seen clients lose 10 times that much on a bad flip. Consider yourself fortunate that you only lost that much on your first time, dust yourself off, learn from your mistake (and fix your mistake!!), and get back out there.

6 Reply

Clayton Barnes

Bloomington, IN · Member since 2017 · 53 posts · 37 votes

9y

Sorry to hear you guys had a loss on your first.

Have you identified why? Did you just buy a bad deal, did you severely underestimate rehab expenses, did you overestimate ARV, was the work poorly done, was the flip inappropriate for the area, or was it maybe just poorly staged and/or marketed? I agree with you that flipping probably isn't wise if you don't know where you went wrong on the last one. However, if you identify the problem and make sure you're not repeating it you may find that a 3k loss in the grand scheme of things is a fairly cheap education.

I think the best thing to do might be to dump as much information into the post as you can. Purchase price, sale price, rehab costs, and maybe link the zillow to the home or something. There are a lot of people on here killing it in the flipping world, so I'm sure they'd be more than willing to point out specific issues you might have overlooked.

Also if you're looking to get into buy and holds anyhow you may want to start factoring that in as an exit strategy when you're evaluating your deals. Understanding your options is always going to be preferable to blindingly following a path that may be leading you off a cliff.

3 Reply

Nicole Heasley Beitenman

OP

Investor · Youngstown, OH · Member since 2017 · 2k+ posts · 2k+ votes

9y

@Bob Floss II He came so close to breaking even. It was closing costs that got him. I don't know if he failed to factor them in or underestimated.

When he first started this endeavor, he was doing EVERYTHING on his own as I was studying for the CPA exam. After realizing I have no desire to be an accountant, let alone a CPA, I ditched the exam. So next project, I will be able to help much more, primarily by tracking and organizing expenses.

@Bob Floss II

1 Reply

Nicole Heasley Beitenman

OP

Investor · Youngstown, OH · Member since 2017 · 2k+ posts · 2k+ votes

9y

@Clayton Barnes He and I are going to sit down, look over all his notes and numbers, and make a list of the pitfalls we hit. He bought the home for $17.9k, put about $23.4k into it, and sold it for $45k, but I believe he's paying closing costs. He listed it at $48.9k. https://www.zillow.com/homedetails/230-Maplewood-A...

I think it was a combination of reasons: underestimating rehab which led to overestimating ARV (if he had done everything he wanted to do to the property, he could have sold it for around $55, but too many unexpected costs came up), he didn't know guidelines like the 70% rule (or, as Will Barnard suggested for homes with an ARV under $100k in podcast 32, the 60-65% rule), he overpaid for the home (he bought it off a friend who was behind on the taxes; if he had waited, he could have gotten it at foreclosure price), and I'm sure we'll identify more.

I'm wondering if we could somehow team up--perhaps he flips and sells them to me; he makes a little, I save a little.

1 Reply

Brady Durr

Investor · Fort Worth, TX · Member since 2016 · 41 posts · 48 votes

9y

The deal is not the problem. The problem is you are only running numbers for 1 exit strategy which is selling on MLS. As a rental, you could have $7K a year from the rents. With seller financing (10,10,10), you could have $6K per year from P&I. Land contract would net even more. You could sell the debt in 12 months for 85 cents on the dollar and get your capital out. Multiple exit options help turn coal into diamonds. No doubt your next deal will go smoother, but until you learn your options on the finance side of RE, your options are limited.

Yes, the $3k he lost was worth more than $10K in guru training. He took action where others buy training and do nothing with it. Tell your Dad to listen to Earl nightingale "the strangest secret" every day for one month. Also read cash flow quadrant. "Success is the progressive realization of a worthy ideal"

9 Reply

Nicole Heasley Beitenman

OP

Investor · Youngstown, OH · Member since 2017 · 2k+ posts · 2k+ votes

9y

@Brady Durr I would have loved to get my hands on it to hold as a rental. But he wanted his capital back as it serves as a cushion for the winter months when his work is not steady. I do agree we need more exit strategies--it was on my mind a lot as I started listening to the podcasts and learned about exit strategies and thought, "Oh crap. We only have 1." I was in the process of getting the financing to buy it, but as he had to put more and more money into it, it began to exceed the cost I could afford; however, by spring, I should be fully prepared to purchase my next property, so we are considering that I be the intended buyer of his next flip.

I also really need to learn more about what land contracts are and how they work as I've encountered the term several times here in the forums and in the podcasts.

0 Reply

Patrick LiskaPro Member

Investor · Verona, NJ · Member since 2014 · 1k+ posts · 832 votes

9y

Nicole,

I agree with the posts so far, there were probably numbers not figured as well as the end ARV. he could have turned around and rented it and it would have helped him through the winter months, even if it could have only brought in say $100/ month, it would have been better than losing $3000. but that is behind you now, as it has been stated, sit down with him and go through the numbers, find out what went wrong and make some corrections. It will also benefit you to come up with different strategies as to what to do if plan A does not work, is there a plan B that the two of you can accept? you jumped in and gave it a try, that is better than most people do, do not let him get discouraged, i am sure there are lessons to learn from there, as @Brady Durr said, harness them and move foward.

1 Reply

Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

9y

low value assets are hard to flip... need to focus on higher priced properties that sell to home owners... unless your in the turn key or flipping rental's business and have a buyers list of those that want to own cash flow.. ( which is hard to do )

Podcast Guest on Show #222

JLH Capital Partners51 Review

Website View Page

5 Reply

Steve Vaughan

Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes

9y

Here's the deal. Not every niche works best in every market, especially for small or new operators/investors.

I would think you are in rental portfolio heaven.

REI is a long-term game. Looking back over 15 years as a buy and holder with 3 (mostly failed 10-yr flips turned rentals), I have received every dollar I have ever invested back, plus I now have $21k in gross rents/mo and a buck or two on my PFS.

It just takes time. If I was trying to get every invested dollar back every few months, I'd still be in a cubicle, worried about having enough money for winter. Long-term horizons are key.

Maybe get your RE license @Nicole Heasley Beitenman? That would add real value to your future endeavors. Good luck to you guys!

3 Reply

David Dachtera

Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes

9y

@Nicole Heasley Beitenman,

Yes - "Hard Knocks U" is THE most expensive education out there and the only "student materials" are the aftermath of the deal.

As other posters have noted, it was very likely that the analysis of the deal was incomplete before a financial commitment was made, leading ultimately to the loss. Had he run his numbers first, he might not have gone forward with it. Yes, commitment to a single exit strategy can increase the challenges. Also, not planning profit into the deal from the beginning, ... well, maybe I don't need to finish that thought. Since it hasn't sold yet, the amount of the loss is not yet final.

I looked at the pix - nice job on finishes and stuff. In looking at the kitchen, though, I'm not sure where the stove and fridge would go. I'm also wondering if maybe the interior was over-improved for the area.

Everyone thinks you can just "jump into it" and learn as you go. Listen to Brandon Turner's podcasts here on BP where he tells how much he lost on his initial deals for lack of education.

If your Dad is a people person, there are driving options out there like Uber and Lyft. The income is not as seasonal, if driving is his thing. That might help with income.

My $0.02 ...

1 Reply

Tyler Weaver

Investor · Cincinnati, OH · Member since 2008 · 319 posts · 243 votes

9y

It will be hard at that price point. The sweet spot in your market is likely sub 200k homes. With loans on these projects, the stakes go up though.

This property would have been a success with the BRRR strategy. Maybe buy 2 a year, fix them up, rent, refi the down payment out and grow from there.

When you are in the mud so to speak. Learning, growing, making mistakes, and being uncomfortable you grow. It sounds like your father is in that situation and has the opportunity to take the new data he learned, adjust and move forward.

1 Reply

Robert Hudson

Crossville, TN · Member since 2017 · 121 posts · 168 votes

9y

This house looks really nice inside. I think the kitchen killed it though. It looks like there is room for either a refrigerator or a stove but not both. A dishwasher would also be nice. An unworkable kitchen will ruin any house. I don't know your property values but that looks like a great price for that house. A better kitchen layout would have brought much more money.

1 Reply

Michael Plante

Deland, FL · Member since 2017 · 2k+ posts · 1k+ votes

9y

I don't think a person should break even or come close to just breaking even on any flip

Personally if I don't think on WORST case scenario the profit will be 30k I would keep looking. And this is on a 60k total investment Price of property and fixing up

Your dad is 54 is he doing all the work himself? I hope so

I think all these TV shows showing people have someone do all the work and they walk away with 50l profit are really making people act silly thinking they can do that

2 Reply

Sam Shueh

Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes

9y

Flip is a hit and miss to most skilled professionals as well. You need to look at plan B. My advice is put saving in a good REIT mutual fund. Your dad will sleep better.

1 Reply

Bart H.

Dallas, TX · Member since 2016 · 1k+ posts · 745 votes

9y

Originally posted by @Nicole Heasley Beitenman:

@Clayton Barnes He and I are going to sit down, look over all his notes and numbers, and make a list of the pitfalls we hit. He bought the home for $17.9k, put about $23.4k into it, and sold it for $45k, but I believe he's paying closing costs. He listed it at $48.9k. https://www.zillow.com/homedetails/230-Maplewood-A...

I think it was a combination of reasons: underestimating rehab which led to overestimating ARV (if he had done everything he wanted to do to the property, he could have sold it for around $55, but too many unexpected costs came up), he didn't know guidelines like the 70% rule (or, as Will Barnard suggested for homes with an ARV under $100k in podcast 32, the 60-65% rule), he overpaid for the home (he bought it off a friend who was behind on the taxes; if he had waited, he could have gotten it at foreclosure price), and I'm sure we'll identify more.

I'm wondering if we could somehow team up--perhaps he flips and sells them to me; he makes a little, I save a little.

What are the rentals going for? For a sub 50K property it looks really nice. A place like that in Dallas would be 130-150K.

Could he have done a BRRR, gotten most if not all of his money out of the house? or maybe the end game was a owner financing?

At that price point, and quality, it screams rental to me, I don't know that you will be able to do rehabs that make enough money at that low of a selling price.

1 Reply

Michael Noto

Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes

9y

@Nicole Heasley Beitenman If your dad was truly stressing out as much as you mentioned over losing $3000 than being involved in real estate is probably not for him. Which is not a knock at all, this stuff is not worth losing sleep over if you don't have the temperament for it. I know that is a cliche but I think it is true.

2 Reply

John Colburn

Investor · Atkinson, NH · Member since 2010 · 36 posts · 27 votes

9y

From your dad's perspective the $3k loss was a part of the problem, but the biggest issue is all the time and effort that your Dad put into renovating the house.

The house is very nice, and he must have worked on that full time for several months. The time and effort put into the project, and the lack of return is most disheartening. If anyone of us spent that much time and effort we would feel and act the exact same way.

I agree with the earlier post this flip was a great learning experience for you and your dad. With your Dad's skillset and this learning experience you both are positioned well to move forward in real estate investing.

You will need to take the initiative in finding the next property, invest wisely and never give up.

I look forward to hearing your success stories.

1 Reply

Brian Pulaski

Flipper/Rehabber · Montgomery, NY · Member since 2016 · 2k+ posts · 1k+ votes

9y

In my opinion it is a learning experience. Losing $3000 for a lot of hard work must feel terrible. With that said, assuming you have good records of what things cost, he should be in a good spot for running numbers on the next deal. I think "ripping the band aid" and getting the first deal done is one of the hardest things for potential flippers.

Wrap your heads around the numbers, and hit the ground with that in mind on the next one. On sub $50k flips, I can't offer much advice, other than be extremely careful on the budget, as you have very little room on the back end to make money back on a "miss".

1 Reply

Marshall Downs

Investor · Benton Harbor, MI · Member since 2013 · 257 posts · 140 votes

9y

Nicole, we all know someone in some situation like your father's. And it's easy to see the decisions made along the way to arrive at a $3k loss...helped a buddy out, no financing required, saw the pot of gold at the end of the rainbow, had the skills and making a financial move with his daughter's dreams in mind as well. He unfortunately just didn't do his math correctly and that is obviously something you can help with next time through.

I know a wealthy landlord who has been invested in rentals for decades and decided to flip a house with his son who was between jobs. The mix of Dad approaching the flip as a rental vacancy turn and son who did not really know much about construction led to an unnecessarily expensive rehab with the wrong finishes, the home being on the market for too long and selling at a below asking price for a $5k net loss. This guy is never doing a flip again, but it wasn't the market's fault or the house or neighborhood, it was 100% execution.

What I see in your Dad's case is right motives and strong skills, but incomplete information going into the deal. If there is a next time you guys won't make the same mistakes and miss commissions or whatever line items were omitted. You may buy in a neighborhood with stronger values. You could do a lot differently. But, you also can take some of your sound approaches like finishes which sell the product and construction schedule which seems not too far off and pour that into the next project to start recouping this $3k.

I think you guys have a solid, complementary skill set between the two of you and can definitely weather this small storm to see some real upside profits. If you spend enough time on BP you will see that finding quality contractors is a real issue and you won't have that problem to resolve. Ultimately, it appears he got this under contract quickly and knows how to do the work in a reasonable timeframe. Couple that with your pencil sharpening skills and you can have a very successful business model.

1 Reply

Jason D.

Rental Property Investor · St. Petersburg, FL · Member since 2017 · 3k+ posts · 4k+ votes

9y

Why not refinance, take 80% of the equity out, and rent. You'll generate a ton of cash flow and there is very little chance that the property value will fall much from $45k. Or.... If he wants to sell and you want to focus on buy and hold, why don't you buy it from him and keep it as a turn key rental. As long as the appraisal comes back high enough, you can get all of his money back and you end up with a cash flowing property.

3 Reply

Luc Boiron

Specialist · Toronto, Ontario · Member since 2016 · 564 posts · 425 votes

9y

It comes down to buying at a better price. Perhaps he/you could network with some other flippers in your market and try to get their advice next time before going through with a deal. Some experienced advice would help.

1 Reply

Todd Dexheimer

Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes

9y

I made $2000 on my first flip. I did all the work myself and made about $1/hr. I was not excited, but I was determined to continue. I started then buying rentals. I bought 5 rentals with the remainder of my capital and then decided to start flipping again. The next flips I was able to make around $30k/flip and continued to do around 150 or so flips. That first flip taught me a ton. If he can use some money to buy and renovate and keep a few rentals, I think that is a safe way to learn about flipping. After my first flip, I was only buying houses I could rent, that way if the flip didn't go well, I could rent it out.

5 Reply

Gay Lloyd

Real Estate Investor · Ogden, UT · Member since 2014 · 160 posts · 81 votes

9y

We pretty much broke even on our first fix & flips also. We did way too much work ourselves, took way too long to complete, and like someone else said, we might have gotten paid $1 per hour, maybe. We looked at it as our "education" costs and just moved on. You never lose unless you don't learn anything. It was some of the best education we have had.

There are lots of really good points above. I especially like @Brady Durr suggestions for reading and listening materials. Partnering up with an experienced fix and flip investor in the area that you really trust would be good also on the first few. Learn all you can from those around you and the people and podcasts on BP !

We are happy to help any way we can- we have a great 21day (intense) rehab schedule that is great to shoot for. Happy to get on a call anytime if you want to chat.

1 Reply

Irina Belkofer

Real Estate Broker · Cleveland, OH · Member since 2017 · 719 posts · 658 votes

9y

@Nicole Heasley Beitenman most likely it's a location - Youngstown is not the hottest market - you can't make 100% on your money there.

People flip houses all over Cleveland now and making decent money.

I personally don't like the idea of flip: rentals give you much better returns.

Check out the BRRR idea - just remember, to refinance the house, the 75% of the after repair value (ARV) must be ore than $50K. Banks won't work with the low value.

My first flip was in 2013, I didn't make much money but learned a lot.

I bought a house for $21K, updates were $30K, sold for $78K, plus closing+commission to the selling agent (I listed it myself and paid to my broker only their part). All together I made less than $20K and since then I like cash flow much better than capital gain.

There are quite few deals to flip, but the problem is that too many people are doing it now. It's very hard to negotiate a decent price and you make your profit when buying, not selling.

Next time will be easier and hopefully not so frustrating for your dad. Good luck!

1 Reply

Nicole Heasley Beitenman

OP

Investor · Youngstown, OH · Member since 2017 · 2k+ posts · 2k+ votes

9y

@Patrick Liska If we had sat down and had a more thorough discussion about multiple exit strategies, I think he would have been more prepared to consider renting as an option.

@Steve Vaughan It's definitely rental portfolio heaven, and I'm super hungry for a piece of the pie.

@Robert Hudson There was both a refrigerator and a stove in it at one time. But it was a tight squeeze. It's definitely priced well as we had multiple showings and an offer within 72 hours of listing the house; it just wasn't the offer we were hoping for.

2 Reply

Our first flip flopped. Now what?

Our first flip flopped. Now what?

Most Popular Reply

32 Replies