My first flip - I broke even

78 Replies

I thought I would share my story with the hope that it inspires someone to start the home flipping adventure and/or saves someone from making some of the (costly) mistakes that I made. Note that I'm purposely not including $$ figures for privacy reasons. 

Background: After years about talking about doing a flip I finally jumped into the pool. The adventure started when I left my office job in April 2014. In June 2014 I bought my first property with cash (let's say that it was from an angel investor). 

The house: Built in 1952 and owned by the seller's family since 1954. The house had been vacant for over a year at this point and the seller, who was a relative of the deceased owner, lived in another state. 

Purchase: The property hit the MLS on a Wednesday, I got inside it on Thursday, and made an offer (all cash, no inspection contingencies) on Friday. The planned open house for Sunday was cancelled due to the seller receiving multiple offers. Negotiations took place on Monday. I had to increase my offer. My second offer was accepted on Tuesday. We closed 6 days later (the title company said it was the fastest closing they had ever done).

The plan: The house hadn't been updated in any significant way in decades. The wallpaper in the living room had turned yellow. The bathroom and kitchen were last touched in the 1980's (that was my guess). I knew that some of the mechanicals would need to be updated. The plumbing drains, from what I could see, looked to be updated (PVC). The landscaping had been neglected for years so it needed major pruning. The plan seemed simple: clean it up, paint, refinish hardwoods, new kitchen + new bath. I thought that I could do most of the work myself. My projected timeline was 3-4 months.

The outcome: I sold (closed on) the house in February 2015 (9 months and 9 days after my purchase) and broke even on paper. If you consider 9+ months of lost income then you could consider it a major financial loss. I don't because I look at it as a heck of an education that I couldn't of gotten from books or videos or online forums. 

What I learned:

1) I wanted to do most of the work myself. What I saved in checks written to contractors I lost (and then some) in the time it took me to complete everything; including holding costs. The takeaway: I love working with my hands and "fixing" things. The next time I decide to fix and flip I am going to pick one or two passion projects and make them my own (landscaping, tiling, etc.) The rest I will outsource. 

2) You don't know what you have until you open the walls. I found major plumbing issues and major electrical issues that were not apparent on the surface. These were definitely jobs for the pros. The takeaway: plan for the worst and hope for the best. This is where a lot of my money went and I hadn't budgeted for the worst.

3) I paid way too much for the house. I cannot overemphasize this enough. By my 20-20 hindsight calculations it was about $12-65k more than I should have paid depending on how you prefer to calculate your potential profit vs ARV. The takeaway: I got out by the skin of my teeth. The reality is also that another investor would have paid more than I would have I wouldn't have gotten the house. 

4) Don't put a house on the market less than 3 weeks before Christmas. The takeaway: just don't -- it's not a good time to be trying to sell a house.  

5) Finding good pros is key. My electrician (whom I had used in the past) introduced me to an HVAC guy and a builder and both paid off in dividends. Also, when you use a "big" company you will also be paying for their overhead (marketing, human resources, rent, etc). That showed in their pricing. The opposite end of the spectrum is that sometimes I had to wait until the "small" guys had time to do the work. It's a double edged sword. The takeaway: when you find someone you like, and trust, ask them who else they know. It also felt good helping out other entrepreneurs who are making a living doing what they love. I've since become friends with some of the guys.

6) Don't give up. There were times during the long process when I didn't see a way out. Had I given up I would have financially sunk my family. The takeaway: it's not always going to be easy. Be ready to have to dig in and push forward. 

Conclusion:

I am really, really glad that I did it. I am very proud of the final product. I spent years pretending that I was making an effort at becoming a REI when, in reality, I was spending my time doing busy work in order to convince myself that I was making strides towards my goal. I needed to get one under my belt. And now that I have I feel like I can do another -- only hopefully with a much more profitable outcome.

I'm happy to answer any questions but please keep in mind that I won't answer questions related to $$ amounts.

Before and After



@Doug W.

Really appreciate the very inspiring and sincere post. It sounds like this was an amazing learning experience, and for that I believe you deserve a big congrats (despite the net 0 result).

Hopefully this was the perfect stepping-stool you need to kick butt on all of your future deals. You sound very methodical and I can't wait to hear about your many successes in the future!

Congratulations. OK, so you didn't put any money in your pocket but you are now in the game. You have a lot of experience and a very nice first entry in your portfolio. You are a lot better off than if you dropped $10K on a seminar. Hopefully, your next seminar will put a check in your pocket and that is much more likely because you did the first project.

Well done. The house looks great. With what you know I bet your next one pays off well. The most important thing I read through your whole post was the good attitude. Others would not have handled this like you did. It is better to break even than lose. Not to mention you learned a ton. 

Ryan Dossey, Real Estate Agent in IN (#RB15001099)

very cool! the transformation looks great, will you be using the same people on your next flip or do you think you need to move on to other subs?

Ken T.

    Hi Doug! Thanks for sharing your thoughts and honesty. I wish you success in your future real estate endeavors. The finished product looks beautiful! I love working with my hands and fixing houses so I completely understand your need to be hands on, but I agree with your point of picking out "passion projects". I will definitely be narrowing the scope of work  I do, cause it ain't easy and it's kinda lonely.  All the best.

    This is an inspirational story and I appreciate you for putting it up. Oh too often do people rush into stuff and this will most likely allow someone else to mitigate these problems. For real I think you came out decent because so so many end up thousands of dollars underwater. My first flip not so long ago came close to breaking even. I made a few thousand but was disappointed. Then when I actually assessed the full scope I understood that the experience was priceless. You are officially a flipper/investor with lined up resources, knowledge of the full process and preparedness for success in your next venture. What you learned is what others pay thousands to gurus to teach them.

    Congratz!

    Thank you for sharing. Those are great tips and lessons that will really help the other members. You really did make the place look great. As others have stated, you are now experienced. I would definitely bet on you for your next flip.

    You work ON your business and not IN your business.

    Anything where you can't remove yourself is not an investment but buying a job. Since you can't be physically at more than one place at a time this significantly impacts your income and growth potential.

    You leverage people to increase your effectiveness and revenue streams. 

    Congrats on getting in there.  The final product looks great!   How long was it on the market following your upgrades?  Also, if you sold through an agent, do you think getting your RE license would be something worthwhile?  Just curious.

    Thanks so much for sharing that @Doug W. . As a newbie I'm learning a lot from experiences like yours. Good luck with the next one and I hope you make a decent amount of cash on the next one!

    Originally posted by @Joel Owens :

    You work ON your business and not IN your business.

    Anything where you can't remove yourself is not an investment but buying a job. Since you can't be physically at more than one place at a time this significantly impacts your income and growth potential.

    You leverage people to increase your effectiveness and revenue streams. 

     Ditto

    Thanks @Doug W. .  I appreciate your thoughtful and honest tale.  

    I'm another newbie who has often been tempted to pay too much for a property.  I've made dozens of offers and had most of them turned down.  The one or two that were accepted, I had to back out of after re-running the comps (yes, I had to make the same mistake more than once to finally figure out a method that would make running tricky comps easier for me - I'm normally a fast learner, but for some reason, that lesson didn't click for me the first time, lol).

    My main takeaway from your story is, "don't overpay for a property", no matter how tempted I get. 

    BTW, I finally got a contract on a property that I believe I can make some money on, and I'm lined up with a good contractor.  We'll see how things go over the next month or so :)

    Great story, I learned a lot just by reading your story and I haven't done my first flip yet. It seems like you're already on the road to success cause you realized the mistakes you made early and you're adjusted accordingly. Keep up the good work. By the way , the home looks awesome.

    This post has been removed.

    Thanks for the detailed post.

    fool me once shame on you, fool me twice shame on me....another free lesson that you may or may not have picked up. when you build your house, make sure that it is nicer than other similar houses for sale that an appraiser would use as "comps".....and a place you would buy if you could choose between your house and those houses. 

    You're attitude towards this experience will definetely pay off in the long run. Good luck!!

    That is a good story. I have been there as well. Several flips that made a small profit or even one that I lost money. Some that made decent money. And after doing maybe a dozen flips, I have determined for me that I won't do any more. I make as much renting a property for a year, as I would flipping it. 

    I will also tell you the the best flips I have ever done were the ones that I did very little, the less I had to so the more I seemed to make. Major rehabs are hard to figure and control costs. 

    Doug the cool thing about this is the money you didn't make on this deal you will reap in SPADES on your subsequent deals! When we have this conversation a year from now you will be update the post with a title like "How I made ZERO on a flip and Still Made A Million!" 

    Congrats 

    Congrats on taking action, you should be proud of yourself!  :)

    And the after pics are beautiful!

    @Doug W. congrats on getting the first one under your belt.  as a newbie that's been reading and absorbing as much as I can, I can relate to doing busy work and convincing myself I'm making strides...

    What finally got you in the game?

    You gt the best education out there , you saw what can happen , how it happens , delt with some trades . Now you know what to look for in the next one . You could take every seminar under the sun and still not learned what you did .  Jumping in with both feet is the way to do it . Sink or swim . 

    Thanks a whole bunch on this success story. You may have broke even, but you still have gold--experience. I have yet to make a deal and will be using what I read here. Again thanks.

    Peter Grabas

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