My first flip - I broke even
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