Flipping gone wrong

16 Replies

I need help.

I live in Vegas and I have bought a property in the east Memphis area. Purchased at $235,000 in December. Supposed to be about $60k rehab and sell for $345,000. We had to fire our first contractor. His work was terrible and took way too long. Fired the second contractor as the GC was asking me to loan him money to pay the sub and the work was slower than the first guy. As a result we hire a crew to get the property finished… Turns out the work isn’t as good as we thought.

Hired a realtor who then listed a property that didn’t even walk through or check it out. Priced it too high considering the work was not up to standards. She would have known that if she walked the property of course. During this time, she wanted to have her contractor fix some of the work. Some how I notice that the stove is missing from the property. The realtor and her contractor “did not notice.” We ended up firing her but she wants payment for her pictures that she took. These pictures literally have trash in them. She thought it was ok to list with those pictures.

I have found a realtor who seems on top of it but at this point, we are in 7 going on 8 months in this property. Our rehab has definitely been doubled and holding costs and points are sky high. The property has been listed for just less than month now and still no offers.

I’m looking for advice in what to do with this property. We have lowered the price to barebones where we would lose a little. I need to stop the bleeding.

Any advice would be fantastic!

Hindsight is great, but you should never have hired a realtor who didn't bother to walk the property and then red flags should have gone up when she wanted her contractor to fix things.  Whose fault is the missing oven?  I wouldn't pay her.  Realtors take a risk with every listing.  They know a certain number of listings won't sell and that is the cost of doing business.

Anything for sale for a month in this market has 1 of 2 problems. The listing  (usually pictures but also details/descriptions occasionally) or price. Call it price 80-90% of the time.  Maybe find a Memphis landlord/flipper/property manager and have them walk it. 

What are buyers offering? Bite the bullet and take your loss as soon as possible before you dig yourself in even deeper. You may get lucky, but the longer you go the more money you will lose.

By judging the basic numbers you posted your math and the entire deal was a disaster before you started. First, there is no way a sane person should try to flip properties from a distance. Second, when you flip from long distance you automatically open yourself up to every problem in the world in regards to good management, dealing with contractors, honesty and there is nobody there to watch your back. 

Third, I would never purchase properties in Memphis from a long distance since Memphis is know as the Eviction Capital of the World. Sure! Properties are cheap, but there is a reason they are cheap. It is because when most tenants lose their jobs they don't have enough cash in their bank to pay the following month's rent.

Fourth, your purchase the property for $235,000 knowing you had to spend at least $60,000 to rehab. That brings your total estimated cost to $295,000. them you want to sell the property for $345,000 and your real estate commissions at 6%, closing costs, inspections and fees bring your total costs to about  $295,000 + $20,700 = $315,700 leaving you with a stinky profit of about $30,000 when hoping that your $60,000 estimate had no unexpected problems.

There is no way an investor should risk spending $215,000 to earn $30,000, or 14% on your money and then you need to give 20% to 25% of that to Uncle Sam leaving you with only $24,000 or only 11% profit.

You have no choice other than to sell it for as much as you can. Take your loss as quick as possible and move on.

Everyone should stay away from long-distance investing unles they have an absolute gold mine they can't refuse.

Do a nice price drop, take the loss, and take it as a lesson learned not to invest out of state anymore. 

is it still on via the original listing? should've taken it down and relisted. Jack O is 100% on-point with everything. you need to offload this one asap. take a (small) loss on it and reflect on what went wrong. good educational moment for your future RE endeavors. 

Originally posted by @Jordan Murrell :

I need help.

I live in Vegas and I have bought a property in the east Memphis area. Purchased at $235,000 in December. Supposed to be about $60k rehab and sell for $345,000. We had to fire our first contractor. His work was terrible and took way too long. Fired the second contractor as the GC was asking me to loan him money to pay the sub and the work was slower than the first guy. As a result we hire a crew to get the property finished… Turns out the work isn’t as good as we thought.

Hired a realtor who then listed a property that didn’t even walk through or check it out. Priced it too high considering the work was not up to standards. She would have known that if she walked the property of course. During this time, she wanted to have her contractor fix some of the work. Some how I notice that the stove is missing from the property. The realtor and her contractor “did not notice.” We ended up firing her but she wants payment for her pictures that she took. These pictures literally have trash in them. She thought it was ok to list with those pictures.

I have found a realtor who seems on top of it but at this point, we are in 7 going on 8 months in this property. Our rehab has definitely been doubled and holding costs and points are sky high. The property has been listed for just less than month now and still no offers.

I’m looking for advice in what to do with this property. We have lowered the price to barebones where we would lose a little. I need to stop the bleeding.

Any advice would be fantastic!

What advice would you to give to a close friend if they asked you the same thing? I think you would say this:

"You're not going to want to hear this but the best thing for you to do is take the loss and move on. Lower it to what it needs to be at to sell today. And do it now. As in right now.

This is probably hottest real estate market of all time and you can't sell it. Just think how much worse your loss will be if that changes."

Not helpful to you but a note to others. I've rehab'ed or built around 24 SFH rentals in my home county. I've gotten pretty good at it. I would lose my a$$ on an out of state deal.

A man has to know his limitations - Dirty Harry

@Jordan Murrell sorry to hear this. Not that the property being out of state makes things any easier, but I do not think that’s the real problem here. Even if everything had gone exactly according to plan it wouldn’t have been a deal worth doing (profit not enough for the effort expended or to justify tying up that much capital for that long). Gotta have a much bigger margin, much more potential profit on a flip IMO, regardless of where it is and what your experience level is. I’d find a good listing agent who can help offload this one quickly then set yourself up for success next time by having a much bigger spread and a better team going in. Good luck!

Originally posted by @Steve K. :

@Jordan Murrell sorry to hear this. Not that the property being out of state makes things any easier, but I do not think that’s the real problem here. Even if everything had gone exactly according to plan it wouldn’t have been a deal worth doing (profit not enough for the effort expended or to justify tying up that much capital for that long). Gotta have a much bigger margin, much more potential profit on a flip IMO, regardless of where it is and what your experience level is. I’d find a good listing agent who can help offload this one quickly then set yourself up for success next time by having a much bigger spread and a better team going in. Good luck!

Exactly this deal was a loser before one even started..  this is one thing we see with many who just dont run all the numbers. between holding costs sales cost this was lucky to make but a few grand if it went well which they never do.  this is NOT TV were they dont factor in many of the costs when they spit out   hey sold a house for 400k invested 350k made 50k..  

@Jordan Murrell I'm not here to beat you up, but had you found the best contractor and agent, rather than the cheapest, it MAY have worked. Everybody wants the cheap guy to be great...they aren't. It is an oversight problem, not a contractor problem. This will be true out of state or locally.

@Jay Hinrichs yup… folks tend to look at just 3 numbers: purchase price, construction budget and resale price but there’s also holding costs, transaction costs, Uncle Sam’s cut, construction budget overruns (from finding surprises in the walls ceilings or floors, delays, dealing with slow/inept/corrupt contractors, permitting, difficult inspector, design changes, material cost increases… stolen appliances if you’re in a rough area… etc, etc etc). Murphy’s law if it can go wrong it will… not to mention the opportunity cost of money because flips can take a long time and there are many other investment vehicles out there with good returns for much less work and less risk. Gotta have really big margins to make it worth it for the effort involved and the risk IMHO. Looking at one now: 1.3M purchase price (a tear-down right next to a 10M new build that’s almost done) , 1.4 construction budget, resale value 6M bare minimum maybe a lot more if we do it right and the market holds. Even with these numbers investors are really sharpening their pencils because it could take 1.5-2yrs and these people do really well with their other investments so they need to be sure the juice will be worth the squeeze.