"What Happens 10 yrs from now is not your problem"

"What Happens 10 yrs from now is not your problem"

Kennesaw, GA · Member since 2019 · 7 posts · 10 votes

I was recently on a phone conversation with a fix and flip investor who was giving me advise on rehab costs. I explained that a particular house I was thinking of walking away from was not a good deal because it was too heavy on the rehab costs. As an example, I pointed to one of the expenses being the break-up and re-pouring of concrete for the driveway. --My GC is very thorough and knows that if the concrete is not removed, there could be issues down the road... --however, the investor advised to just pour over the bad driveway as a way to reduce costs. 

One thing the investor said stood out to me: "You're not living there, what happens 10 yrs from now is not your problem." 

This brought a lot questions up for me when it comes to being in business as a real estate investor. Having the business mindset of cutting costs is important, but where do you draw the line on cutting rehab costs? Especially when you are fully aware of the consequences that will fall on your future buyers when making the decision to short-cut costs. 

This hit an ethical cord that I did not agree with... is this the general mindset behind "successful" fix and flips? Are most flipped homes a pandora's box of house repairs just waiting to unravel?? 

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Investor · Tampa, FL · Member since 2011 · 2k+ posts · 3k+ votes
7y

To answer your question directly - There is no general mindset when it comes to fix and flips. Every fix and flipper has a different mindset, it depends on the person. Some are short sighted and cut corners, some have the long game in mind. I don't pretend to know the ratio of bad to good, but each person's opinion on this is going to vary depending on the limited flippers they've been in contact with. 

@Jim K. What degenerate circle of people have you been hanging around that gave you that warped perception of the American way of life? Sounds like you need to do business with different people, or turn the national news off. 

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  • Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    7y

    Glad to see you did not agree with his advice. You can bet this person will short you in the future if they get a chance.

    Shortcuts are prevalaint in the flipping industry.  I would never buy a flip for that reason.

    I helped a friend from Seattle who bought a rental in my town 3 hrs away. He held it for 10 years, with constant problems and shoddy work discovered over time.  What, was this a flip or something, I asked?  Yep. But at least I bought it in '07 and over-paid. LOL

    Perhaps more people like you entering the market will change my view. Thanks for being there and having a moral compass!

  • Kennesaw, GA · Member since 2019 · 7 posts · 10 votes
    7y

    @Steve Vaughan Thank you for your feedback! I really do hope this stigma will change and more people of like mindsets will begin to emerge when the market is right. As someone new to the real estate investing field, hearing that was disconcerting. 

  • Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes
    7y

    @Angela Vargas

    "If I have to lie, steal, cheat, or kill, as God is my witness, I'll never be hungry again, no, nor any of my folk."

    I would characterize this as the moral bedrock of the American way of life.

  • Investor · Tampa, FL · Member since 2011 · 2k+ posts · 3k+ votes
    7y

    To answer your question directly - There is no general mindset when it comes to fix and flips. Every fix and flipper has a different mindset, it depends on the person. Some are short sighted and cut corners, some have the long game in mind. I don't pretend to know the ratio of bad to good, but each person's opinion on this is going to vary depending on the limited flippers they've been in contact with. 

    @Jim K. What degenerate circle of people have you been hanging around that gave you that warped perception of the American way of life? Sounds like you need to do business with different people, or turn the national news off. 

  • Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    7y

    "Easy choices, hard life. Hard choices, easy life."  -Jerzey Gregorek

  • Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes
    7y

    @Nick C.

    I have yet to meet a single person in the flipping business who would disagree with the statement, "You're not living there, what happens 10 years from now is not your problem."

    It's not an unfair stigma to say that the vast majority of fix-and-flippers live and breathe this mentality, it's just an inconvenient and ugly truth about real estate that everyone who's in the industry quietly acknowledges or loudly denies. Your statement about there being a near-infinite variety of mindsets among flippers has not at all held true in my experience. Shoddy work and cut corners are almost always profitable, and therefore they are almost always the order of the day in flipped properties. The critical tension between the will to profit versus all finer feelings that would urge the contrary is very far from being critical or tense in most matters real estate, but especially flipping.

  • Specialist · Easton, PA · Member since 2018 · 1k+ posts · 2k+ votes
    7y

    @Nick C.

    To back up what @Jim K. Said, I’ve seen just as much garbage work in new construction as I have seen in flips.

  • Investor · Tampa, FL · Member since 2011 · 2k+ posts · 3k+ votes
    7y

    @Jim K. I understand where you’re coming from and unfortunately I can’t disagree too vehemently with your rebuttal. I’ve met many flippers on both ends of the spectrum, and many who lie somewhere in between. I still think a lot depends on the individual, as well as how the budget is doing on a particular flip. 

  • Contractor · Jacksonville, FL · Member since 2017 · 1k+ posts · 2k+ votes
    7y

    @Angela Vargas @jim k

    I see it everyday...I have the

    vantage point of being a licensed GC, licensed roofer, buy and hold investor....I work for many many many flippers and over 10 property managers....and ITS BAD out there... just cut throat, shoddy work requests, cover it up mentality all over the place. Seems like it's getting worse as all these west coast millionaires are pouring into my city...they dont give a ****!!! It seems....whatever it takes to make a quick buck....at least from what I see on the front lines...which is A LOT...

    Sure...some will disagree and contest they are flippers of integrity...but sadly they are the extreme minority.

  • Matthew DrouinPro Member
    Developer · Rochester, NY · Member since 2016 · 403 posts · 338 votes
    7y

    @Angela Vargas

    The short answer to your question is... YES! Every flipped home that my clients fall in love with has had these types of issues after they close. I even manage their expectations as they are goggling over the stainless appliances and quartz countertops. “This property was bought and rehabbed with the intention of selling for a profit. Lower expenses equal higher profit.” Most home flippers are looking for quick profits and with most investors investing in anything to turn quick profits... unscrupulous behavior sets in. NOW not all flippers are like this but you have to understand that these are the people that you are competing with.

    That being said, you have to buy the house right in order to rehab the house using the right work scope. You are not going to be able to charge a premium because you are Known as Mr. Or Mrs. “White Hat House Flipper.”

  • Rental Property Investor · Hawthorne, CA · Member since 2018 · 655 posts · 900 votes
    7y

    @Angela Vargas

    Unfortunately in business in life I believe this is the norm rather than the exception.  Just look at the wealthy people paying big money to get their kids into elite universities.  These are people who aren't even in need and they are cheating. So imagine someone who is trying to make it to the next level of wealth.  I see this unethical behavior or business behavior as common place.

    I hope that you can find a winning formula competing against others without the same ethical cord you do.

    Good luck!

  • Real Estate Investor · Saint Paul, MN · Member since 2017 · 543 posts · 474 votes
    7y

    @Jim K. Well my approach is to do everything right so I can sell with a clear conscience. The thought of selling a house to a family who is excited to finally have their own place, only to find out two or three or four years later that they have problems that they can’t afford to fix, it’s not a thought I ever want to have in my mind.

  • Flipper/Rehabber · Chattanooga, TN · Member since 2019 · 3 posts · 6 votes
    7y

    @Angela Vargas

    Newbie here but I listened to the episode with turnkey investor Nathan Brooks out of Kansas City and his strategy is high quality, 10 year life. So the way I understood this, is replacement or repair needs to last 10 years. Another concept I saw on the forums was from another flipper who said “new but not updated” so for example a new countertop (Formica) but not quartz. I think it’s reasonable when a family purchased a home to know they may incur repair costs themselves. The ethics around selling I think are super important, as in don’t hide or cover up issues especially if they could cause legal issues. Doing flips the right way is so important for our reputations!!

  • Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes
    7y

    Every person who flips houses is not like this guy who you came across. Just like any business there are people who take pride in what they do and people who don’t. 

  • Greg H.Pro Member
    Moderator
    Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes
    7y

    As a flipper, I should be concerned about the property 10 years from now ?  Absolutely not and it has nothing to do with the work I do.

    -How are the new buyers going to treat the property matter 1000 times more

    -Systems such as water heaters, a/c and such are going to need to be replaced within that time if not maintained properly

    I am selling the property at a moment in time and my concern is the work done and the value provided at that moment in time.  What happens after that moment is out of my control

  • Flipper/Rehabber · Sammamish, WA · Member since 2016 · 57 posts · 14 votes
    7y

    Every flipper is different.  My mindset its, I'm not selling them a brand new house, but every aspect of every system must be safe and in working condition.  Wire splices shouldn't be buried in walls, they should all be in j-boxes.  Water intrusion issues and leaks are paramount.

    There are going to be maintenance items that will pop up for the buyers in the next few years, maybe even a couple tiny ones in the first year.  But nothing out of the ordinary is going to pop up.  They will need to clean gutters and change filters.  If the exterior wasn't repainted, they might need to caulk around windows and doors.  But these things are all normal maintenance items for a home owner.  

    I don't allow shoddy work on my projects.  Just because drywall is going to cover something and hide it, that does not give me the right to do crap work and sell it to someone else.  

  • Member since 2019 · 1 post · 1 vote
    7y

    @Mike Dymski That is my new working quote, thank you

  • Flipper/Rehabber · Long Beach, CA · Member since 2017 · 155 posts · 118 votes
    7y

    @Angela Vargas

    That’s terrible. Pouring fresh concrete on old damaged concrete. I have never heard of anyone doing that. What a waste. I’d be surprised if the new concrete lasted more than a month before cracking. Assuming it is a normal sized sidewalk section (4” thick). Concrete cracks very easily. Even if you have flat soil underneath, you need to compact it to make sure there won’t be settlement. Sounds like that flipper is a penny pincher and doesn’t understand construction.

  • Flipper/Rehabber · Kansas City, MO · Member since 2011 · 2k+ posts · 712 votes
    7y

    Met a flipper once with a house that he had renovated.  Instead of a tear off and a new roof, they cut the corners and did an overlay and then they put it on the market.   Other issues as well, but that was the big one.  6 months later they still could not sell it and sold it at a loss to me.  Our team promptly ripped their brand new roof off as it was the 3rd layer over shake and no buyer could get insurance or pass an inspection and get a loan.

    So on this 100% rehabbed home, we had to replace a brand new roof and install central AC so it had air.  His comps all had air, his price needed ac, but he didn't have it.

    So cutting corners to save a few dollars up front cost this investor not only his profit but at least $10,000 in rehab costs spent.

    Do it right the first time.  Unless you are one and done, the word will get around about your crappy work and things breaking a year or two down the road and no one will buy your turn key or retail houses.

  • Real Estate Appraiser · Isabella lake, CA · Member since 2018 · 628 posts · 491 votes
    7y

    Do it right the first time. That is for sure. Or, don't do it at all.

    Around the corner there is a flip house sold a while back. I watched them slowly renovate it, and was surprised the did not replace the poor condition driveway. But it sold anyway and the buyers have done nothing with the driveway. I guess the flippers decided it was not worth the expense, maybe they were right. It has a semi circle in front, and another section running to the garage in back. So, quite a bit of concrete work.

  • Investor · Denver, CO · Member since 2017 · 37 posts · 23 votes
    7y

    @Mike Dymski

    Very true

  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    7y

    @Angela Vargas great discussion here. Unfortunately a little to negative for me. 

    As said the degree of ethics will vary from person to person. That is true in any field not just real estate. 

    You seem to have a good sense of ethics. The important thing is not what others do but what is best for you. People who are honest and have a true sense of ethical responsibility stand out in a very positive way. I know much of my success is due to the way I treat people. I see evidence of that every day. It is a positive feedback loop. 

    The problem with those that are not as ethical. They don't get feedback. They have no clue how many deals they never hear about because of their bad reputation.  I do business in Baltimore and it is amazing how small this business seems at times. Bad reputations get around. 

    Based on what I read in business and psychology literature. Ethical people are more likely to be happy and self fulfilled. Ultimately I believe they tend to be more successful. In part that is because they define success in a different way. So all you knuckleheads that think doing the right thing is not important, Keep doing what you are doing. You don't know what you are are missing.

  • Investor · Menifee, CA · Member since 2015 · 534 posts · 216 votes
    7y

    I have never covered anything up on our rehab properties and if its something that has to be fixed we fix it. Take what's going on in your instance, anyone who comes to the property can see the condition of the driveway now and you might find a buyer who does not care about it that much and still purchase the property and nothing is hidden from the buyer and you spent nothing. 

    Next thing that could happen would be it is a problem and you offer to pay for half of the driveway cost for the buyer at close of escrow. Then you saved half of what it would have cost you if you just did the whole thing.

    Last is you just pay for the whole thing. 

    We have found that sometimes certain things don't have to be paid for in full all up front to sell the property. We do this with roofs as well with buyers and split costs in the end saving us a couple thousand dollars. Nothing is covered up or hidden though. Some buyers just won't care if everything except the driveway looks good and you might save some money that way. We are doing that with a property we have in escrow now with the AC unit. Its really old but had an AC guy sign off on it as working and we agreed to extend the warranty on the unit for the buyers. Beats paying $5,500 for a whole new system and nothing is hidden. Just my 2 cents on it. Look at other properties in the area that have sold and are up for sale.......do they all have new driveways? Do you think the types of buyers coming through there are for sure gonna need a brand new driveway?? @Angela Vargas

  • Kennesaw, GA · Member since 2019 · 7 posts · 10 votes
    7y

    @Lacey Anne Saggio  I couldn't agree more! The idea behind setting up realistic expectations like the example from the show you just gave, is awesome. This post sheds light on flip/rehab investors being transparent about the work they do, and not deliberately cutting corners to make a profit, knowing this will become the buyers problem in the future. @Greg H. However, if a problem is foreseeable ten years from now, and the investor is aware of it, it should be addressed somehow. 

    @Jeremy Benezra said it well, a buyer should expect only normal maintenance issues to pop up. That should be standard.

    @Kim Tucker thanks for your post. Again, i'm glad to see this perspective more than once, having a big picture mindset is so important. 

    Thanks for emphasizing the importance of a strong positive reputation in the field @Ned Carey! The positive feedback loop is very true. Again, a big picture mindset and treating others with the same integrity you would want to be treated with, excellent high value post.

  • Kennesaw, GA · Member since 2019 · 7 posts · 10 votes
    7y

    @Mike Flora Very interesting concept, and practical for cost purposes. I've never thought about it this way, or have heard of doing something at close of escrow... what kind of circumstances would make this possible? I'm assuming the potential buyer would have had to already be interested in buying the property before the rehabbing process begins? Otherwise, wouldn't it be impossible to gauge which items to leave as is?

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