Real Estate Agent · The Panhandle | The Emerald Coast | Panama City Beach | Destin · Member since 2017 · 269 posts · 103 votes
What has been the hardest part of flipping for you? Was the hardest part different when you first started vs now that you have a lot of experience under your belt?
What has been the hardest part of flipping for you? Was the hardest part different when you first started vs now that you have a lot of experience under your belt?
I have been fix and flipping for last 7 years. Finding the right property with good margin is always been an issue for me. Being a RE broker for over 30 years gives me pretty good experience to analyze the property. Tax rate is not a hurdle for me cuz I structure it accordingly and I do volume rather than high margin. If you are a newbie in fixing and flipping, you have to have a good contractor. They could make your life miserable. And don't believe the numbers wholesaler throw at you as an ARV. analyze the property ARV yourself. I analyze at least 20 properties before buying one from a wholesaler
Great question and I'm going to take some time and review our deals. The hardest thing is every deal is different. You can structure somethings but there are alway unforeseen issues and you just have to be prepared to adjust. if i had to pick one thing it would be budgeting. With covid, inflation, and rising interest rates who knows what you need to spend or save. thats my two cents.
@Melissa Haworth - I don't flip, I'm a buy and hold investor however from my experience, I would say budgetting correctly for rehab costs. Whenever I do a larger project, I always go over-budget. In flipping, you are most of the time dealing with larger projects hence a larger delta between the budgeted amount and the actual amount could ruin a project.
Also, people don't talk about this a lot however the tax rate for flips are brutal. If you sell within the first year, you are almost paying 45% in taxes. Your 50k profit turns into $~25K in post tax dollars. Spending 6 months of work for a $25K profit does not sound lucrative to me taking when taking into account the higher risk vs. other strategies in real estate.
What has been the hardest part of flipping for you? Was the hardest part different when you first started vs now that you have a lot of experience under your belt?
Contractors, they are the # 1 piece of the puzzle. Everyone thinks its findings deals, nope, once you get one if you do not have the right contractors it will turn into a nightmare.
What has been the hardest part of flipping for you? Was the hardest part different when you first started vs now that you have a lot of experience under your belt?
I only flip, for me....finding deals with big splits. It's all about meat on the bones. Fixing up houses is the easy part.
What has been the hardest part of flipping for you? Was the hardest part different when you first started vs now that you have a lot of experience under your belt?
Contractors, they are the # 1 piece of the puzzle. Everyone thinks its findings deals, nope, once you get one if you do not have the right contractors it will turn into a nightmare.
@Melissa Haworth - I don't flip, I'm a buy and hold investor however from my experience, I would say budgetting correctly for rehab costs. Whenever I do a larger project, I always go over-budget. In flipping, you are most of the time dealing with larger projects hence a larger delta between the budgeted amount and the actual amount could ruin a project.
Also, people don't talk about this a lot however the tax rate for flips are brutal. If you sell within the first year, you are almost paying 45% in taxes. Your 50k profit turns into $~25K in post tax dollars. Spending 6 months of work for a $25K profit does not sound lucrative to me taking when taking into account the higher risk vs. other strategies in real estate.
@Andrew Freed your so right we are starting to move away from flips just for this reason.
Great question and I'm going to take some time and review our deals. The hardest thing is every deal is different. You can structure somethings but there are alway unforeseen issues and you just have to be prepared to adjust. if i had to pick one thing it would be budgeting. With covid, inflation, and rising interest rates who knows what you need to spend or save. thats my two cents.
@Carlton B.I feel like every project we have done there is some issue we had not budgeted for so I try to just build in unknown percentages of 15 to 20%. Do you do anything like that?
What has been the hardest part of flipping for you? Was the hardest part different when you first started vs now that you have a lot of experience under your belt?
I have been fix and flipping for last 7 years. Finding the right property with good margin is always been an issue for me. Being a RE broker for over 30 years gives me pretty good experience to analyze the property. Tax rate is not a hurdle for me cuz I structure it accordingly and I do volume rather than high margin. If you are a newbie in fixing and flipping, you have to have a good contractor. They could make your life miserable. And don't believe the numbers wholesaler throw at you as an ARV. analyze the property ARV yourself. I analyze at least 20 properties before buying one from a wholesaler
What has been the hardest part of flipping for you? Was the hardest part different when you first started vs now that you have a lot of experience under your belt?
the market and the competition ! sometimes broken house is being sold much more than a fine house.
Melissa, this is a great question! From what my investors have told me is... CONTRACTORS! Finding a good deal is easy, finding a good contractor is like looking for a needle in a haystack.
Melissa, this is a great question! From what my investors have told me is... CONTRACTORS! Finding a good deal is easy, finding a good contractor is like looking for a needle in a haystack.
What has been the hardest part of flipping for you? Was the hardest part different when you first started vs now that you have a lot of experience under your belt?
At the beginning, the hardest part of flipping (when we lost $) was not doing enough due diligence on the market. Not just evaluating the recently sold, but also evaluating the pending sales. On a deal in Orlando, we found a great property with great numbers based on recently sold. We did not look to see if there were any pending sales. It was the kind of neighborhood where very few people moved. When we finished the project all of the recently solds that we had originally used were too old for an appraiser to use. And there were no active sales in the neighborhood & zero pending. We had lots of offers but all way below what we needed to hit our target. So we lost $. The other mistake is we had only one exit plan- Sell. Today we would have had a 2nd exit plan for the property- Rent to Own.
What has been the hardest part of flipping for you? Was the hardest part different when you first started vs now that you have a lot of experience under your belt?
@Crystal Smith great feedback. Yes we have multiple exit strategies on every deal we do as well!
At the beginning, the hardest part of flipping (when we lost $) was not doing enough due diligence on the market. Not just evaluating the recently sold, but also evaluating the pending sales. On a deal in Orlando, we found a great property with great numbers based on recently sold. We did not look to see if there were any pending sales. It was the kind of neighborhood where very few people moved. When we finished the project all of the recently solds that we had originally used were too old for an appraiser to use. And there were no active sales in the neighborhood & zero pending. We had lots of offers but all way below what we needed to hit our target. So we lost $. The other mistake is we had only one exit plan- Sell. Today we would have had a 2nd exit plan for the property- Rent to Own.
@Melissa Haworth Deals and contractors are the 2 biggest hurdles I face. For contractors, price/speed/quality (pick 2), seems to be pretty accurate. Some flippers have their own crews which can help really protect margins, but I don't currently have this set up. For deals, it is a similar but different issue. I'm on many of the wholesaler lists and, while finding a deal that actually pencils is tough, I find it hard to get a contractor in the property before committing to the property (earnest money). There are faster teams local to the market that usually beat me out.
There are a lot of hard parts. I think probably accurately determining the rehab is the place most screw up on. But finding good deals, overseeing the contractors, financing, due diligence, selling, etc. are all challenging
I think this thread summed it all up. Everything mentioned here is part of it. It's managing multiple moving parts and multiple variables. You have to know how to stay on top of all of it and keep the project moving. The contractors, time, cost over runs, delays, draws, unexpected surprises, finding the deals, passing inspections etc. It got a bit easier because in the beginning the systems were not fully developed. As time went on I knew more of what to expect and kept the good people/resources around me that worked in the past. I can better address and foresee potential problems and mitigate. Having a passion for it also helps!
Many good points on this thread… If a person is buying at healthy discounts it helps. Sellers get on Zillow or have some realtor give them a wish price and then they want to walk with that kind of profit when in reality there’s so many hidden cost that are incurred by the flipper.
What has been the hardest part of flipping for you? Was the hardest part different when you first started vs now that you have a lot of experience under your belt?
Contractors, they are the # 1 piece of the puzzle. Everyone thinks it finds deals, but nope, once you get one if you do not have the right contractors it will turn into a nightmare.
Agree. After finding the right contractors, run the numbers once again,
Phenomenal question and great answers so far on the thread! I have two things and an honorable mention.
1. Contractors. Finding contractors that you can trust, do quality work for a good price and will look out for you instead of only themselves are so hard to come by! The hardest thing at the beginning was building out a list of contractors that will do good work, in a timely manner and not cost me an arm and a leg.
2. Finding a deal. The competition in my market is fierce. There are a good amount of people who flip for a living but also a lot of one off people who will do 2 flips a year. Getting to the deal before others and sometimes bidding against 3 other people to get the property is a challenge!
My honorable mention is budgeting just because all the unknowns of a distressed house has. My goal next year is to systematize budgets & SOWs for flipping houses the way new home builders systematize theirs. I've been told this is impossible, but imagine a world where you can run a fix & flip company the way new builders run theirs?
Just some prospective from a contractor of 31yrs and please keep in mind my perspective is guilded by location and experiences.
Every building dept here outlines what can & can't be done without permits. A HUGE % of retail customers want unpermitted work done. WHAT? Let me get this straight...you know everything about Netflix but can't glance onto a website to find out about permitting? They literally vote for and advocate for regulation...but not for my house SMH. I should not have to no that a hot tub install close to a window has to have tempered glass, self closing lid, gate etc and when I share this they get upset & sometimes threaten to write a bad review Thanks for shooting the messenger. But they want me to jeopardize my small biz by doing unpermitted work.
Here's a news flash "investors" are even worse! I've been approached so many times by investors that operate outside of the law but want me to assume this liability and if/when things go wrong I'll be thrown under the bus. I understand margin collide and I really would like to accommodate them but not at my expense.
From a macro perspective I understand people don't like regulations etc, but it's out of my control, so I comply with the law. It's out of my control.
Each state has licensing laws and business and professions codes (yes, some more comprehensively than others) many outline down payments, draw schedules, license law etc. If investors are experts why don't they do due diligence and learn this stuff. Here in CA, ANY home improvement contract in 10% down or $1000.00 Whichever is LESS. A Contractor can write his draw schedules to keep on par with execution benchmarks though, done properly this provides safety for both parties.
Investors; have you ever looked up this information?
FYI; the CSLB defines a contractor as 1 who is proficient at writing a contract to execute the work "designed by others" Think about that for a minute, the only way to bid work accurately is from blue prints. Line item SOW fall short, heck even on well designed prints we have a spec book to supplement.
As investors/entrepreneurs would it not be reasonable to for use to manage ALL of our endeavors? Yes I too have been "burned" by a contractor but who was really at fault? Me. And will fault "fix" the problem? Nope, I simply laid for my education. In fact ever "problem" is my fault, that being said there is no problem, it's an opportunity for a solution & I wont make the same mistake.
I simply ask that folks consider things in a moderate a collaborative manner.
Consider this some "data" floating around suggests that during the GFC between 180k to 225k contractors permanently went out of business. BLS suggests 2.3 mil jobs were lost. Long term cause and effect elude most people, but could that have bearing on execution of real estate projects?
I understand that contractors are considered dumb, blue collar, un-organized etc etc. But has anyone considered that the big buildings, bridges, ballparks etc are built by contractors. Do you think we don't pay payroll taxes, comp, PL/PD Insurance, bonds, SEO and a litany of other things that all businesses pay? How many people young people wake up and say "oh I want to be a contract"? IDK but I suspect less than want to be REI, contractors are not a very sexy occupation Lol.
I wholly understand that we're popular to "blame" for REI problems but maybe theres more to it. Maybe try to understand more.
Sorry if this sounds like a rant or if I "offended" anyone, I'm a terrible writer, on my phone, in a pickup while waiting for inspector/utility people to even"show up" on their 4 hr window while the customer is pissed off at me for things that are out of my control.
im ready for the onslaught of investors to rip me lol
Probably accurately assessing the future value of the property. If you are off, or your flip gets more expensive, your thesis for your investment could be sunk.
I've found it helpful to be more skeptical (which can be hard for me), and to build in some buffer budget in the numbers.