Our first flip and a profitable education!

[Jaron Walling]

After a cold winter we sold a property. We pushed ourselves to complete a successful flip and put cash in our pockets. I wanted to share some takeaways from our experience. 

1. Flipping RE is a team sport. From a BRRRR investor and "live-in flip guy" I can't preach this enough. You need a team of experienced people (contractors, agents, lender, title, insurance broker) that actually know how to do there jobs. The investor is the conductor. As a hands on investor it was hard for me "let go" of projects and leverage the GC (and other guys I hired) to help us complete the rehab. I have a garage full of tools. I told myself I could do this job and save $____ amount of money. NO! Moving forward I'm going to do even less rehab and pencil smaller annoying tasks into the budget. As a father with a 2 y/o son and 1 on the way our time is extreme valuable. 

2. If you have a significate other and kids they're part of the team even if they're not on the job site. I spent 2-3 days per week (a few hours) and most weekends managing the remodel for 4 months. My wife handled the household and took care of our son. That's a job! She deserves credit for it and gets equal part of the profits made. 

3. I learned more about rehabs in 4 months than in last 4 years of doing REI combined. Without a good GC the remodel would have taken 2x longer. I made the mistake of hiring a bad electrician. Our GC texted me and called him out for bad work and pure laziness. I had to rewire a GFCI outlet and fix other things to pay for my mistake. That's how tight our budget was. Lesson learned. Next time I'm firing the electrician and finding a new one ASAP, or asking the GC for a recommendation. 

4. You can't win without margin. We paid $90k for a distressed SFH but my gut instinct was always $75-80k (market knowledge). During the negotiation we moved above our MAO and it costs us $10k in profit. We overpaid because of emotion end of story. Expect to walk away from a lot properties because you make your money when you buy. Margin is created when you buy. If the market supports a higher price great! If if declines and hurts the ARV you already bought it correctly. You should still have margin. We netted $10k profit because I overpaid and went $7k over budget on the rehab. This cannot happen again.

5. Flipping RE is a job and it's hard. A house-hack and BRRRR (to an extent) is much easier. Flipping is a fast timeline. Materials are flying, dumpsters are dumping, and people are calling you everyday to pay for it all. The entire property gets touched. You're beholden to the end buyer that you've never met (unlike screening tenants) and they expect the best (not the case for a rental). If you're priced high the property better command it. Any unknowns or shotty work will scare away buyers especially in this market. 

6. For transparency here's our numbers; PP $90k (cash), rehab $65k, and sold for $185k. Factor in holding/selling/buyer concessions/taxes and we netted about $10k. It's a 6% ROI. That's far from a homerun flip but the education was massive. When the next opportunity comes we expect to 2x that return.

If anybody has thoughts or opinions leave a comment below. Open to criticism as well. These forums inspired me to manage my finances differently. I'm lucky to be part of this community. Sharing the journey is what it's all about. Cheers. 

[Frank Pyle]

You are looking at the right lesson here, because this was a small win on paper but a big win in how you buy and manage the next one. On your numbers the deal really got squeezed twice, once when you paid about 10 to 15k above your gut and again when rehab ran 7k over, and that is basically your whole flip profit gone before holding and resale costs even hit. The best takeaway is to treat your GC like the operator and build every annoying little task into the scope up front, because trying to save a few thousand with your own time usually costs more on a flip especially with a young family and a 4 month timeline. I also think your comment about the electrician is dead on, bad subs kill flips faster than almost anything, so the faster move is replacing them early instead of trying to rescue the work yourself. For the next one I would get even tighter on your buy box and only chase deals where the margin still works if ARV softens 5 percent. What rehab number did you originally underwrite at before closing, and what part of the 65k went over the most?

Since this is Indy, IEC can help pressure test the underwriting and financing structure before you lock up the next deal.