What's the worst that can happen?

Question

My husband and I are getting ready to jump into flipping houses. He is a bit hesitant and typically thinks of worst case scenarios which has him a bit panicked. I want us both to be completely ready before we do this. I would like to provide him with some worst case scenarios and ways we can get out of it. His biggest fear is losing all we have worked for financially. So my question to you all is what's the worst that can happen? And how can we protect ourselves so it doesn't?

Don Hines · Answer

The absolute thing that could happen is you could wind up in divorce court. Make sure you and your husband agree with everything. More than likely you will be managing the project. Be up front with him on everything.

Don't try to do all of the rehab yourself. You want to be in the finding and selling business. Not swinging the hammer. You can tie up a year or more of your life trying to do everything after work and on weekends.

Don

Dooreuhn Cee · Answer

There are tons of protections, insurance (hazard, umbrella, E&O, workmans comp), LLCs, policies, etc.  Just search the forums under those topics, especially LLC.  At a certain point you spend all of your profit trying to protect your profit.

But you get the point regarding risk adverse personalities.  One reason why 90% of people prefer 9 to 5s rather than being entrepreneurs.

Frank Woodin · Answer

One idea that you could potentially do is to find another successful flipper in the area and offer to split the profit of your first flip with him/her for them advising you on the flip.  I would make sure you spell out exactly what you expect so you don't get in disagreement in the middle of the flip but this might give your husband some piece of mind that you have a person who has experience by your side for the first one.  You and your husband would purchase the property front all the costs of the flip and you and the "adviser" would split the proceeds 50/50.

Account Closed · Answer

I'd disagree on splitting profits with an advisor.  That seems like an awfully high fee for some advice.  I bet you could find a great advisor for a reasonable fee, and you probably don't need one at all.  Now, a 50/50 investor - sure.

If you just overestimate every cost you can think of, and overestimate how long it may sit empty and you may be making payments on it, you'll be fine. It sounds like you and your husband will make a good team.

My limited experience with improving a property (raw land in my case), was that you'll be in good shape if you figure everything will take 3 times longer than their estimate, and cost twice as much.  If you use that as a rule of thumb, you should always be pleasantly surprised at the real time/cost.

If you can afford that much wiggle room, you'll do fine.  And insure, in case it burns down, etc.

Good luck!

Rebecca Gibbons · Answer

Thanks everyone! I appreciate all the advice!

Laura R. · Answer

Hi Rebecca,

Take this time while you are looking to set up a spread sheet with some hard numbers so you know all of the actual costs, including insurance, water, elec, etc. Go to Home Depot and Lowes (or on line) and price up all the basic items. You may find them cheaper elsehwere, but if you are in the middle of a rehab and need something quickly, chances are you will be at one of those 2 stores to pick up the item.

Always estimate on the high side for each of your projects, both in time and dollars.

Most flippers allow an approx a 10% contingency, but for the first flip, I think 15% is a better idea.

Make sure your comps are solid and be sure to check the days on market for each comp.

If you and your husband run the numbers for the repairs, know the comps, and allow for a good contingency and your numbers all still work, your husband should go into the deal feeling much more comfortable.

It took us multiple offers to find that first deal, so we had a lot of practice running all of these numbers, etc. When that first deal finally came through and it all checked out, we felt the number were solid and were more excited than nervous.

Rebecca Gibbons · Answer

Thanks @Dooreuhn CeeI appreciate your comments. I agree with the fact that there are always things out of your control. I just didn't know if possibly there were any opinions on huge things to look out for to protect yourself. My husband is just very careful and I want to respect that and him as we jump into this.

Thanks!

Dooreuhn Cee · Answer

It is very true, you can lose everything you have.  Fires, law suits, market crash.  Also, if you get on an airplane, the pilot could lock the other pilot out of the cockpit and purposely crash into the French Alps.

Neither is likely to happen.  But this is definitely a game of risk that is not for everyone and may not be for him.

Rebecca Gibbons · Answer

@Nicole W. Thanks! This is good advice. My husband definitely has more of a negative mindset, but its great because I have a super positive one so he keeps me real and I keep him positive :) We don't have a deal in place but are just getting financing in order so we will be ready to go as soon as the next deal comes our way. We are definitely planning to go super conservative on this first one to make sure we are safe.

Great idea about the partner @Don Harrisand @Frank Woodin! Now I just have to go about finding one of those :)

Thanks all!

Don Harris · Answer

as Frank mentioned above, partner with someone to learn and earn.

What's the worst that can happen?

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