Lessons Learned From My $30,000 Mistake

51 Replies

Spring of 2010.

We (my father and I) purchased a home in the Inland Empire of Southern California. It was a brand new 3Bed 2Ba SFH that was listed at an unbelievably low price.

A little backstory on this property; this house was built in a burn area. The previous owner's original home burned down and she decided to have a new house built on a different part of her lot. This shouldn't have been a problem except her new house was located 100 feet away from the street, accessible only by a mangled dirt trail. Also, there was no water connection.

Our main tasks for completing this project:

1) Connect water from the house to the water main located in the street (approx. 100 feet)

2) Have a road built from the street to the far end of the property line

3) Construct a concrete carport

So the fun begins.

- The city required an 8 inch water line and a concrete driveway. Our contractor argued that we would use a 3" line and that gravel would suffice. Unfortunately, the city wouldn't budge and our contractor was not the most tactful. Also, the concrete he poured for the carport was so bad that we eventually had to rip it out and have it re-done.

- We fired our first contractor.

- The second contractor seemed promising at first but we soon found out that he was untrustworthy. He wouldn't return our phone calls and could never give a straight answer. Also, he was constantly asking for more money while we saw no progress being made. We eventually let him go.

- The third contractor was nice enough but he was way out of his league. He was more of a handyman than anything else. 8" lines and concrete driveways were a bit much for him.

- On top of all this, the city kept adding things to the TO-DO list: changing out the panels on the covered patio to a type of fire-resistant material, having to build a retaining wall separating our property from the neighbors lot, re-grading the front and back yards, clearing weeds and shrubs from the adjacent lot (not our property btw but we did it because it made our property look bad). And let's not forget that the AC unit was vandalized for the copper.

*The list of things to do was actually even longer but keeping it short for time*

- After letting go of our third contractor, we found our final contractor who mainly dealt with commercial projects. He was finally able to complete this "flip" but told us that this was one of the most challenging projects he's ever had. Go figure.

We completed this project and sold it in the Spring of 2013. In the end, we lost about $30,000. Also, let's think about all of the opportunities we missed out on because we were so tied up with this house.

Lessons Learned

1) Do Your Homework. If we would have spoken to the city about what they wanted instead of trusting our first contractor, we could have potentially avoided this nightmare altogether.

2) Network With Other Investors Who Have Done Work In The Area. They'll be able to tell you about working with the municipalities, demographics, crime, etc. Bigger Pockets would be a great place to do this.

3) Having A Good Contractor Is Key. If we had our 4th contractor from the beginning, I do believe that while the costs would be higher than initially planned, we would have saved a lot of time. Time = Money.

4) If It Sounds Too Good To Be True, It Actually Might Be. This was supposed to be a 4-6 week flip where we could stand to make $30,000 after everything was said and done. Instead, it took us 3 years and cost us $30,000.

*Special thanks to @Daniel Ryu*

Ouch. Thanks for sharing.

Wow, 8" pipe, priceless! I'd imagine city required at least 90% compaction, and all the sweet expensive items in connecting that 8". I've done one, costs around 30k for the 120 feet. What was the real purpose of that 8" pipe? I mean, it's only a SFH, and water consumption isn't that great. Putting an 8" pipe is almost the same size as the water main itself.

@Mike J. - Wow, expensive lesson, but it could have been worse. At least you sold it and only took a 30k hit. 

Congratulations, you are now a true flipper and real estate investor!  I lost $30K in a single day buying a foreclosure at auction.  Looked up permits online, new electric panel, permit on a new roof etc.  Even paid the resident $500 to get out and leave the place in good shape.  Got into the property and tore up the false floor and behold, it was rotten from the ground up and ended up being a tear down, which was beyond my capacity and experience level.  Thus, ended up selling it to another investor at a loss under a 1031 exchange.  I feel your pain and am a lot more diligent and no longer buy 1940ish properties at auction that I can only evaluate from the outside.

As you said, painful lessons learned!

WOW... those are very expensive tuition. 

REHABS, fix and flips can be risky. The TV shows just make these look simple and easy money makers... but remember they did it for the ratings. Investors do it for their pocket books---huge difference. 

If you are unsure or just starting out--- safer to stay with the ones that are light rehabs, fast flips in median and up areas. Most of all ALWAYS DO YOUR HOMEWORK. Ask the right questions, get the right answers. 

@Manolo D. Yes to everything you said. The city wanted an 8" line because it was located in an area prone to fires. Also, our house was sandwiched between two empty lots so that if/when the lots were developed, they could tie into the line that we put in. 

That's the interesting thing about this project. On the surface, it looked like a typical SFH flip with a little bit of extra work. But in reality it became a residential and commercial hybrid.

Our final contractor who is mainly a commercial contractor was blown away at what the city required and how difficult a project it was. But credit to him, he helped us get the job done.

Account Closed "Congratulations, you are now a true flipper and real estate investor!" Thanks. What a way to cut our teeth in Real Estate!

Also, ouch on the auction purchase. That's a sickly feeling to have when you see good deal going south. But like you mentioned, I bet most players in REI have had this exact feeling once or twice in their career.

@Jackie Tan That's really sound advice. Lipstick flips would be ideal. And yes, definitely do your homework. I sure do wish I knew about Bigger Pockets back in 2010.

@Thelonious Jones Sure thing. Thanks for reading.

You've paid for your education. Now, carry on. Good luck.

Thank you for that lesson. 

@Mike J.

Way to pay forward your lessons so others can save themselves from similar problems.

I haven't done a flip myself - although I'm tempted to.. I was thinking the inland empire, San Bernardino, Riverside area, as I think those are areas that would fit my budget. Maybe somewhere near Temecula, Murietta County? 

I'm from Orange County - the Costa Mesa, Irvine area - but I think those might be a little too pricey for my first attempt. (maybe Santa Ana..)

If I decide to jump in, I'll be sure to contact you. Nothing like learning from experience.

Thanks again for sharing and for the shoutout. It's been great talking with you.

I can tell from your follow up, ability to analyze and learn, and persistence that you'll be in this game for awhile!

Thanks for sharing @Mike J.

I understand about the contractor situation. I had to let my first one go and because of it, I am 2 weeks behind schedule and will be going over budget. Hopefully I will still make a little bit of cash on this one. I have a strong contractor in place and I think he will do good. 

Gov't can be difficult. We have a few difficult suburbs here in Milwaukee, I try to stay away from them;)

Hoping you are doing much better with your real estate adventure. Wishing you the best!

Nicole

(614) 638-8635

@Nicole Pettis Glad to hear that yall picked up a solid contractor to finish out this flip. One of the big things I learned from our nightmare flip was to expect contractors to go over schedule and over budget. I won't ever tell them that but I will prepare for it if/when it does happen.

As far as different municipalities, it sure does seem like some are easier to work with than others. 

Thanks for the well wishes and please keep us posted with how your project is going!

@Manolo D.   something is not adding up here.. No jurisdiction requires an 8 inch water service .. that is the size we put in the street.. you would need a monster pressure reducing value.. lest yo blow out all your faucets..  I would have to see that one to believe it.

Sorry you had to go through this :/ I guess we all pay for an education and this deal will influence future ones, I'm sure.

As far as contractors, it's best to evaluate their portfolio first.  I've learned that any contractor that can't pay for materials upfront is one that you need to avoid.  Their hand needs to digg in their own pockets before they go for yours.

Thank you for sharing

Garrett

@Jay Hinrichs I wish I could say that it wasn't true but unfortunately, this is what the city required us to lay down. And that's a huge reason why the contractors were having such a hard time with this project. Our first contractor argued with the city until he was blue in the face that a 2-3 inch line would more than suffice for connecting water to our property.

Please keep in mind that our house was sandwiched between two empty lots (in a burn area) so that if/when the lots were developed, they could tie into the line that we put in.

I'll try to use an example of ABC to shed more light on it.

Lot A was the undeveloped lot located directly South of our lot and was also the lot that was next to the road.

Lot B was our lot with the subject house.

Lot C was the undeveloped lot located directly North of our lot.

All three lots shared a common dirt road (if I would even call it that) running South to North along the Western side of the properties. Along this dirt road is where we had to lay down our 8" line up to the Northern end of our property. Additionally, we had to pave a concrete road up to the Northern end of our property line as well.

In my honest opinion, the properties being located in an area that has experienced fire in the past rolled down to the city requiring us to install such a large water line. The same can be said about the road we had to pave. They kept mentioning to us that they needed to be a certain width and material in order to accommodate fire trucks.

Hope this clarifies things.

@Garrett F. Thanks for the pointers about contractors and their portfolios. And thanks for reading.

Originally posted by @Jay Hinrichs :

@Manolo D.  something is not adding up here.. No jurisdiction requires an 8 inch water service .. that is the size we put in the street.. you would need a monster pressure reducing value.. lest yo blow out all your faucets..  I would have to see that one to believe it.

 That's what I am also wondering, the pressure alone on that pipe could blow the whole house away. I would imagine 2 or 3 step pressure reducer, if they really exist, as the house only need about 10% or less pressure from the 8". I installed an 8" before for a government project, but it was for a rural street and served several hundred houses. Even for the private development of 48 duplexes where we installed road, sewer and water supply, we only used 4 or 5" pipes. But, on the other hand, maybe the poster doesn't know how to argue with the city and reason out. The only thing I could think of closest to that is if fire trucks won't have access and the house needs to have it's own fire hydrant and fire alarm/sprinkler system, but even that won't require an 8".

Ah, I didnt see the poster's explanation. But the explanation sounds ok, only thing was, they made the owner of the house do their job. It was supposed to be their waterline but decided to have the poster shoulder the expenses, lol. Hence the specific standards on the pavement and typical 8" street water line. Amazing how the poster just gave in to that.

Thank you for sharing your experience.

@Manolo D.

Just wondering - have you dealt with the city asking you to do 'their' job in the past and what do you think is the best strategies for dealing with it? 

What do you think is the best way to deal with city bureaucrats in a situation like this?

Thanks!

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