How often do you actually LOSE money on a flip?

Rehabbing & House Flipping
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How often do you actually LOSE money on a flip?

Andrew Taylor
Contractor · Magnolia, TX · Member since 2016 · 279 posts · 155 votes
Doing a little soul searching on a long road trip this weekend, and it occurs to me that I'm afraid of failing at flipping houses. My question is, should I be afraid of actually losing money? Or should I be afraid of not making as much money as I expected to? It's a subtle difference, but a meaningful one. I've got lots of background in the industry, and completing the projects doesn't worry me - but accurately predicting ARV's and therefore expected profit concerns me quite a bit. Just wondering what everybody else's experience has been. Thanks in advance for your input.
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Eric M.
Flipper/Rehabber · Louisville, KY · Member since 2008 · 1k+ posts · 1k+ votes
7y

Be very careful with a question like this. You are going to get very skewed responses because the audience is self selected. The people who are going to answer are the ones who are generally current investors. They are current investors because they have generally had success.  The people who lost money are no longer current investors and are no longer here to answer. 

Also most of the people here have only flipped in a bull market. (post 2010)

The majority lose on their first flip and never do it again. I lost 70K on my first one and didn't flip again for 3 years. Most people would not have done it again. I haven't lost on one since, but it is very common to lose money on flips. Lots of people turn their failed flip into a long term buy and hold rental and eventually come out ahead. In reality those were losing flips.

I don't know what your odds would be. Your profile says you are a contractor. I would think a contractor with some common sense would be able to make profits. And sometimes, you just consider your first loss to be your tuition.

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

    In 28+ years, I have lost money on one flip.  I actually consider it one of my deals ever. 

    I bought a dollar house in Killeen TX for $21000(It was actually the second time I bought this house as it was also my first ever purchase) inthe late 90s. I immediately has a buyer for $35000 with just a clean up. The day before closing, the buyer started demo without my permission and destroyed the kitchen and both baths. Their loan was turned down and they disappeared. I sent a notice of intent to sue and “someone “ started a small fire in the house. Fortunately, I bought the house at such a great price, I was able to sell it and only lose $1500

    As far as not making as much as I expected?  Well get used to that. Occasionally, I make more. However, A profit is a profit and move on to the next deal

    2Reply
  • Matthew Paul
    Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes
    7y

    You win some and you lose some .  Hopefully you win more than you lose .  

    2Reply
  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    7y

    @Andrew Taylor only once. I stopped doing them after that.

    0Reply
  • Jerel Ehlert
    Attorney · Austin, TX · Member since 2014 · 888 posts · 759 votes
    7y

    When bought correctly ($0.70 on the dollar, less repairs) rehab/flip deals can absorb A LOT of things going wrong before loosing money. The caveat is that you must have bought correctly. Your calculated ARV must be accurate (get an appraisal). Repairs must be accurate (get inspection and/or multiple estimates [don't always go with the cheapest]).

    Bad news: because it can absorb a lot of slop, it leads to sloppy business practices, which lead to sloppy business habits.  Be disciplined, and discipline yourself.  Always look for better, more efficient business practices.

    6Reply
  • Maurice D.
    Coppell, TX · Member since 2015 · 485 posts · 310 votes
    7y

    I came close once, and learned to vet my contractors a lot better.  a landscaper I hired only showed up with half the sod (I had given him the money for all the sod - mistake #1) and was dragging on and on with the work.  AFTER giving up on the guy and hiring a new landscaper and buying sod again I came to easily find out online he had prior drug/weapon arrests..  he also gave the sod farm a bad check for the half sod I delivered.

    0Reply
  • Eric M.
    Flipper/Rehabber · Louisville, KY · Member since 2008 · 1k+ posts · 1k+ votes
    7y

    Be very careful with a question like this. You are going to get very skewed responses because the audience is self selected. The people who are going to answer are the ones who are generally current investors. They are current investors because they have generally had success.  The people who lost money are no longer current investors and are no longer here to answer. 

    Also most of the people here have only flipped in a bull market. (post 2010)

    The majority lose on their first flip and never do it again. I lost 70K on my first one and didn't flip again for 3 years. Most people would not have done it again. I haven't lost on one since, but it is very common to lose money on flips. Lots of people turn their failed flip into a long term buy and hold rental and eventually come out ahead. In reality those were losing flips.

    I don't know what your odds would be. Your profile says you are a contractor. I would think a contractor with some common sense would be able to make profits. And sometimes, you just consider your first loss to be your tuition.

    23Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y

    @Eric M.  very good points you make.

    as a HML myself since the mid 80s.. profits do run on market conditions..

    and many times we as the lender made as much if not more than the operator.. 

    in 2017 my wife did two flips.. first one she made 120k on  Ya  second one she lost 30k  LOL.. 

    in our new construction we tend to be more consistent..  but even then I did 3 houses on the Oregon coast

    made 16k on one and lost 20k on one and 30k on the other..  learned my lesson about building on the coast.

    Great houses  and we only paid 80k for the lots and sold the houses in the mid 400s but still lost money.

    But to Eric's point post 2010 for us other than those have all been profits.. ( new construction) flips win some lose some. 

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  • David Sisson
    Architect · Providence, RI · Member since 2016 · 257 posts · 195 votes
    7y

    My first home was a very slow live-in flip. I made money, but only because I did the work myself. I would have made more working a minimum wage job for the same time. I learned a ton though. I haven't flipped since, but I have done smaller rehab and made money on it. From talking w/my clients who do a lot of flips, sometimes they don't make much (like less than $10k for a year's work). It's a tough game. 

    0Reply
  • Andrew Taylor
    OP
    Contractor · Magnolia, TX · Member since 2016 · 279 posts · 155 votes
    7y
    Yes, I'm a contractor - that's why I said I'm the OP that actually doing the work shouldn't be an issue. My day job now is withing repair estimates for Opendoor, so accurate rehab costs shouldn't be too hard to come by. I really think the ARV issue is the one I need the most help with.
    0Reply
  • Andrew Taylor
    OP
    Contractor · Magnolia, TX · Member since 2016 · 279 posts · 155 votes
    7y
    I HATE that I can't go back and edit these posts from mobile. I assume you can figure out what I really meant but it's still annoying to see typos.
    0Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    7y

    I lost money on my first 3 flips.  However, I dont consider those bad experiences.  Some of the best education money could buy.

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  • Kris Bolzniak
    Turbotville, PA · Member since 2018 · 30 posts · 4 votes
    7y

    I used to flip houses, but I lost big on two consecutive investments and that has pushed me away from the concept. The first investment had an incorrectly built pool in the back yard, and the pool leaked out and created a sinkhole. The second building the previous owners failed to disclose (They said they had no clue) that the plumbing needed to be completely relaid as the material chosen for the pipes was of very poor quality and was prone to bursting. Very frustrating. Just get very thorough checks done on a unit by professionals prior to purchase, and it never hurts to get a second opinion. 

    0Reply
  • Timothy Lewman
    Flipper/Rehabber · Worcester, MA · Member since 2016 · 179 posts · 113 votes
    7y
    @Andrew Taylor ARV is pretty simple. Access to the MLS is key. Get an agent that will pull comps and add a 10% premium on top to reflect the rehabbed condition. So if a house comps out at $300,000, your sales price is $330,000. You can meet investor friendly agents at REIA meetings, see meetup.com. Or, depending on your budget, you can pay to get access to the MLS on MLSPIN.COM. Problem solved, now get out there and do it!
    1Reply
  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    7y

    I have not lost money on a flip but will admit that on some the profits did not warrant the time or effort. That is a loss.

    Assuming no major hidden expenses the key to successful flipping is your time line. If your flips are running much beyond 3 months in and out your risk factor exponentially increases. Markets change quickly. Fast turn around and a well seasoned trusted crew is the key to success, but you will still have some losses.

    1Reply
  • Amy A.
    Portland, ME · Member since 2012 · 616 posts · 550 votes
    7y

    In 20 flips I've never lost money, but I had to rent one and wait for a better market. It cash flowed so was okay, but it taught me to be a bit more careful about the ARV. This one lacked easy parking and was not in a good neighborhood, yet I underestimated how important that was. I only paid $28,500, so thought it would be easy to make money. Oops. I ended up with a profit of $6800 after a year of cash flow. I've had 3 others where I made less profit than estimated and 12 where I made more. For three of these, I made double my estimated profit thanks to an appreciating market. Keep in mind that this doesn't count my time, and I and my husband do a lot of the work ourselves.

    What helps me calculate ARV is having my real estate license. Remember that as an investor you have to act fast and often don't get the deal, so you would be quite a demanding client for an agent.

    2Reply
  • Jeff C.
    Real Estate Broker · Bakersfield, CA · Member since 2018 · 269 posts · 597 votes
    7y

    I've never lost money on any real estate transaction. My conservative nature means that I've skipped some deals that would have made me money, but it also means I haven't cut it so close from the outset that I've lost, despite all manner of unexpected issues popping up on properties over the years. I'll take that. My mindset just doesn't cope well with losing money.

    0Reply
  • Chad McIver
    Appraiser · St. Charles, MO · Member since 2010 · 63 posts · 21 votes
    7y

    In approx 50 flips, ive lost on one, and it just happened this month.  Truth be told, I never thought I would lose, and was shocked that I did.  But I take full responsibility for the loss.  As more investors came into the game, margins have gotten tighter.  A month passed and I couldn't find a deal.  So i pushed my numbers a bit to get one at auction, and in the end it backfired.  I should have been more patient, and waited for the right deal, now Im stuck taking an $8000 loss.   Initially feeling a bit defeated, but now feeling empowered, cause I learned from my experience and loss!  There are alot of unknowns and what ifs in flipping, but when you know your numbers, do your due diligence, you will do great. Focus on where you want to be, not what your afraid of and give it your best shot!

    3Reply
  • Eric M.
    Flipper/Rehabber · Louisville, KY · Member since 2008 · 1k+ posts · 1k+ votes
    7y
    Originally posted by @Andrew Taylor:
    Yes, I'm a contractor - that's why I said I'm the OP that actually doing the work shouldn't be an issue. My day job now is withing repair estimates for Opendoor, so accurate rehab costs shouldn't be too hard to come by. I really think the ARV issue is the one I need the most help with.

    Well, it is rather easy to know the ARV now. It is more difficult to predict the ARV for when you are ready to sell. In a bull market, MANY bad flips have been bailed out by rising prices during the flip period. It gives people a false sense of skill. Now as we end the bull run it isn't as easy.

    Just look a little further down the list of the recent Fix and Flip posts here on BP and I see 3 posts referring to having a difficult time selling their flip. The more difficult times are starting and most here have never been through a bear cycle. For me, I prefer to flip in bear cycles. I hate competing with every tom dick and harry at stupid prices. In a bear market, they all go away. The difficult times are the transitions from bull to bear or stagnant as now.

    1Reply
  • Susan Banks
    Member since 2022 · 5 posts · 1 vote
    3y
    Quote from @Eric M.:

    Be very careful with a question like this. You are going to get very skewed responses because the audience is self selected. The people who are going to answer are the ones who are generally current investors. They are current investors because they have generally had success.  The people who lost money are no longer current investors and are no longer here to answer. 

    Also most of the people here have only flipped in a bull market. (post 2010)

    The majority lose on their first flip and never do it again. I lost 70K on my first one and didn't flip again for 3 years. Most people would not have done it again. I haven't lost on one since, but it is very common to lose money on flips. Lots of people turn their failed flip into a long term buy and hold rental and eventually come out ahead. In reality those were losing flips.

    I don't know what your odds would be. Your profile says you are a contractor. I would think a contractor with some common sense would be able to make profits. And sometimes, you just consider your first loss to be your tuition.


     “Consider your first loss to be your tuition.”  
    I very much needed that. My ego is at play being I’m a Realtor and likely to lose money because I trusted/relied on the wrong contractor. I should’ve known better and got specialized opinions. My losses are eating through that 30% and may be deeper by the time I’m done. Your quote helped me keep the right mindset. Thank you. 

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