Flip mistake - suggestions on what to do.

Ashly McGlasson · 2019-09-04T18:45:07-07:00

Hey everyone, This might be a lengthy story, but I'm looking for advice! My husband and I flipped out first property in our small town about a year ago, we did alright for our first flip, but afterwards messed up by buying a house we planned on living in for a while and slowly renovating. Well, long story short, we got realized after we bought it that we could do a lot more deals if we wouldn't have bought this big or expensive of a house, so decided to renovate it and try to flip it. Turns out we didn't do enough research into the ARV and in our small town there just isn't many people buying house in this price range. Everyone that has seen it loves it, but no one has even offered on it. It's listed with an agent and we have it almost to our lowest price to break even after paying our agent and paying off our loans. We have discussed pulling it off the market and listing it next spring since we are headed into the holiday season here shortly. But besides that does anyone have any other creative ideas to get us out quicker so we can do more deals? We have definitely learned our lesson with this one, but would like to get out of it at least breaking even!

Ben Skaggs

Member since 2019 · 20 posts · 18 votes

7y

@Ashly McGlasson

Refinance and rent?

3 Reply

Theresa HarrisPro Member

Member since 2019 · 15k+ posts · 11k+ votes

7y

@Ashly McGlasson How is the money tied up in your current house? Did you put down a large down payment or spend the money on renos? If the money is in the down payment, could you refinance and pull it out?

0 Reply

Ashly McGlassonPro Member

OP

Jacksonville, IL · Member since 2017 · 16 posts · 6 votes

7y

@Ben Skaggs

We could refinance, but would still be stuck living in it. Rents here just don't go for what we would need in order to keep it as a rental.

0 Reply

Ashly McGlassonPro Member

OP

Jacksonville, IL · Member since 2017 · 16 posts · 6 votes

7y

We put 10% down, but have about 30k in the reno. We could refi, but would still be in the house. When our ultimate goal is to get out to do more deals (preferably house hack)

0 Reply

John Teachout

Rental Property Investor · Concord, GA · Member since 2015 · 3k+ posts · 3k+ votes

7y

Any opportunity to house hack the property you're in? Can you Airbnb some bedrooms? Rent garage space for storage?

You may not have a good exit strategy as you've over improved the property for your market so just make it work out the best you can. If you live in it, enjoy it and scrimp and save to buy a different investment property.

3 Reply

Creston Parker

Canton, GA · Member since 2018 · 1 post · 2 votes

7y

Because you brought up house hacking, how big is the house? Could you do some house hacking with this one? If there is more than one floor, it might be doable. Maybe Airbnb a room if your area is in a suitable market. Could you create a studio apartment with its own entrance? You would still need to research comparable rental rates, but I wanted to help you brainstorm possibilities.

2 Reply

Donald Robers

Kenosha, WI · Member since 2015 · 89 posts · 81 votes

7y

@Ashly McGlasson - First, congratulations to you and your husband for achieving as much as you have. One successful flip and a 2nd house renovated and on the market is not a failure by any reckoning. I would venture that most who try REI never get as far as you two'

The problem may be that right now instead of having the worst house in a great neighborhood you have one of the better houses in a poor (or better stated small) neighborhood.

Is your agent advertising outside of your local area? The Midwest is considered an investable locale these days due to the price inflation on either coast. Make sure that your property is being marketed to catch the eye of buyers relocating from higher-priced markets so that the size and amenities of your property seems more of a bargain. Ask your agent about the feasibility of marketing to businesses that may be moving employees around or need short-term residence for visiting executives.

From your post it does not sound as if methods such as lease option or out-and-out rental would work as you want to free up your money. The classic plan if you intend to pull out of the market temporarily is to drop the price by a significant percentage when you re-market at a later date. Again, this may not work for you.

I assume that the "hot" selling months for IL, as in WI, are May through August. If you pull out of the market now are you prepared to have the property sit for 6 or 7 months? If so, your current listing contract may have expired and you could try FSBO to save a bit on commission. Not knowing your asking price I have no idea if this would be a meaningful saving.

I know my suggestions are of limited help. I hope some of the more experienced BP members will weigh in.

2 Reply

Ashly McGlassonPro Member

OP

Jacksonville, IL · Member since 2017 · 16 posts · 6 votes

7y

@Donald Robers

Thank you so much! We actually just bought another one as our 3rd house flip (our first non live-in flip) so we are still chugging along, just not as quickly as we could be if we didn't have this house.

All of your suggestion are great too, I will speak with our Realtor and see if he can do something like you're talking about. We have also considered trying to FSBO it because we could take even less that way, we just didn't know how effective it would be being the slower season coming up and we're not sure how successful FSBO are vs using a Realtor.

0 Reply

Ashly McGlassonPro Member

OP

Jacksonville, IL · Member since 2017 · 16 posts · 6 votes

7y

@Creston Parker

Its a big house, just not set up for house hacking. Our town isn't really Airbnb material so I doubt that would work to well. Our basement would be perfect as a unit, but the only access to it is inside the house. And we have 2 little boys so having someone we don't know inside and living around us wouldn't be a very comfortable situation. If we didn't have kids it would be a great idea tho!

0 Reply

Mike Flora

Investor · Menifee, CA · Member since 2015 · 534 posts · 216 votes

7y

@Ashly McGlasson how much is it listed for?? If it’s a lot then you can get rid of your agent and flat fee list it saving you 2.5-3% commissions and then lower the price to sell it?

0 Reply

Eddie Egelston

Residential Real Estate Broker · Crystal Lake, IL · Member since 2012 · 124 posts · 94 votes

7y

I see Jacksonville, Illinois has several colleges. Can you turn your large house into student housing? I saw this video saying it is a great idea!

https://www.youtube.com/watch?v=wyooI5J91UM

Also as an experienced agent I'm not a fan of many of the 'solutions' that have been suggested here. Taking the house off the market for "slow" season is not going to help you sell your house. In fact you are going to help sell other people's houses by giving buyers fewer choices. I personally sold my flip on the eve of Thanksgiving last year. (I had 3-4 offers in Novemeber.)

Marketing to companies relocating people is such a joke. If someone is seriously getting relocated to an area, they are already looking on Zillow, or working with an agent. To think you have to reach out to these companies / buyers is a farce.

I personally had clients not hire me to list their flip because their margin was too thin. They went FSBO / flat fee, which would save them about 1% assuming they still had to pay buyer's agent. About 4 months later they sold for surprisingly less than I thought they would have. The holding costs alone would have paid for my services; let alone the potentially lower sales price and opportunity cost of their flipping bankroll. Sadly they are my latest example of why you don't go with low-service brokerage and cell phone pics online.

4 Reply

Lynnette E.

Rental Property Investor · TN · Member since 2018 · 2k+ posts · 2k+ votes

7y

@Ashly McGlasson when I really want to sell a house I ask the listing realtor to put a note in the MLS section that is just for realtor's notes to other realtors that says that an extra 1% (or some other set number) of the selling price will be paid to the SELLING realtor as a bonus if a contract is entered into and escrow is closed by XX date.

Realtors don't seem to like this idea, but it has always worked for me:)

1 Reply

Ritch Bonisa

Specialist · Indianapolis, IN · Member since 2016 · 841 posts · 480 votes

7y

@Ashly McGlasson Hope you can get out of this one. Best wishes on that.

What you learned here is an important lesson for any flipper, so thanks for sharing. The deal always starts with comps & ARVs. This becomes the target you are shooting for. Then, how much rehab will it take to hit the target. What are selling costs and holding costs. Any financing costs. ROI threshold. When you work it all backwards you arrive at what the property is worth to YOU, right now, in its current state. It is crucial to use an equation like this to find out if purchase is viable.

I talk to people all over the country, and often hear people get excited based on the asking price of the distressed asset. 99.9% of sellers don't care if the deal works or they don't understand ARVs and rehabs. Therefore, their pricing is usually off when it comes to distressed properties.

Thank you for sharing because this can be very helpful to others just starting or trying to understand processes to get started. Best wishes to you!

1 Reply

Marcus Auerbach

Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes

7y

@Ashly McGlasson, something does not add up here. Everyone loves the house, but no offers? In this market? What price point are we talking about here? Your agent should be able to tell you whats going on; a CMAwill tell you what your fair market value is, it will also show you how long comps took to sell. Are there comps or is this literally the highest priced home in your town, ever? Makes me wonder how good is your agent? Is he full time, more than 25 deals per year? I don't believe that any of the ideas here will prooooovide a real solution. If you like PM me the address, I'd like to take a look at that mystery house!

0 Reply

Greg Dickerson

Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes

7y

@Ashly McGlasson you could offer the house as a rent to own. In this scenario you would het a down payment from the tenant buyer equal to the amount of your 10% down payment and $30k repair costs so you get your cash back. This is a non refundable deposit but comes of the price of the house at closing.

You give the tenant buyer 3 years to purchase but you collect rent along the way. If they default you keep the deposit and sell the house again.

0 Reply

Dan H.Pro Member

Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes

7y

I would not be so adamant about not taking a loss on the sell if the loss results in an overall profit opportunity that you would otherwise be unable to achieve. Example, sell at a $20k loss but the cash from selling allows you to turn a $50K profit that you otherwise could not have achieved. My view on FSBO, You will save money on the listing but it could cost you in terms of time on market and/or selling price (I am not a realtor so no prejudice to use a realtor). Good luck

1 Reply

Stacy Davis

Flipper/Rehabber · Richland, WA · Member since 2019 · 24 posts · 17 votes

7y

@Ashly McGlasson

Have you considered short term rental options? Wasn’t the original goal, but the home could sustain itself and create a good cash flow if you set it up to do that. You could potentially sell it off as a short term rental property after awhile.

0 Reply

Sharon Rosendahl

Investor · Quilcene, WA · Member since 2017 · 230 posts · 169 votes

7y

Someone mentioned colleges. Short term for people visiting their students? By the room for students? This may not be good since students can be hard on housing. Could be good if you house hacked with a student or two. Especially with older students. Given they are in your house you can specify a lot more than regular renting. You can get references from the school, well performing students are often quieter and you living in the house with them keeps everything under control. Exchange students? I have a friend who does this to pay her mortgage. They live in her house and she also takes them around to events in the area and gives them a taste of US life. These are college age students, the parents often like having a house mother for their kids since they are in a foreign country.

0 Reply

George SkidisPro Member

Rental Property Investor · Belleville, IL · Member since 2017 · 875 posts · 529 votes

7y

1. Check out the Jacksonville Area Landlord's Association. Join and learn.

2. You have 3 choices. You need to sit down and decide whether to sell at a loss, Refi and Rent the house or move into it. If you move in you "may" be able to pull some equity out in a refi for another deal. Don't count on that.

3. You make your money when you BUY the house. Everything else is a carrying cost.

0 Reply

Jack Clough

Flipper/Rehabber · Wilmington, DE · Member since 2016 · 80 posts · 75 votes

7y

@Ashly McGlasson

I would take the loss. If priced correctly then the market should clear itself. The lesson learned is invaluable and soon you’ll be putting that money to work for you rather than letting it sit while it continues to eat into your value.

1 Reply

Chris Mantell

Rental Property Investor · MO · Member since 2019 · 13 posts · 8 votes

7y

@Ashly McGlasson

I’m not sure if this has been said yet but I would explore a rent to own option. There could be a nice family, trying to improve their credit, wanting a nicer house like yours.

A former colleague of mine did a rent to own in a hot market where he would of had zero trouble selling it. He got 10% of the purchase price (down payment) plus he got enough rent to cover the mortgage and I believe, an extra $200/month. The buyer had 2 years to qualify and purchase the house. If they can’t, you get the to keep the 10% and full ownership of the house again. Then you have the option to do it again with a new buyer.

0 Reply

Michael King

Rental Property Investor · Navarre, FL · Member since 2019 · 913 posts · 640 votes

7y

I really enjoy visiting Jacksonville. I work at the air medical base up there sometimes and thoroughly enjoy the town. Gosh I just had my hair cut there 2 weeks ago! I would live there but I'm not going to.

The way I look at your situation is whether you can afford to not sell it now, even if you take a hit. Pulling it off the market and having all that money tied up in it, not making you money, is not beneficial in my mind. And coming into the slower season, means it's a good time for you to buy after you sell yours, right? Others, like you, are probably getting antsy in that they want to sell up and get on with whatever their plans are. Meaning your next purchase or more.

I don't think you have too many options other than sell and take the hit, or rent it out, or refinance and take the cash. You mentioned the ARV, would that prevent a refinance from being worthwhile?

As a side note, how does the listing appear? Is it cell phone pictures, or are they nice glossy magazine type? These matter immensely. The house I just bought in May had really crummy pictures and it sat for the longest time in a hot market. Like over a year.

Lastly, chalk this whole thing up as an experience to learn from. Hopefully it won't be devastating financially. Good luck,

Mike

1 Reply

John Corey

London · Member since 2019 · 722 posts · 386 votes

7y

When you make a mistake, some of the time there is no other alternative than to just own the mistake. If you overpaid, accept the loss and move on. Or, accept that the family home is not going to change soon and just live there.

You clearly can make money when you buy right and do the work. Focus your energy there and do a few more profitable deals. This one is water under the bridge and that water will not be coming back.

2 Reply

Marcus Auerbach

Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes

7y

Thanks for the PM Ashly - after looking at the listing I understand what has happened.

You are right there is not a whole lot going on in your market, but houses are selling. Your main mistake was you listed it too high in March.The problem now is that you have totally lost momentum, you listing is stale after 3 price reductions.

The front picture with the bare trees and the bare grass dates it to late last winter. Nothing screams "stale" more than exterior pictures from another season.Like I mentioned, It seems to me (and I don't have access to your MLS) that you priced it too high initially; that can be a fatal mistake, now you are in a downward spiral and any offer you might get will automatically below asking price.

Days on market (DOM) are your enemy as a Seller. You can look at MLS data and see how low offers correlate with DOM. Nobody wants to buy a house that has been on the market for 6 months, when all the "hot" houses sell in 3 days, or 10 days, whatever it is in your market..It looks like you have a good agent, lots of pictures, open houses.

Here is what I would do:

- expire your listing and take it off the market

- have a stager come through and assist you with a few things. (You did a nice job generally, some of the rooms are great, some have room for improvement: the oak stools are killing the white kitchen, the rose curtain does the same to the laundry room etc..).

- have professional pictures taken. I pay under $100 for a set of professional pictures, taken with a wide angle lens, proper lighting. Your pictures are clearly homemade and make the rooms look smaller.

- re-list immediately with great new pictures, right at fair market value (looks like you are there already, but have your agent confirm with a full CMA)

These changes may not seem substantial, but they are compounding. As you know the difference between 2nd and first place is often very small, but only first place gets the gold medal. 2nd place trained as hard, ran almost as fast and gave it as much effort, but was still only 2nd place. No silver medal in real estate.

1 Reply

Kim Tucker

Flipper/Rehabber · Kansas City, MO · Member since 2011 · 2k+ posts · 712 votes

7y

Small town ideas:

Airbnb

Rent a Room to a long term tenant - someone who wants a nice place but can't afford on say a teacher's salary.

Co-Living - this is a concept that's been around in college towns for students for a while - rent out by the bedroom and everyone share the common spaces. Rather than them doing this as a group you as the landlord put them together. There are now a few new startups out there to help you set up a co-living arrangement with the goal of putting people with similar interest into the house and the app helps screen, coordinate and collect rent. And if you offer some perks like utilities, cable and wifi and maid service, you could charge a premium

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Flip mistake - suggestions on what to do.

Flip mistake - suggestions on what to do.

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