Worst FIRST FLIP: LOST OVER 100k

100 Replies

Investment Info:

Single-family residence fix & flip investment in Sacramento.

Purchase price: $350,000
Cash invested: $50,000
Sale price: $415,000

It was the worst first flip because we hired the wrong contractor who wasn't licensed. Ended up losing close to $100k including rehab, holding, commission costs.

Definitely the best learning experience on what not to do.

Since then, I have upgraded my own house.Learned to do cosmetic changes myself so i can be ready for my next flip. It's been a year and I have cash saved up to invest again :) 

What made you interested in investing in this type of deal?

BiggerPockets inspired me go out and get into flipping ..

How did you find this deal and how did you negotiate it?

Myhousedeals.com

Negotiated it myself. It was a good buy- we just messed up on the rehab part.

How did you finance this deal?

Conventional financing. I am a loan officer so it was cheap to finance.

How did you add value to the deal?

We wanted to give it cosmetic changes but the contractor had plans of his own. He left the house in a worse condition than we bought it in.

What was the outcome?

Lost over 100k in holding, labor, rehab costs. Sold it to another more experienced investor in the area through a wholesaler.

We couldn't sell it through conventional ways because it was not going to get any type of conventional financing.

Lessons learned? Challenges?

Watch the contractors- only hire licensed recommended contractors. Be at the sight every day, buy the material yourself, don't be afraid to do the work yourself. DO NOT TRUST ANYONE WITH YOUR MONEY.

That sucks, sorry to hear that. Yes, contractors can be a big problem, unfortunately. But we all have some bad ones so worry not. Just learn the lessons and move on. Best of luck on the next one!

Originally posted by @KIran Kaur :

@Andrew Syrios

Lesson learned! On to the next :) thank you!

 Good to hear! Far too many people take the wrong lesson and give up after a rough deal. Best of luck on the next one!

Originally posted by @KIran Kaur :

@Alla Kassianova

Because conventional lenders require the property to be safe as in livable.. I am a loan Officer so I knew only hard money, cash, or private money could finance this deal. It was tough so be careful :)

So you never got to renovate the house?

 

I'm a little confused by your numbers. You say purchase of $350, 50 in rehab, sold for $415. That's $15k to the plus side. I assume you must be leaving things out if you lost $100k. 

wow, I'm sorry. That's a big loss in Indy. I am also in Indy. But I am buy and hold strategy. I am local and don't have the funds for flipping. Curious, in what neighborhood was this flip located? What is your feeling on the Indy market currently? I may be selling a property soon, but my tenants are still in place. I am hoping they will find a new home soon as I would rather sell it empty.

@KIran Kaur Thanks for your candor.  Few on this site admit to losses!  Flipping well requires a dedicated and well-vetted team at a minimum + a lot of supervision.  You will likely find that the problems you encountered will be magnified when trying to invest thousands of miles away from home.  You can't "just drive over" like you can from Emeryville to Sacramento when you encounter a problem.  Also, you will likely encounter the attitude that "all Californians are rich," and receive above market quotes/prices for materials and labor.  I would encourage you to stay closer to home now that you have the experience you do.   

@Juan Pardo

We renovated .. he just ruined our material so the house was in worst condition than when we bought. Nothing was working from plumbing to electricity. Idk how he messed up the electricity. I’ll add photos for reference

@JD Martin

Oh yes ma’am I definitely am lol

Holding costs... we held the house for over 9 months paying $2456 per month =22,104

Material costs - around 25k (this is why you go buy your own material)

Labor- around 30k

We had to pick up loans for the rehab and we were paying $1200 a month for that too. Times 7= $8400

These loans cost around 4k to get because we were first timers.

Commissions around 5% of the pp ..415k *5%=

Purchase price was actually 370k (made a typo)

Selling price was 415k

Total lost was $110,254

So sorry to hear that it was a huge loss, and something that created a problem that ultimately created a huge net loss. The big take away here is that you are ready to do the next deal, and there are valuable life and business lessons in this investment (I still think it was a massive investment). The reason it was something that you are still going to be successful with is that you have the ability to see what happened, use all that knowledge from the bad experience with an unlicensed contractor to needing more of a spread with the purchase verse the ARV. Many people would take this as a L and walk away from the whole real estate industry and let that narrative dictate the rest of their life.

Good for you! keep up the hunting!   

@Peter Mckernan

Thank you so much :) it was tough at first but I took about 8 months to bounce back! Lol I used to hear stories on bigger pockets all the time about the losses and I would think “wow you gotta be really careless for that to happen” then it happened to me and I didn’t even see it until it was too late!

We could have easily just held the property for like 3 months and made a profit without even doing anything to it. It was a good buy.

It's unfortunate that you lost a big chunk of cash, but you gained a ton of knowledge that guarantees you will not be making the same mistake again. Thanks for sharing your experience with us. 

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