Worst FIRST FLIP: LOST OVER 100k

100 Replies

Things can go sideways on a rehab SO quickly. We have done several flips, are able to be onsite as frequently as we want to be, we know enough about construction project management to be comfortable managing the phases and we STILL underestimate our rehab & holding costs. So it happens. This has caused us to increase the buffer we put in our budget every time for both length of time holding and rehab costs and ask ourselves if the numbers still make sense before we buy. Labor scarcity and rapidly increasing costs of both labor and materials in northern CA have caused us to be much more conservative with our numbers right now. I'm glad to see that despite this first project, you're moving forward anyway. You'll have wins so long as you keep going!

Originally posted by @KIran Kaur :
Originally posted by @Rik Patel:

@KIran Kaur What was it like working with myhousedeals? Never knew they even existed! Would love to know your experience.

It was a random find .. I have had that membership for over a year now- no luck finding anything properties. I am actually looking for other avenues to find flip.. been cold calling to see if anything's going to work. Do you have any suggestions? 

 

 First, thanks for giving the details on the contractor, that helps us all level up. 

About finding new avenues to find flips... Have you considered small, targeted direct to seller campaigns? 

Originally posted by @Reetesh Sood :

@KIran Kaur why not a construction loan or something like FHA 203k? I've sold plenty of dilapidated properties and a lot of small time investors use these loans to purchase.

I couldn't find a buyer for that. We did look into it :/

 

Originally posted by @Jake Soper :
Originally posted by @KIran Kaur:
Originally posted by @Rik Patel:

@KIran Kaur What was it like working with myhousedeals? Never knew they even existed! Would love to know your experience.

It was a random find .. I have had that membership for over a year now- no luck finding anything properties. I am actually looking for other avenues to find flip.. been cold calling to see if anything's going to work. Do you have any suggestions? 

 Not yet, because I am not sure how to go about it and I do not want to waste any money 

 First, thanks for giving the details on the contractor, that helps us all level up. 

About finding new avenues to find flips... Have you considered small, targeted direct to seller campaigns? 

 

Originally posted by @Bonnie Low :
Things can go sideways on a rehab SO quickly. We have done several flips, are able to be onsite as frequently as we want to be, we know enough about construction project management to be comfortable managing the phases and we STILL underestimate our rehab & holding costs. So it happens. This has caused us to increase the buffer we put in our budget every time for both length of time holding and rehab costs and ask ourselves if the numbers still make sense before we buy. Labor scarcity and rapidly increasing costs of both labor and materials in northern CA have caused us to be much more conservative with our numbers right now. I'm glad to see that despite this first project, you're moving forward anyway. You'll have wins so long as you keep going!

Thank you! lol My buffer was 20k and it still wasnt enough.. this is a one off i am hoping

 

Originally posted by @Walter Cuthbertson :

@Kapena Otare sorry to hear about your financial lost. I have to ask .. who thought you the Formula to flip houses be at 65% or 70%?

I am self taught .. it just made sense to me lol I didnt even know it was a thing at that time. Now I have heard about it more.. 

 

@KIran Kaur ,

Ah, yes ... The School of Hard Knocks is THE most expensive education out there.

There *IS* an alternative, of course. Your losses on this deal could have paid for your education 5 times, you may have come out ahead instead of such a huge loss.

Originally posted by @David Dachtera :

@KIran Kaur,

Ah, yes ... The School of Hard Knocks is THE most expensive education out there.

There *IS* an alternative, of course. Your losses on this deal could have paid for your education 5 times, you may have come out ahead instead of such a huge loss.

You're right lol this makes me want to flip more now that I know more :) 

 

Originally posted by @KIran Kaur :
Originally posted by @Andrew Syrios:

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!

Thank you so much! will do :) hopefully you'll see another post by me soon talking about a huge win because of the lessons from this loss lol 

 

I'll keep an eye out for it. Good luck!

 

Reading all the posts so far, I love the pictures.

I am a Union Carpenter of over 35 years in the trades. The hatchet job on the trim tells me the worker was not trained in trim work. YouTube makes everything look easy.

I bet the floor was sanded with a hand sander. I did my first floor sanding with small electrical sanders. It took forever! The rental sanders are faster and less back breaking!

No permits pulled. I get it. I want to cut corners as much as anyone. This guy is probably a pretty good handy-man for small jobs. He didn't want to pass up the big job, and you loved the idea of hiring cheap, uninsured help.

When you are your own Superintendent, or General contractor, its up to you to assure that proper materials are used and delivered as needed.

As a business owner, you are responsible for getting insurance for Uninstalled and installed materials, and other insurance for damages caused by your workers, by accident or on purpose.

Your due diligence was neglected, and you got blind-sided. That's hard, I understand.

In my career as a Carpenter/Builder, I have seen many ways the job can have a bad outcome.

Dust off your ego, (no disrespect intended),

and see if you can "shadow" a contractor in your area in a house renovation. The questions, need to center upon what YOU need to do so this doesn't bite you again.

Yes, we all want to blame the worker.

We rarely like to look at the events from another side, not so flattering.

Not telling you that you need to hire Union, as I do understand the labor costs.

I do wish to impress upon you the idea that you can do better! You Can let a contractor pick out the material needed.

You could, ask your contractor to furnish a material list for each part of your next project.

Separate the entire project by materials needed, and a labor pay schedule. A schedule can be per project, or per % of the entire job.

When a project or % of the job is complete and inspected to your satisfaction, you write that check! This way, if something was missed, or done wrong, the contractor will have a vested interest in getting it done! NOW!

No need to give the contractor money for materials. You pay the vendors! If YOU pay the vendors, you won't need to worry about mechanic liens being placed on your property because your contractor pocketed the money!

Have a contract for work to be done.

Demand insurance papers from your contractors. VERIFY PROPPER COVERAGE! No payment for permitted work until the inspectors also sign off the work as accepted.

There is more, and less can be done.

The phrase " Pay me now, or Pay me later ", comes from a contractor denied the job because he was more expensive than the "buddy and his friend down the street".

While the project may have been underbudgeted and the worker thinking remodeling is as easy as YouTube makes it seem, you will get another chance to do a better deal!

I have eaten my hat on jobs of my own, paying hired hands from my own pocket. It hurts, and I do not dismiss your pain.

The sun will shine again. Now get out there and GET SOME!

Dan!

Originally posted by @Daniel Smyth :

Reading all the posts so far, I love the pictures.

I am a Union Carpenter of over 35 years in the trades. The hatchet job on the trim tells me the worker was not trained in trim work. YouTube makes everything look easy.

I bet the floor was sanded with a hand sander. I did my first floor sanding with small electrical sanders. It took forever! The rental sanders are faster and less back breaking!

No permits pulled. I get it. I want to cut corners as much as anyone. This guy is probably a pretty good handy-man for small jobs. He didn't want to pass up the big job, and you loved the idea of hiring cheap, uninsured help.

When you are your own Superintendent, or General contractor, its up to you to assure that proper materials are used and delivered as needed.

As a business owner, you are responsible for getting insurance for Uninstalled and installed materials, and other insurance for damages caused by your workers, by accident or on purpose.

Your due diligence was neglected, and you got blind-sided. That's hard, I understand.

In my career as a Carpenter/Builder, I have seen many ways the job can have a bad outcome.

Dust off your ego, (no disrespect intended),

and see if you can "shadow" a contractor in your area in a house renovation. The questions, need to center upon what YOU need to do so this doesn't bite you again.

Yes, we all want to blame the worker.

We rarely like to look at the events from another side, not so flattering.

Not telling you that you need to hire Union, as I do understand the labor costs.

I do wish to impress upon you the idea that you can do better! You Can let a contractor pick out the material needed.

You could, ask your contractor to furnish a material list for each part of your next project.

Separate the entire project by materials needed, and a labor pay schedule. A schedule can be per project, or per % of the entire job.

When a project or % of the job is complete and inspected to your satisfaction, you write that check! This way, if something was missed, or done wrong, the contractor will have a vested interest in getting it done! NOW!

No need to give the contractor money for materials. You pay the vendors! If YOU pay the vendors, you won't need to worry about mechanic liens being placed on your property because your contractor pocketed the money!

Have a contract for work to be done.

Demand insurance papers from your contractors. VERIFY PROPPER COVERAGE! No payment for permitted work until the inspectors also sign off the work as accepted.

There is more, and less can be done.

The phrase " Pay me now, or Pay me later ", comes from a contractor denied the job because he was more expensive than the "buddy and his friend down the street".

While the project may have been underbudgeted and the worker thinking remodeling is as easy as YouTube makes it seem, you will get another chance to do a better deal!

I have eaten my hat on jobs of my own, paying hired hands from my own pocket. It hurts, and I do not dismiss your pain.

The sun will shine again. Now get out there and GET SOME!

Dan!

Thank you for your response!! I definitely take full responsibility on the crap job and negligence --like i said i was too excited and naive at that time. Looking back- I could have done sooo much and saved so much money but too late now.. only can improve from here. I will take your advice and apply it to the next job--- watch me trend  with the best flip ever!! :) 

 

@KIran Kaur so sorry. Thanks for posting, most people only post about making money in RE and give a false impression it’s easy, or you can’t lose money.

The rehab portion of a flip or a buy and hold is one of the hardest parts to manage and has the most that can go wrong.

We quote jobs for clients all the time that price shop and want to go with another “contractor” who can save them a couple thousand dollars.

Anyone can set up a website and figure out a way to pop up on Google or Facebook. If they are not insured, licensed, well known, have have a plethora of pictures and examples of their work, it’s not worth the risk.

There is also inherent risk in having them quote jobs. You can get into a job and purchase a property based on a low ball quote from an inexperienced contractor and end up half way through the project with no money left.

Thanks for sharing and sorry about the bad experience. Expensive life lesson unfortunately. I have plenty of my own as well :)

Sometimes you win... and sometimes you learn.

@KIran Kaur

I’m about to get into my first deal and it’s nice to see someone share a bad experience. I took some notes on your post and hopefully you help some on bigger pockets. Good luck in your next deal! You have the right attitude :)

Originally posted by @Amit Lala :

@KIran Kaur

I’m about to get into my first deal and it’s nice to see someone share a bad experience. I took some notes on your post and hopefully you help some on bigger pockets. Good luck in your next deal! You have the right attitude :)

 YAYY! that's exactly why I posted! SO many amazing and experienced people shared their thoughts :) good luck! 

@KIran Kaur

I share your pain! I currently have one of those as I type this. It’s cost me over 200k. The contractor ran with my money. Little did I know my partner was in on it. It’s a messy legal battle for four years going on 5.

The take away for me, Trust but Verify!

Is Michigan a state you would consider?

Originally posted by @Scott Matthew C. :

@KIran Kaur

I share your pain! I currently have one of those as I type this. It’s cost me over 200k. The contractor ran with my money. Little did I know my partner was in on it. It’s a messy legal battle for four years going on 5.

The take away for me, Trust but Verify!

Is Michigan a state you would consider?

 OH MY GOD! I am so sorry to hear that!so going through litigation?

And No, I am only interested in california or Indianapolis because I have family I can stay with so I can be on sight everyday to manage the flip :) Do you know anyone there I can connect with regarding a deal? 

Thanks for the reply. I have a solid friend who just in the last year or so has retired from his daily grind and does real estate investments full time . He is located in San Ramon, CA. I'll speak with him and will get back to you.

thank you for sharing and being open with the forums, I think a lot of people think HGTV is the realistic version of how flips end up working out, my first flip I lost a 5 digit amount, the school of hard knocks. The question is how do we respond to adversity? Since then I have made WELL over the amount I lost in that first flip and that experience could have caused me to say f*ck it I cant do it, this isnt for me, blah blah blah, Love to see your ready to dive back into the game after licking your wounds. Appreciate you sharing!

When you ask a contractor for references, tell him you want references from his 5 or so "MOST RECENT" jobs. Otherwise, he will just pick the few far in and between ones that went smoothly during his last few years.

And if the last 5 are already several months old jobs, then he either lied or nobody hires him.

Many Cities also have their inspections info online, so if his last jobs required inspections then you might be able to look up the inspection results at the building department's website under the property's address.

Depending on your state+county, you can also often look up who the owner of a property is, to make sure he didn't just give you his cousin's phone number as a reference.

Originally posted by @KIran Kaur :
Originally posted by @Jon Shoop:

Great lesson learned! Contractors are very hard to get a good read on.

 There's enough scammers out there lol we just gotta make sure we protect ourselves and do our due diligence ..

DEFINITELY. I almost got scammed right after college when I was living in Barcelona from a Craigslist apartment ad.

 

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