My first flip - I broke even

My first flip - I broke even

Flipper/Rehabber · Alexandria, VA · Member since 2014 · 461 posts · 262 votes

I thought I would share my story with the hope that it inspires someone to start the home flipping adventure and/or saves someone from making some of the (costly) mistakes that I made. Note that I'm purposely not including $$ figures for privacy reasons. 

Background: After years about talking about doing a flip I finally jumped into the pool. The adventure started when I left my office job in April 2014. In June 2014 I bought my first property with cash (let's say that it was from an angel investor). 

The house: Built in 1952 and owned by the seller's family since 1954. The house had been vacant for over a year at this point and the seller, who was a relative of the deceased owner, lived in another state. 

Purchase: The property hit the MLS on a Wednesday, I got inside it on Thursday, and made an offer (all cash, no inspection contingencies) on Friday. The planned open house for Sunday was cancelled due to the seller receiving multiple offers. Negotiations took place on Monday. I had to increase my offer. My second offer was accepted on Tuesday. We closed 6 days later (the title company said it was the fastest closing they had ever done).

The plan: The house hadn't been updated in any significant way in decades. The wallpaper in the living room had turned yellow. The bathroom and kitchen were last touched in the 1980's (that was my guess). I knew that some of the mechanicals would need to be updated. The plumbing drains, from what I could see, looked to be updated (PVC). The landscaping had been neglected for years so it needed major pruning. The plan seemed simple: clean it up, paint, refinish hardwoods, new kitchen + new bath. I thought that I could do most of the work myself. My projected timeline was 3-4 months.

The outcome: I sold (closed on) the house in February 2015 (9 months and 9 days after my purchase) and broke even on paper. If you consider 9+ months of lost income then you could consider it a major financial loss. I don't because I look at it as a heck of an education that I couldn't of gotten from books or videos or online forums. 

What I learned:

1) I wanted to do most of the work myself. What I saved in checks written to contractors I lost (and then some) in the time it took me to complete everything; including holding costs. The takeaway: I love working with my hands and "fixing" things. The next time I decide to fix and flip I am going to pick one or two passion projects and make them my own (landscaping, tiling, etc.) The rest I will outsource. 

2) You don't know what you have until you open the walls. I found major plumbing issues and major electrical issues that were not apparent on the surface. These were definitely jobs for the pros. The takeaway: plan for the worst and hope for the best. This is where a lot of my money went and I hadn't budgeted for the worst.

3) I paid way too much for the house. I cannot overemphasize this enough. By my 20-20 hindsight calculations it was about $12-65k more than I should have paid depending on how you prefer to calculate your potential profit vs ARV. The takeaway: I got out by the skin of my teeth. The reality is also that another investor would have paid more than I would have I wouldn't have gotten the house. 

4) Don't put a house on the market less than 3 weeks before Christmas. The takeaway: just don't -- it's not a good time to be trying to sell a house.  

5) Finding good pros is key. My electrician (whom I had used in the past) introduced me to an HVAC guy and a builder and both paid off in dividends. Also, when you use a "big" company you will also be paying for their overhead (marketing, human resources, rent, etc). That showed in their pricing. The opposite end of the spectrum is that sometimes I had to wait until the "small" guys had time to do the work. It's a double edged sword. The takeaway: when you find someone you like, and trust, ask them who else they know. It also felt good helping out other entrepreneurs who are making a living doing what they love. I've since become friends with some of the guys.

6) Don't give up. There were times during the long process when I didn't see a way out. Had I given up I would have financially sunk my family. The takeaway: it's not always going to be easy. Be ready to have to dig in and push forward. 

Conclusion:

I am really, really glad that I did it. I am very proud of the final product. I spent years pretending that I was making an effort at becoming a REI when, in reality, I was spending my time doing busy work in order to convince myself that I was making strides towards my goal. I needed to get one under my belt. And now that I have I feel like I can do another -- only hopefully with a much more profitable outcome.

I'm happy to answer any questions but please keep in mind that I won't answer questions related to $$ amounts.

Before and After

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Joel OwensBusiness Member
Moderator
Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
11y

You work ON your business and not IN your business.

Anything where you can't remove yourself is not an investment but buying a job. Since you can't be physically at more than one place at a time this significantly impacts your income and growth potential.

You leverage people to increase your effectiveness and revenue streams. 

See this reply in the discussion

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  • Real Estate Investor · Madison Heights, MI · Member since 2014 · 693 posts · 216 votes
    11y
    Originally posted by @Doug W.:

    I thought I would share my story with the hope that it inspires someone to start the home flipping adventure and/or saves someone from making some of the (costly) mistakes that I made. Note that I'm purposely not including $$ figures for privacy reasons. 

    Background: After years about talking about doing a flip I finally jumped into the pool. The adventure started when I left my office job in April 2014. In June 2014 I bought my first property with cash (let's say that it was from an angel investor). 

    The house: Built in 1952 and owned by the seller's family since 1954. The house had been vacant for over a year at this point and the seller, who was a relative of the deceased owner, lived in another state. 

    Purchase: The property hit the MLS on a Wednesday, I got inside it on Thursday, and made an offer (all cash, no inspection contingencies) on Friday. The planned open house for Sunday was cancelled due to the seller receiving multiple offers. Negotiations took place on Monday. I had to increase my offer. My second offer was accepted on Tuesday. We closed 6 days later (the title company said it was the fastest closing they had ever done).

    The plan: The house hadn't been updated in any significant way in decades. The wallpaper in the living room had turned yellow. The bathroom and kitchen were last touched in the 1980's (that was my guess). I knew that some of the mechanicals would need to be updated. The plumbing drains, from what I could see, looked to be updated (PVC). The landscaping had been neglected for years so it needed major pruning. The plan seemed simple: clean it up, paint, refinish hardwoods, new kitchen + new bath. I thought that I could do most of the work myself. My projected timeline was 3-4 months.

    The outcome: I sold (closed on) the house in February 2015 (9 months and 9 days after my purchase) and broke even on paper. If you consider 9+ months of lost income then you could consider it a major financial loss. I don't because I look at it as a heck of an education that I couldn't of gotten from books or videos or online forums. 

    What I learned:

    1) I wanted to do most of the work myself. What I saved in checks written to contractors I lost (and then some) in the time it took me to complete everything; including holding costs. The takeaway: I love working with my hands and "fixing" things. The next time I decide to fix and flip I am going to pick one or two passion projects and make them my own (landscaping, tiling, etc.) The rest I will outsource. 

    2) You don't know what you have until you open the walls. I found major plumbing issues and major electrical issues that were not apparent on the surface. These were definitely jobs for the pros. The takeaway: plan for the worst and hope for the best. This is where a lot of my money went and I hadn't budgeted for the worst.

    3) I paid way too much for the house. I cannot overemphasize this enough. By my 20-20 hindsight calculations it was about $12-65k more than I should have paid depending on how you prefer to calculate your potential profit vs ARV. The takeaway: I got out by the skin of my teeth. The reality is also that another investor would have paid more than I would have I wouldn't have gotten the house. 

    4) Don't put a house on the market less than 3 weeks before Christmas. The takeaway: just don't -- it's not a good time to be trying to sell a house.  

    5) Finding good pros is key. My electrician (whom I had used in the past) introduced me to an HVAC guy and a builder and both paid off in dividends. Also, when you use a "big" company you will also be paying for their overhead (marketing, human resources, rent, etc). That showed in their pricing. The opposite end of the spectrum is that sometimes I had to wait until the "small" guys had time to do the work. It's a double edged sword. The takeaway: when you find someone you like, and trust, ask them who else they know. It also felt good helping out other entrepreneurs who are making a living doing what they love. I've since become friends with some of the guys.

    6) Don't give up. There were times during the long process when I didn't see a way out. Had I given up I would have financially sunk my family. The takeaway: it's not always going to be easy. Be ready to have to dig in and push forward. 

    Conclusion:

    I am really, really glad that I did it. I am very proud of the final product. I spent years pretending that I was making an effort at becoming a REI when, in reality, I was spending my time doing busy work in order to convince myself that I was making strides towards my goal. I needed to get one under my belt. And now that I have I feel like I can do another -- only hopefully with a much more profitable outcome.

    I'm happy to answer any questions but please keep in mind that I won't answer questions related to $$ amounts.

    Before and After

    I tried my first flip also.  All the same issues you had with trying to do way to much on my own.  Yes other good contractors know of other good contractors.

    Just a little suggestion for your next project.  That wall between the kitchen and front room.  You should have just chopped it back and kept the wall to hide the HUGE fridge.  With doing that you could have moved that useless cabinet that is over the fridge out a good 10-12 inches.  It is such a better look to always hide the fridge any time you can.

  • Developer · Astoria, NY · Member since 2015 · 88 posts · 12 votes
    11y

    @Doug W.

     not yet, I'm leaving my job in April and have a great mentor that flips here regularly, its very competitive so I'm crossing my fingers, will keep you posted.  

  • Contractor · Temecula, CA · Member since 2015 · 190 posts · 36 votes
    11y

    Be proud of yourself for taking on something that most newbies like me are to afraid to try. I will definitely look at this like inspiration to get started, and also a lesson not to overpay. I just put a lowball offer in today that was not excepted, I tried to squeeze the numbers until it worked but then realized it would be better for me to walk away then to pay too much and not make anything. I definitely need to be more careful because I would be borrowing hard money to do my first flip. The numbers would definitely have to work for me to even qualify for the loan. Great story and I hope your next flip goes really well good luck!

  • Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes
    11y

    @Doug W.

    The house looks good now on to #2.  Have you picked a new rehab?

    I just did a 1950's rehab, you can expect mechanicals to be out of date and needing replaced.  The one I did was deceased owner, and the house was vacant for maybe 3 years.  There was lots of freeze damage.  The electric was 60 amps (I replaced with 200 amps).  The kitchen was original, and needed to be gutted.  I kept the original furnace which worked fine by got negative comments from prospective buyers.  Replace all the floor covering and about 50% of the drywall.  There were unexpected expenses like termites.

    Going in I figured new kitchen, new mechanicals, and freeze damage, but you always need a contingency for the unexpected.

    The biggest positive that I see for you is despite no profit, you're not quitting.

  • Toronto, Ontario · Member since 2014 · 615 posts · 172 votes
    11y

    @Doug W.

    The value of the great lesson learnt is worth more than the money. Good luck!

  • Birmingham, AL · Member since 2012 · 115 posts · 28 votes
    11y

    Awesome story Doug. Like the others have said before me...you learned a crap load on this one project and have gained invaluable experience. I hope you start your next one soon and kill it!

  • Portland, OR · Member since 2014 · 14 posts · 2 votes
    11y

    It looks amazing! Congratulations. Are you moving on to the next one right away? 

  • Realtor · Las Vegas, NV · Member since 2015 · 12 posts · 29 votes
    11y

    Congratulations on making it through your first flip! My husband and I just put our first flip on the market. Your post has inspired me to introduce myself tomorrow and share our story. Go forth and prosper!

  • Los Angeles, CA · Member since 2015 · 8 posts · 3 votes
    11y

    Doug,

    This was exactly what i needed to read. We all get caught up in the thought of pursuing a goal but fail to take action. I respect the way you put yourself in a position to learn from what you experienced during this project. My biggest problem right now is taking that first step and not overthinking everything. Thank you for the inspiration. 

  • Investor · Riverside, CA · Member since 2011 · 2k+ posts · 3k+ votes
    11y

    Didn't read for pages of posts. Based on your headline alone, I'll just say look at it this way, you got to keep the education!

  • Wholesaler · Deland, FL · Member since 2014 · 17 posts · 3 votes
    11y

    congratulations on getting a deal done. you may not have made a nice profit but, like you said the experience was well worth it! i really appreciate your candor and your outlook on being an REI. great read.

  • Contractor · Spring Hill, TN · Member since 2015 · 18 posts · 8 votes
    11y

    @Doug W., what do you think caused your purchase price to be too high? Did you underestimate the repair cost or the ARV by too much? Or were the margins just too small to compensate for the unexpected?

    The pictures look great, I love removing the part of the wall in the kitchen, it really opened up that area.  That paint color isn't Reprose Gray by any chance is it?  :) 

  • Baltimore, MD · Member since 2014 · 91 posts · 49 votes
    11y

    You did a great job! Me and my partner will be doing our first flip soon. Hopefully we can avoid some of the things that you mentioned. Either way good job... on the house and such a positive attitude!

  • New to Real Estate · Biddeford, ME · Member since 2015 · 73 posts · 24 votes
    11y

    WOW! @Doug W. I am new to investing. I have been studying for years now still know very little. I am appreciative to the information and profound outlook you gave. This makes me feel good and puts me in perspective as I am spinning my wheels. I am just trying to get money together so I can start. But great insight and I will take this with me thanks again. 

  • Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes
    11y

    @Corey Johnson

     said you are paying more than anybody else is willing to pay.  That's starts you off on the wrong foot.

    Just last weekend I was involved in the offer to purchase a house.  The property was listed late Friday, and by Monday there were 4 written offers.  The bank seller then asked for "Highest and Best" and the party I was involved with raised their offer by over 11%.  We did not get the property!  The asking price of the property was OVER bid, even though the appraisal on the property in as-is condition was the asking price.  The property needed a new roof, new siding, paint everywhere, updates to kitchen and bath as well as mechanical electrical, heating and plumbing updates and there was possible freeze damage.  The previous owner had owned the property for over 50 years and had passed away.

    With all the work that was needed our offer of 11%+ over asking/appraisal was as much as we were willing to go, but somebody else went higher.  That cuts their margins for profit and this was a property that not only needed work, but also had potential for "hidden gotchas"!

    The combinations of high purchase price, lots of work needed and possible hidden defects all add up to a more difficult path to a profit.  not impossible, just more difficult. 

    And the opposite is true also.  Lets say you can but a property not on the market for 3 days like the example above, but one of the market for more than 100 days.  And lets say instead of 4 written offers, the seller hasn't seen any offers in the 100 days.  And lets say instead of a 80 year old property without many updates that the property is less than 10 years old and has up to date mechanicals and even cosmetics.  and lets say you can get it for 20 or 30% less than asking price.  Well right off the starting line, you're in a much better position to make a profit.  

  • Investor · Fayetteville, NC · Member since 2014 · 916 posts · 190 votes
    11y

    Good stuff @Doug W.

  • Attorney · Attleboro, MA · Member since 2015 · 412 posts · 165 votes
    11y

    Congrats! Loved the Concluscion. I feel that way too. Enough book learning time to get out and do it. Puts the learning to use. Do or don't do there is no try. Thanks for putting it up there

  • Investor · Wheeling, IL · Member since 2015 · 8 posts · 1 vote
    11y

    Doug,

    Thanks for the great story,if you broke even on your first deal with all the experience you got from the flip you are on a good path! I'm positive that next time you use that knowledge it will pay off nicely.

    Good luck.

  • Involved In Real Estate · Bryn Mawr, PA · Member since 2014 · 25 posts · 5 votes
    11y

    That's great!! Plus the knowledge gained will help you on every other flip you do.

  • Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    11y
    Originally posted by @Scott K.:

    I tried my first flip also.  All the same issues you had with trying to do way to much on my own.  Yes other good contractors know of other good contractors.

    Just a little suggestion for your next project.  That wall between the kitchen and front room.  You should have just chopped it back and kept the wall to hide the HUGE fridge.  With doing that you could have moved that useless cabinet that is over the fridge out a good 10-12 inches.  It is such a better look to always hide the fridge any time you can.

    I might not even have bothered to open the kitchen wall on that house.  It was a small galley kitchen with sufficient light, with small adjacent dining area with appropriate over head table lighting.  Now that area is open and may be combining the kitchen with the only dining and living areas. There are so many choices, including not fixing what isn't necessarily broken.  Was that house, in that area and price range, really competing with all new rehabs and open kitchens?  How many recent sales did not include such improvements?  Those are the questions to get feedback on from agents and other successful rehabbers.

    That's that thing about rehabbing for profit.  It's SO so easy for DIYers and first timers to do stuff that doesn't make $$ sense.  It's really hard not to let design ego rule the rehab $$ decisions.  Combine that with overpaying and it's a recipe for break even or way worse. 

  • Contractor · Rockville, MD · Member since 2014 · 423 posts · 135 votes
    11y

    House looks great and congrats on getting out from behind the keyboard and taking action.  What city was the house in and would you invest in that market again?

  • Flipper/Rehabber · Alexandria, VA · Member since 2014 · 461 posts · 262 votes
    11y

    Thanks, again, everyone. Here are some more replies/comments based on new posts since I was last here:

    @Account Closed - it is in Fairfax County, VA. Yes, I'd love to do another in the same neighborhood. You're local so I don't need to tell you how expensive real estate is in this metro area.

  • Investor / Developer / GC · Manassas, VA · Member since 2013 · 229 posts · 39 votes
    11y

    Congrats at becoming the rehabber you've been planning on being!

  • Investor · Winter Springs, FL · Member since 2010 · 165 posts · 68 votes
    11y

    Thanks for sharing this detailed post, and pics!!!

    Great work and great education for you and all of us still learning. Keep ups posted on your next project. 

  • Burlington, MA · Member since 2015 · 13 posts · 1 vote
    11y

    Thanks for sharing!  This site is awesome!  I wish you luck on your next flip!  

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