Worst FIRST FLIP: LOST OVER 100k

Real Estate Deal Analysis & Advice

Worst FIRST FLIP: LOST OVER 100k

Investor · Sacramento · Member since 2020 · 47 posts · 67 votes

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.

384 views

Most Popular Reply

JD MartinBusiness Member

Moderator

Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes

6y

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.

Podcast Guest on Show #243

Skyline Properties

See this reply in the discussion

106 Replies

Jump to latestLatest

Sort by

Adriel Hsu
Investor · Beaumont, TX · Member since 2016 · 171 posts · 277 votes
6y
Ouch, sorry to hear that. That's a big chunk of change and would wipe out most beginner investors. Props to you to learn from it!

So just curious, from your profile, it says you are looking for out of state flips? Wouldn't it be even hard to watch over contractors?

Adriel
2 Reply
Steve Cook
Member since 2020 · 10 posts · 6 votes
6y
@KIran Kaur. I'm happy to hear that you are not running and hiding. You learned some valuable lessons that can pay dividends in the future. Many spend as much on a college education. Just dont let the lessons go to waste.
1 Reply
KIran K.
OP
Investor · Sacramento · Member since 2020 · 47 posts · 67 votes
6y
@Steve Cook
That’s the way I look at it too... thank you :)
0 Reply
Austin Yamamoto
Member since 2018 · 6 posts · 3 votes
6y
I think the fact you could sell the property for more than you bought it for even after it was in worst shape says a lot on your ability to find deals.
2 Reply
Jordan Rundell
Member since 2019 · 14 posts · 5 votes
6y
Takes lots of courage to share a learning lesson like this. Thanks for sharing, and good luck in the future.
1 Reply
Damarius Gilbert
Specialist · El Paso, TX · Member since 2016 · 105 posts · 84 votes
6y
exactly why i prefer wholesaling. Just learn from your mistakes. Flipping houses to gain experience in the industry is expensive.
0 Reply
Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
6y
I have hired many contractors over the years acting as our own GC on our various projects. One of the last contractors we hired was for hazard abatement. I believed in a week that we had a bad contractor (poor communication, too cavalier), but I did not want to go in search of a new one and deal with determining costs of incomplete project, etc. Firing a contractor in the middle of a job sucks, but sometimes it should be done.
At a couple of weeks after he initially indicated he would be done, he indicated he was done. Inspection showed he had missed multiple items. A couple more weeks of poor progress and we had enough and terminated the contract mid job even though the new abatement contractor was indicating timeline after the current abatement contractor. I pointed out to the wife, why would be believe this timeline from the initial abatement contractor as the contractor had never met any of his other timelines?
A one month task, between the two abatement contractors, took just over 3 months. This was 50% of our hoped for timeline for the entire construction project (project was allocated at 6 months) and over 3 times what we had allocated for abatement. This meant we had ~5 months of work left (had completed one month of work in the first over 3 months). About a month later Covid hit and everything slowed down significantly.
Our 6 month effort had our inspection today (it already had all permit inspections) which is 11 months. The 2 months late on the abatement ended up costing a total of 5 months due to the abatement issues and the impacts from Covid. If the abatement had performed to schedule, we would have been wrapping up the project at the time Covid first hit and Covid would have been, at worse, a minor impact.
My point is that even with some experience, contractor mistakes happen. Like you, I feel it is largely my fault. I suspected a problem very early but due to hassle, effort, etc. I chose to ignore the problem for too long. There was no way that I could tell that Covid would come and be an impact, but I should not have needed to know as I believed there to be a problem with the contractor and did not address it. That mistake ended up costing us 5 months and I ended up having to do the task that I was trying to avoid (fire the initial abatement contractor, determine payment, hire a different abatement contractor). Hopefully I learned my lesson (I have made this mistake before so maybe not).
I am glad you are treating it as a learning experience, taking ownership of your role, not letting it turn you off to similar efforts and I suspect you will come out of this more capable of succeeding on subsequent rehabs.
Good luck
4 Reply
John Reph
Real Estate Agent · Saint Petersburg, FL · Member since 2020 · 3 posts · 2 votes
6y
@KIran Kaur love your outlook on it!! Taking it as a learning experience and making sure you are prepared when walking into your next. It’s always tough to find a good contractor!! I would say always have them lined up before purchasing, maybe even try and get an inspection period to have them make sure the rehab works for your next flip. Good luck on the next one!!
1 Reply
Joe Cassandra
Rental Property Investor · Woodstock, GA · Member since 2017 · 517 posts · 772 votes
6y
Props to you for jumping back in the saddle Klran.
Your positive attitude learning from your mistakes will take you far.
good luck!!
1 Reply
Alex Jones
Rental Property Investor · Rochester, NY · Member since 2013 · 162 posts · 127 votes
6y
@KIran Kaur
I’m trying to understand more specifically why the house won’t be purchase through conventional mortgage if buyers interested? What prevent from processing through conventional mortgage?
Thank you for sharing your most expensive lesson with us and I definitely appreciate it.
1 Reply
KIran K.
OP
Investor · Sacramento · Member since 2020 · 47 posts · 67 votes
6y
@Alex Jones
If we went through conventional financing- the lenders require the house to have certain things (safety measures) to be intact I.e smoke detectors, water heaters, steps to in and out of the back yard, electricity, plumbing. They would require us to fix soo many things that we would have ended up spending close to 20k more if we sold it to a buyer with conventional financing.
0 Reply
James Ma
Burnaby, BC · Member since 2017 · 282 posts · 268 votes
6y
Thank you for your bravery in admitting a loss which most people never like to advertise. Your attitude and perseverance to continue going is great and will take you far!
This is why I am a bigger fan of buy and hold strategies with cashflowing properties so you don't get stuck in a bad situation. I know there can be huge gains to be made with BRRR but I feel you really have to have a strong team of contractors you can trust and know will do a quality job. Without a solid team like that, I feel its too much risk to be left vulnerable to a downturn when you are needing to offload the property or end up holding at a negative cash flow each month while you wait for trades to finish etc.
1 Reply
Alex Jones
Rental Property Investor · Rochester, NY · Member since 2013 · 162 posts · 127 votes
6y
@KIran Kaur
Electricity and plumbing? There is a problems with both for just not fixed accurately or? I ask because I’m about to finish my first flip house by the end of this month. I have had work with various contractors and some come and go. What was the issue with electricity and plumbing? You also just remind me about smoke detectors and stairs handler for basement, backyard and front door steps. It easily little details can be overlooked by rookie like myself and you.
Alex
1 Reply
Kapena Otare
Flipper/Rehabber · HI · Member since 2020 · 9 posts · 4 votes
6y
@KIran Kaur , I feel you bro sorry about the loss, my first contractor was a nightmare but I learned a lot from that ordeal ,I have several flips under my belt, New builds from the ground up, and wholesale deals, I always preach to my students to get your hands dirty and to know each trade, The more you know, the less they will take advantage of you...........
Aloha from hawaii.
1 Reply
KIran K.
OP
Investor · Sacramento · Member since 2020 · 47 posts · 67 votes
6y
I did not know this post would help so many people! I am so glad none of you came at me with the obvious (insults) and thank you for everyone's words of encouragement. I have never been a quitter so I take it as a lesson but if you get discouraged easily_ see below.

Few tips:

1) Interview as many contractors as you can- get bids and references (then call those references) . Also, check thier credentials (if they are licensed- they are easier to sue). Take photos of everything and keep receipts of everything as well. Put everything in writing.

2) Do the work yourself.. Alot of stuff like painting can save you over 2k easily if you DIY.. Youtube videos can help you learn how to install new doors, paint, paint/replace cabinets...etc.

3) Ask the professionals for advice.. attend your local investors meeting and get in touch with the right people

4) Even if you are stuck in horrible property, know that there is always a buyer out there for the right price. I sold mine by calling every wholesaler/investor in the area lol

Since this incident, i am less trusting of most people (professionally)- I prefer to do my own extensive amount of research before diving in. I have bounced back by paying off the loans and saving for the next deal. I am a mortgage broker now and when my clients purchase investment (flips), I can offer more than just financing.. I can evaluate the deals for them to give them advice. IT WAS A BLESSING IN DISGUISE. Noone was here for me in those days and i felt like i couldn't get out but i turned out to be more tenacious and resourceful thanI gave myself credit for. If anyone needs help on reviewing the deal before moving forward feel free to reach out - I would love to help or get you in touch with someone who can help.
6 Reply
KIran K.
OP
Investor · Sacramento · Member since 2020 · 47 posts · 67 votes
6y
Originally posted by @Kapena Otare:
@KIran Kaur , I feel you bro sorry about the loss, my first contractor was a nightmare but I learned a lot from that ordeal ,I have several flips under my belt, New builds from the ground up, and wholesale deals, I always preach to my students to get your hands dirty and to know each trade, The more you know, the less they will take advantage of you...........
HELLO FELLOW DUMMY (JUST KIDDING OFCOURSE) LOL. I ASPIRE TO REPLY TO SOMEONE LIKE THAT IN A FEW YEARS NOW THAT I AM OVER THE TRAUMA.
Aloha from hawaii.

0 Reply
KIran K.
OP
Investor · Sacramento · Member since 2020 · 47 posts · 67 votes
6y
Originally posted by @Austin Yamamoto:
I think the fact you could sell the property for more than you bought it for even after it was in worst shape says a lot on your ability to find deals.

Thank you for your kind words :)

0 Reply
KIran K.
OP
Investor · Sacramento · Member since 2020 · 47 posts · 67 votes
6y
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

1 Reply
Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
6y
Originally posted by @James Ma:
Thank you for your bravery in admitting a loss which most people never like to advertise. Your attitude and perseverance to continue going is great and will take you far!
This is why I am a bigger fan of buy and hold strategies with cashflowing properties so you don't get stuck in a bad situation. I know there can be huge gains to be made with BRRR but I feel you really have to have a strong team of contractors you can trust and know will do a quality job. Without a solid team like that, I feel its too much risk to be left vulnerable to a downturn when you are needing to offload the property or end up holding at a negative cash flow each month while you wait for trades to finish etc.
Buy and hold for cash flow works great once you have the financial assets to purchase every property that meets your buy criteria. Most newbies, can only handle one purchase if they do not find a way to extract much of their investment back out. BRRRR is perhaps the easiest way for newbies to scale slightly fast.
We now have the financial resources we can buy without the BRRRR, but we still look to BRRRR (but would not pass up a good property without the BRRRR) because of the sweat equity that it builds. This is in addition to there just being something great about having virtually nothing invested in high value RE.
BRRRR is not easy. You need to find the right value property to start. Then you have to execute the rehab so that it results in sufficient sweat equity. Then you need to get a refinance appraisal that actually reflects the value (this has been our biggest issue but I have gotten pretty good at appealing appraisals). Mess up at any of the steps and the BRRRR could result in no extraction of initial investment.
Certainly buying a good cash flowing property that is in good shape has less risk and is less effort. It works, but the newbie could do one, then need to save 20% to 25% of cost (assuming not OO) to purchase the next one (could take years).
1 Reply
Joaquin M Dugan Jr
Lender · Dallas, TX · Member since 2019 · 56 posts · 28 votes
6y
How did you find this contractor if you dont mind me asking and what caused you to select them over any other contractor?
1 Reply
Kapena Otare
Flipper/Rehabber · HI · Member since 2020 · 9 posts · 4 votes
6y
@Alex Jones
hey Alex been through a lot of flips, here’s one tip for you, I hire a home inspector at the end of my flips, to see what else I miss, once everything is complete, I can turn in that report to my realtor, which in turn give That information to potential buyers.......
2 Reply
Philip Coiro
Flipper/Rehabber · Member since 2018 · 87 posts · 67 votes
6y
Sorry to hear this! I only feel truly comfortable doing full gut jobs when flipping, this way we know the costs of everything going in. A few surprises can still pop up and you might find you can do less. I also only look for houses with a spread of 180k purchase to sale
good luck on the next!
1 Reply
KIran K.
OP
Investor · Sacramento · Member since 2020 · 47 posts · 67 votes
6y
Originally posted by @Alex Jones:
@KIran Kaur
Electricity and plumbing? There is a problems with both for just not fixed accurately or? I ask because I’m about to finish my first flip house by the end of this month. I have had work with various contractors and some come and go. What was the issue with electricity and plumbing? You also just remind me about smoke detectors and stairs handler for basement, backyard and front door steps. It easily little details can be overlooked by rookie like myself and you.
IDK what he did but literally our whole house was leaking...literally everywhere. AT this point i think he did it on purpose.
Wires were ripped out and none of the outlets or lights worked. Don't forget to cover the water heater lol

1 Reply
KIran K.
OP
Investor · Sacramento · Member since 2020 · 47 posts · 67 votes
6y
Originally posted by @Joaquin M Dugan Jr:
How did you find this contractor if you dont mind me asking and what caused you to select them over any other contractor?

He was recommended by a "friend" in real estate, cheaper, fake photos of his work, fake references, and a sweet talker. FOOLED US FOR SURE. Like I said before, it was his bad for fooling us and our bad for letting him. Man made his money and ran... we ended up learning lol.
0 Reply
Joaquin M Dugan Jr
Lender · Dallas, TX · Member since 2019 · 56 posts · 28 votes
6y
Originally posted by @KIran K.:
Originally posted by @Joaquin M Dugan Jr:
How did you find this contractor if you dont mind me asking and what caused you to select them over any other contractor?

He was recommended by a "friend" in real estate, cheaper, fake photos of his work, fake references, and a sweet talker. FOOLED US FOR SURE. Like I said before, it was his bad for fooling us and our bad for letting him. Man made his money and ran... we ended up learning lol.

Wow, I'm sorry to hear that had happened to you. Yet, am glad it was a learning lesson and you're back on your feet and ready to flip again. Duly noted, all your friends aren't your friends lol

0 Reply

Join the conversationCreate a free account to reply, vote on answers and follow this thread.

Log In Join for Free