Worst FIRST FLIP: LOST OVER 100k

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Worst FIRST FLIP: LOST OVER 100k

KIran K.
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.

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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. 

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  • Shanice Waller
    Rental Property Investor · Augusta, GA · Member since 2020 · 19 posts · 16 votes
    6y

    @KIran Kaur to see you’re not giving up is so encouraging. I’ve made quite a few unwise decisions turning a property too. These lessons you learned will serve you. Best wishes in your next investments! Do

    1Reply
  • KIran K.
    OP
    Investor · Sacramento · Member since 2020 · 47 posts · 67 votes
    6y
    Originally posted by @Shanice Waller:

    @KIran Kaur to see you’re not giving up is so encouraging. I’ve made quite a few unwise decisions turning a property too. These lessons you learned will serve you. Best wishes in your next investments! Do

    Thank you :) Hopefully you're doing great now! 

    0Reply
  • Alex Jones
    Rental Property Investor · Rochester, NY · Member since 2013 · 162 posts · 127 votes
    6y

    @KIran Kaur

    I get you. Definitely the contractor’s behavior more than anything else. Thank you once again for sharing your experience with us.

    Alex

    1Reply
  • Rik Patel
    Real Estate Agent · Miami, FL · Member since 2018 · 132 posts · 25 votes
    6y

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

    0Reply
  • KIran K.
    OP
    Investor · Sacramento · Member since 2020 · 47 posts · 67 votes
    6y
    Originally posted by @Rik Patel:

    @KIran K. 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? 

    0Reply
  • Erik B.
    Rental Property Investor · Amityville, NY · Member since 2018 · 351 posts · 441 votes
    6y

    @KIran Kaur

    I'm a contractor and I'm sorry you had to go through this. These pictures tell me that this person had zero clue what they were doing. Items like the casing cut around the base molding actually took more effort to do it wrong then do it right.

    I will say that during site visits you should have seen the work was not looking correct and should have stopped it at that moment before it got carried away.

    Try and familiarize yourself with as much of the construction rehab process as you can. It will be of tremendous help going forward.

    0Reply
  • KIran K.
    OP
    Investor · Sacramento · Member since 2020 · 47 posts · 67 votes
    6y
    Originally posted by @Erik B.:

    @KIran Kaur

    I'm a contractor and I'm sorry you had to go through this. These pictures tell me that this person had zero clue what they were doing. Items like the casing cut around the base molding actually took more effort to do it wrong then do it right.

    I will say that during site visits you should have seen the work was not looking correct and should have stopped it at that moment before it got carried away.

    Try and familiarize yourself with as much of the construction rehab process as you can. It will be of tremendous help going forward.

     You're absolutely right! You wouldn't believe the amount of times I have looked at these photos and thought what kind of idiot allows this to continue... it was a rookie mistake. 

    2Reply
  • Mark Hughes
    Rental Property Investor · Aurora, CO · Member since 2018 · 288 posts · 117 votes
    6y

    @JD Martin don’t forget holding costs as well as selling commissions, it all adds up

    0Reply
  • Gloria GrotjanPro Member
    Investor · Aptos, CA · Member since 2013 · 36 posts · 9 votes
    6y

    I can so relate to this huge flip loss due to an unlicensed contractor (that my business partner hired!!) I hope you report him to the CSLB which is what I did but its been a slow moving process especially with Covid going on. It is currently in the Superior Court system and I've filed a claim but dont know if I'll ever see any money back. I just dont want anyone else to be taken advantage by this jerk. Hope you file a claim.

    2Reply
  • Brandt BaizePro Member
    Investor · St. Petersburg · Member since 2020 · 25 posts · 12 votes
    6y

    I am sorry that happened.  I am glad that make you want to quit and you still understand the power of Real Estate!!  I agree learning how to do things yourself (even if you don't do them) will help you see what is going on and make you ask questions if it doesn't look right.  You can learn so much from BP and YouTube.

    1Reply
  • David Lichtenstadter
    Rental Property Investor · Northern NJ · Member since 2016 · 341 posts · 144 votes
    6y

    @KIran Kaur by the way this was a terrible idea even without the contractors ripping you off,

    Sale price 415K -5% -5K back end closing -50K rehab -5K front end closing -350K = -16K

    My house deals is not really a place to find discounted property’s (they make the

    Money from the advertisements)

    Sorry for you loose. 

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

    @David Lichtenstadter

    Arv for that house was 550k -570k

    Rehab was supposed be 50k total including labor and materials.

    Holding was supposed to be 6-8k

    550k x 5% = 27500

    Loan costs : none because I have my license..

    Total cost = $85,500

    Even if we sold at 550k and

    If the contractor didn’t mess up our stuff and delay our sale we could have made $94,500

    550k-370k-$85,500= $94,500

    It was a great buy with great comps. 3 month hold turned into 8 or 9 months ..

    0Reply
  • Steve Graves
    Rental Property Investor · Lancaster, CA · Member since 2015 · 103 posts · 55 votes
    6y

    Still a win for you, paying for your education from the School of Hard Knocks. I'd be willing to bet that 99% of us on here can share a similar learning experience. Good luck on the next one, you'll do great with it. Cheers!

    1Reply
  • Michael Myers
    Jacksonville, FL · Member since 2020 · 25 posts · 11 votes
    6y

    That is my greatest fear is trusting a contractor. Unfortunately, my job requires a lot of my time so I wouldn't be able to stay on top of a contractor and make sure things are being done correctly.

    0Reply
  • Juan Pardo
    Member since 2020 · 201 posts · 118 votes
    6y
    Originally posted by @KIran K.:

    @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

     I see.. I was wondering if, in your local market, you could have flipped the property "as is" without doing any rehab. Is it possible to make money using that strategy?

    1Reply
  • Walter Cuthbertson
    Investor · Atlanta, GA · Member since 2015 · 12 posts · 3 votes
    6y

    @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%?

    0Reply
  • Walter Cuthbertson
    Investor · Atlanta, GA · Member since 2015 · 12 posts · 3 votes
    6y

    @Walter Cuthbertson stick to the Formula it never failed me this far also do not go outside your budget and pick two or three GC’s that you feel comfortable with that’s a big deal in the flipping real estate game.

    1Reply
  • Vinay H.
    Cambridge, MA · Member since 2017 · 268 posts · 247 votes
    6y
    @KIran Kaur. Do you think you would have caught on to those issues earlier if you had been there on site to supervise and inspect the progress regulalrly? Good to see you are able to bounce back. It’s easy to see the power of your resilience. Lots of people would never recover emotionally from this.
    4Reply
  • Reetesh Sood
    Real Estate Consultant · Paramus, NJ · Member since 2008 · 11 posts · 3 votes
    6y

    @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.

    1Reply
  • Winston Varghese
    Rental Property Investor · New York, NY · Member since 2018 · 8 posts · 4 votes
    6y

    Wow, huge financial loss but the knowledge you gained from

    that loss must’ve been far more. You must know most of the ins and outs now about how to rehab “properly” lol. I feel like you’d be better off getting an off market property for a flip

    0Reply
  • Daniel SmythPro Member
    Rental Property Investor · Rockford, IL · Member since 2019 · 471 posts · 342 votes
    6y

    Can you be more specific about your contractor, and what went wrong?

    A license does not prove proficiency or quality. 

    As well, I am interested to know if the work was done under permits.

    Thanks!

    [email protected]
    1Reply
  • Derek Jones
    Real Estate Agent · Sacramento, CA · Member since 2015 · 338 posts · 135 votes
    6y

    Wow, looking at those pictures I think that "contractor"is the worst I've seen. Sorry that didn't work out for you but glad you are still looking to proceed again.

    myhousedeals isn't really a deal. I had an listing before and they reached out to me to see if they could advertise my listing on they're site. I told them it wasn't a good deal for flippers as margins were too slim so they exaggerated the arv.

    Lastly, you still could have probably sold the home on the MLS. Sacramento has thousands of eager investors looking for a deal. If arv was North of $550k I'm sure someone would have bought it for $450-475k.

    1Reply
  • Bonnie LowPro Member
    Lender · Asheville, NC · Member since 2016 · 1k+ posts · 1k+ votes
    6y
    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!
    [email protected]
    1Reply
  • Jake Soper
    Real Estate Consultant · Lawrence, MA · Member since 2020 · 216 posts · 157 votes
    6y
    Originally posted by @KIran K.:
    Originally posted by @Rik Patel:

    @KIran K. 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? 

    1Reply
  • KIran K.
    OP
    Investor · Sacramento · Member since 2020 · 47 posts · 67 votes
    6y
    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 :/

    0Reply
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