I realize that the title of this post is a bit cryptic, but it will soon make sense to you. We’ve all heard of the shows: Flip this House, Flip that House, Property Ladder, and I’m sure there are even more of ’em out there.
These shows romanticize the act of rehabbing properties and selling them for profit. I haven’t seen one episode of any of them where someone really screws up and misses their timeline or budget. Flipping houses is easy! Just get a contractor – rip some walls out – put in new floors – paint the walls – do some cheap landscaping – and BAM! You’ve made tens, if not hundreds of thousands of dollars in only 14 days!
The reality of this reality is that it is not that easy, especially for a beginner. People understimate budgets, contractors dawdle, weather comes in, wood has termites, and one of a huge list of problems inevitably occurs. Think its easy, learn from Minna:
A Case of Flip This House Syndrome
I must have been smoking some serious crack when I thought I could wrap up this “cosmetic ” first rehab in 3 weeks for 12k…Complete la-la-land. Almost twice that much and twice as long later, I’m still not done, and it’s starting to get to me. I had a credit card denied for the first time in years today, and I started freaking out. I am getting pretty maxed. I also have no income. It’s not horrible, terrible yet, but I’m starting to feel the pain here. I really need to wrap this rehab up, and get it sold in a hurry. Really I do. IN A HURRY. Anyway…just had to vent a little.
Sounds pretty crazy, huh. This is not an isolated story. Every day flippers spend their last dime and have to stop working on their properties. Every day, another potential profit becomes hell on the pocket.
What can people do to prevent this, Flip this House Syndrome?
That is a fairly easy question. The key is education and planning! Even the simplest “cosmetic fixers” can fast become huge projects. Here are a few basic budgeting tips to get you going:
- Budget your holding costs for the property and add at least a month or so. This includes mortgage, insurance, taxes, etc. Be realistic about your timeline. Realize that you will not work as fast as professionally trained contractors. If you think it will take you a week to do something, plan for a few weeks. Be safe in your estimates!
- Break down your project on a room by room basis, and then break it down some more. Looking at the entire space oftentimes makes people think there is not a lot of work, but when you get to the nitty gritty, you’ll often find much more then you bargained for.
- Imagine the worst of contingencies (termites, mold, etc) and budget for them. I can’t tell you how often I hear about investors who had just enough money to get everything done, but they ran into some mini-disaster and had to stop working.
If you can’t afford to get into the project after taking these into consideration, STAY AWAY!
If you’ve never rehabbed a property, talk to someone who has!
If you think it is going to be easy — go back to your desk job!