3 Valuable Lessons I Learned From Backing Out of My First Fix & Flip Deal

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Although I have been investing for over 10 years, I have never led one of our fix and flip projects myself! So I decided to take the plunge, and I made my first offer on a fix and flip deal in June. I thought it was a “done deal.” However, I ended up backing out of the deal and canceling the contract. I learned some extremely valuable lessons during this process that I wanted to share in this short video.

Have you ever backed out of a deal? What did you learn in the process?

Let’s talk in the comments section below!

About Author

Elizabeth Faircloth

Liz Faircloth has been managing and investing in real estate since 2004, along with her husband, Matt. We have built our business from scratch and now own over five million dollars in residential and commercial assets. We love to help and educate investors. Our YouTube Channel, The Landlordโ€™s Chronicles, offers short, yet educational videos that covers topics such as flipping houses, rentals, rehabs, property management, and lessons learned along the way. http://www.youtube.com/c/DerosaGroupTrenton

29 Comments

  1. Robert Easter

    I think you may have been more lucky than you realize. The foundation was screwed.. I would look at this as .. the bank may have done you a favor. Depending on the foundation repair needs this is a BIG Question mark on a Fix and Flip. Usually turns a fix and flip into a Buy and Hold rental…Unless you are very sure of how much this will cost and you can hold your contractor to the budgeted number, you’re lucky you are out of it.

    Heres what confuses me… your closing on your offer was supposed to be August 15th….How did time slip from August 15th’s closing to October 1? Once you gave them consideration and it passed the closing I would have just said Deals off…

    Fix and Flips are about taking Money and Utilizing it NOW not waiting for other people to get their shit together. As a Fix and Flipper Money is your inventory…not the house. And it costs you money to wait on others…The main principle of Time Value of Money is it’s value deteriorates over time. You hold contractors to a time constraint…you can hold the seller to similar as well.

    But Money has to be used to generate more. Sitting Idle it does nothing but depreciate.

    If someone is delaying you…cut them off. Use contingencies in your offers to reflect how you will conduct your business and set the expectations of the Seller and their banks. If they except your offer they also accept your contingencies for timely closing. Miss the closing ..sorry not wasting time with you.

    In Stocks, Bonds and real estate…an investor can never afford to be emotional about any of these. Numbers are your friends when calculated correctly and you are on the right side of them and Time is always an evil specter.

    • Elizabeth Faircloth

      Robert –
      Thanks for your comments! I comletely agree on your points. To clarify further – closing was orginally scheduled for 8/15 and then it got pushed back to 10/15. I like your “no nonsense” attitude! Good luck to you in all of your projects. Thanks for reading!
      Liz

  2. Mary B.

    @Robert Easter: She was scheduled to close on August 15 for $63K but the bank is the one that actually cancelled the contract by asking for more money than they originally asked for from $63K to $78K following numerous appraisals. Once a counter-offer is made it cancels the previous agreement / offer…

    @Elizabeth Faircloth
    So what if the bank contacts you a month from now telling you the property is still available (as its the end of the year and end of the quarter – double points for you) and they would like to know if your original offer is still good – would you purchase?

    Kudos,
    Mary

    • Elizabeth Faircloth

      Thanks Mary for helping clarify. I did respond to Robert’s question above as well! Great follow up question! I thought of this scenario as well. I am thinking that I probably would not purchase the property. I have become turned off by the deal at this point! Thanks for commenting and all the best to you!

  3. Dennis Jayy

    I agree with the foundation . Most times I walk from a foundation problem. It is usually not worth the effort. A few stress cracks is understandable in the house if you know how to read them.
    Banks are the last place to do business with, if possible.

  4. Kevin Polite

    @elizabeth faircloth: The take away for me is to continual marketing. This is great advice. I had 3 projects going on and now am down to 1, but my concern was that I’m doing all these deals with my money and haven’t so far needed private money, and if a deal came how was I going to finance or pay for it. As I’ve learned more about financing and have some good connections and more comfortable with wholesaling I’ve know I need to keep marketing because a deal come with owner financing or you just never know in this business. Again, great advice and thanks for sharing.

    • Elizabeth Faircloth

      Hi Kevin,
      You are so welcome! Not continually marketing has been a big lesson I have had to learn. With every learning – growth and expansion come with it as well!
      If you find the right deal, you can always find money partners or like you said wholesale the deal to another investor. When you come across a good deal, you have lots of options!
      All the best to you!!
      Liz

  5. Luisito Espanola

    Thank you for your post. I’m new to investing and I’m just curious. Can you share your numbers on this deal? ARV, repair cost, etc… What I learned is like @Kevin Polite continue marketing and don’t count your eggs until the basket is full. I mean it’s done when you sign the papers at closing.

    @Robert Easter is right about money and time being our inventory.

    • Elizabeth Faircloth

      Sure, Luisito! If I just fixed up the existing house, here would have been the #’s – purchase price – $63,000/repair cost – $50,000/ARV – $175,000. However, I was not certain that this option would work due to the foundation issues. I did run #’s if we were to take care of foundation issues and rebuild, and the #’s would be too close to make this deal worthwhile. Hope this helps! Thanks for commenting!

      • Kevin Yeats

        I’m a bit confused (happens …. often) or maybe I didn’t listen closely enough.

        Your offer was $63,000 above the seller’s asking price of $60,000. Was the $60,000 the amount owed by the current owner?

        You mentioned short sale. If indeed you agreed to the higher price of $78,000, the bank would have only received the amount owed to them ($60,000) with the owner pocketing any amount greater than amount owed and closing costs.

        • Elizabeth Faircloth

          Hi Kevin!
          Sure happy to clarify. My offer was $63,000. The seller owed $60,000 to the bank according to the contract I signed. Yes, this was a short sale. I think you are correct in your assumption. I do know that while the seller owned $60,000, there might have been fees in addition to this amount that may not have been included in the $60,000 which might have been why they wanted more than $63,000.
          Hope that helps,
          Liz

  6. Terry Kunneman

    I enjoyed hearing the advice as a brand new prospective real estate investor, Elizabeth. Thank you!

    What I valued most is the need to keep marketing while deals are closing. I learned a fourth bit of advice from your video, too: Even investors who’ve been at it for ten years still learn and grow! Great to know.

    Terry

  7. humphrey piccus

    I thought I heard you say the bank and the seller agreed to your offer of 63000. If they all agreed, that sounds like you have a contract in place with the banks signature on. Did they come back later and try to rescind their agreement? Once a contact is in place, why not sue them for performance on the contact?

    • Elizabeth Faircloth

      Hi Humphrey,
      Thanks for posting! The bank verbally agreed to accepting $63,000 to the realtor I was working with. Once the appraisal came back, they countered at a higher number. I did not actually have a signed contract with the bank, just a signed contract with the seller. Hope this helps!
      Thanks for sharing and reading!!
      Liz

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