In October of 2013, I did a case study about a fix and flip I had just purchased. The article, How to fix and flip a houses; case study #1, discussed the costs, repairs and potential profit on the fix and flip. I sold the property on May 23, 2014 for a nice profit, but things did not go exactly as I planned. The repairs were much more than I planned for, but I also sold the property for more than I thought. I had some major problems with my contractor on this property and it took way too long to repair and sell. I also learned a lot about how to improve my fix and flipping business with this property.
For more information on my fix and flipping and long-term rentals, check out my complete guide to purchasing long-term rental properties.
My estimates on repairs and profits for this fix and flip
I bought this home for $76,299 and I estimated it would need about $23,500 in repairs. I usually under-estimate repairs so I always add another $5,000 as a buffer on my expected costs for unknown items. I thought the home would sell for $160,000 leaving me a profit of just over $42,000 after all expenses and not factoring in money I make on commissions. Here are the estimated repairs I talked about in the first case study article.
Repair ceiling $2,500
Replace kitchen $5,000
Re-finish hardwood $1,200
New interior paint $2,000
New exterior paint $2,000
Replace windows $1,500
Install central heating $3,000
New fixtures $1,000
Refurbish bath $1,600
New doors $1,000
What were the costs on this fix and flip?
My repair cost estimate was way off on this house for a number of reasons. The total repairs were about $42,000 after all was said and done. I had some unexpected costs and my contractor cost me money as well on this fix and flip. I ended up selling the house for $175,000 which is more than I had planned on, which helped counter the extra repair costs. To be honest I thought this home would be worth over $170,000 when I bought it, but it was in a unique neighborhood and the value was not easy to determine. I like to use conservative numbers when I fix and flip, especially when I am not positive about what a home will be worth after it is repaired.
Additional costs like this pop up all the time on fix and flips and this is why you need to have capital to be a successful fix and flipper.
How much money did I make on this fix an flip?
I wrote an article about how much money you can make fix and flipping homes. On this fix and flip I made $43,000, not including the commissions I made on the purchase and sale of the home as a real estate agent. I have a 100% split with my broker so I get to keep all the commissions on my own deals. I made about$2,300 on the purchase of the home and about $4,300 on the sale of the home in commissions. My total profit was almost $50,000 on this fix and flip.
For more reasons why you should become a real estate agent if you want to be a real estate investors check out this article.
Why were the repairs so much more on this fix and flip than I estimated?
This house had a structural problem; a support wall had been taken out and the ceiling had dropped three inches. My contractor told me it would not be a big issue to fix the ceiling before I bought the house, but it was a big issue. The contractor had to rebuild the trusses and most of the roof. A bonus of rebuilding the roof was he was able to vault the living room ceiling, but the additional roof work cost me at least $5,000 more than I had planned.
My contractor also told me the shingles on the roof were fine and it did not need new shingles. It turns out he was wrong, the home did need new shingles and that was another $5,000 that I was not planning on.
My contractor also hired a new worker and this worker was not up to my standards. I am sure he was not working as much as the contractor paid him for and that cost were passed on to me. Every time I went to the property the worker was in his truck on his phone or listening to music. One time he jumped out real quick and said he just had to take a break in his truck to get warm. I went in the house and it was 75 degrees with the furnace blasting! I never trusted this worker and I told my contractor this, but he promised me he was great and was doing an awesome job. I am guessing the extra time this worker took to make repairs cost me another $2,500.
I thought we could re-finish the hardwood floors on this house, but it turns out the hardwood was not complete when we uncovered it. We had to lay carpet, which cost another $2,000 more than I had planned on. The heating system was $4,500 installed instead of $3,000, because they had to run all new ducts and vents. We also ran into some electrical and plumbing issues that we were not planning on.
There were $20,000 more in repairs than I counted on, which is a huge number! I highly suggest you read my article on how to find a great contractor and how to make sure your contractor is doing a good job to avoid these mistakes.
The biggest problem with my contractor on this flip
The reason I had so many problems with the repairs on this fix and flip was my contractor was not present. He hired his workers and expected them to do everything right with no supervision. He was never at the house and did not know what was going on. He told me the repairs were done four times, but when I went to the house the repairs weren’t done every time! His worker was telling him the work was done when it wasn’t, and my contractor did not even go to the house to make sure the work was done.
The work that was done on the house was not done well. Kitchen cabinets were hung crooked and the new ceiling was not taped and textured smoothly. The paint was sloppy and many other issues were present. I had to have work redone multiple times and although the contractor said I wasn’t being charged for the extra work, I will never know. All this extra work took a lot of time. The house was not ready to sell until 2/27/2014 and the contractor started working on it in November. It should never take four months to repair a house, unless the entire home is being rebuilt.
Why I don’t use this contractor anymore on fix and flips
I had a really long talk with this contractor about the work being done, the time it took and quality of the work. He agreed there were major issues and he promised not to use this worker again on my houses. He said he would concentrate on speed and quality on all future projects.
I decided to give him another chance since I had worked with this contractor for years. On the next house my contractor use the same worker! He took forever to make repairs and hung the cabinets crooked again! I also was not impressed with the amount of work done for the price I was being charged. I have a couple of new contractors who have done awesome and I will never use this contractor again.
The selling process on this fix and flip case study
When this house was finally ready to sell; I decided to push my luck a little on the asking price. Since we now had vaulted ceilings and everything was rebuilt, I listed the home for $189,900. I had many showings, but no offers on the home. Most of the feedback mentioned the neighborhood as being the deciding factor for buyers not making an offer. After three weeks and no offers, I lowered the price to $177,900 and I received an offer in two days for $175,000. I accepted the offer right away and on we went to closing…..
During the buyer’s inspection is when they found the roof issues that my contractor said did not exist. I had a roofer check out the roof and the roofer agreed the house needed a new roof. We completed the roof and made some other minor repairs to the home. The buyers were using USDA financing on the home and I was worried about the appraisal coming in at value, since there were so few comps in the neighborhood. The appraisal came in at value, but the lender said they needed a second appraisal, because the selling price was so much higher than what I bought the home for. Thankfully, the second appraisal came in at value as well! USDA loans can take a while to close and we finally closed on the house 5/23/2014.
For more information on how to fix and flips homes including how to find properties, how to finance them, how to repair them and how to make the most money fix and flipping, check out my new book Fix and Flip Your Way to Financial Freedom. The book is $9.99 and available at Amazon as a 171 page eBook here. You can also buy a PDF version of the book in the InvestFourMore store here.
Fix and flipping is always interesting
I love to fix and flip homes because of the money you can make and because it is always interesting. I ran into a lot of problems on this house, but I had a feeling I would based on the condition and neighborhood it was in. To find a home that has a $100,000 spread between the purchase price and selling price, there are going to be major issues or someone else would have bought it at a higher price.
I am charging full speed ahead with the fix and flips. I have 8 now that are in various stages of repair or waiting for a contractor to start working on them. I just listed a fix and flip last week that I hope will sell soon. With my new contractors, I am hoping to reduce the repair times from 4 months to one or maybe two months on these homes.