The last couple of years, I have had many flips going at one time. I think the most I have had is 11 at once and the least amount I have had is 6 at one time. It can be challenging having that many flips go at one time. It can also be very lucrative if you are repairing and selling them quickly, which I have had problems with. In fact I just sold a flip today (2/26/2016) that I bought back in the middle of 2014! It should never take a flipper over one year to flip a house unless it is a massive project or there are other reasons involved for holding a property that long. In my case I had many reasons why this flip took so long and none of them were planned or strategic. I have had major problems with contractors and a project manager over the last year that have really caused me some headaches, but these problems also forced me to change my business for the better.
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What were the numbers on this flip?
Even though I held this property for about 18 months, I still managed to make money on it. I was lucky that our market kept increasing while I was holding the property. I would never count on an increasing market to make money, but it did work in my favor this time. We joke about this in one of my coaching programs how increasing markets can instill negative habits when flipping houses and reward poor decisions. Here are the numbers on this property:
Purchase price: $75,000
Rehab costs: $70,000
Financing costs: $7,000
Holding costs: $2,500
Selling costs: $8,000
Commission earned: -$2,250
Total costs: $168,000
While it sucks I had so much money tied up in this property for so long, I still made about $50,000 on this flip. When I first bought this house I thought I would have about $40,000 to $50,000 of repair costs into it and it would be worth about $185,000. If the market had not increased greatly I would have barely made any money.
Why did this flip cost so much more to repair than I had anticipated?
Here are the before and after videos on this fix and flip:
As you can see the home needed a lot of work! When I bought it, I knew it would be a huge project, but I also saw a lot of potential. I had two repair bids completed on the home by contractors I had used before. The bids came in at $60,000 and $51,000 to complete all the repairs including electrical, plumbing, drywall, flooring, paint, kitchen, baths, fixtures and more. I decided to use the company that gave the lower bid and they said it would take 2.5 months with their crew to finish. Since it was a big job I agreed to pay them for work done as the job progressed.
Every couple of weeks the contractor would call and I would meet him out there to see all his guys working and the progress they were making. Things were moving along well, but a little slower than anticipated. I paid him a couple of times for work done and then we had a problem. I paid the contractor in person with a check and then I would file the invoice with my accounting person. On two invoices she thought I never paid him and she paid him as well. We caught this the second time and I told the contractor we accidentally sent you another check, please do not cash it. Well he cashed it anyway and he ended up receiving the entire jobs payment and a little more before he was done. On top of paying the contractor too much, we had some foundation work and grading work that we had to do after the inspection by the buyer was done. After all was said and done, I was about $70,000 into the repairs on this property.
Why did it take me so long to flip this house?
I bought this house in the summer of 2014, actually April, but if I say summer it doesn’t sound quite as bad. At the time I bought this house, I had the capacity to do maybe four or five flips at a time with my contractors. For some reason I thought it would be a good idea to have ten flips at once. After buying this house I stuck a for sale by owner sign on it, and I let it sit there for about three months while I figured out what I would do with it. No one wanted to buy it, which wasn’t surprising since I was not really marketing it. Finally I decided I needed to fix it up and one of my contractors was finishing up a job for me. He bid $60,000 to fix it up, which I thought was too high so I waited even longer to do anything with the property. One of my other contractors, had finished up a job, his first job with me and did a decent job. I decided to let him bid this job since he had a decent sized crew.
His bid came in at $51,000 and I decided to give him the job. At this point it was now November and he was supposed to start work on the project in December. He had some delays and did not start work until January. Like I said previously, things were moving along until he paid in full and then some. At that point the work basically stopped dead. He stopped calling me, he stopped returning calls and texts and no one was working at the house when I showed up. After threatening to sue him, he finally called me back and gave me a sob story about his partner leaving him and stealing all his money. I should have cut ties with him and sued him at that point, but I wanted to get my money’s worth for what I paid him. He ended up working about 1 day every two weeks and every week he told me the house would be done the next week. That went on for about 6 months! Yes, this was mostly my fault for believing him and not doing something different sooner. In the end, he finished the job in November. His 2.5 month estimate turned into 11 months. After all of this, the cabinets, counters, some plumbing and electrical were done wrong and had to be fixed. He also tried to use used materials for fixtures and did some other shady thing as well. The really sad part is he brought his son with him a couple of times when talking to me, and this is how he is teaching his son to do business.
Should I have sued the contractor? Probably, but I did not because I knew he had no money, and he got in a car accident at the end where someone was killed. I wanted to be done with him and never deal with or see him again so I let it go. However, that did not stop me from leaving a lot of reviews about his company and his business practices. I debated about posting his company online and in the end I decided I would, because I don’t want other investors in the area to get taken advantage of. Omni Services out of Loveland Colorado is who did the work.
How has my fix and flip business changed thanks to what I learned in the last year?
I learned a lot in the last year! Not only did I have this amazing experience on this flip, but I also hired a project manager to run my flip re-models that did not work out well. Part of that was my fault as well for not overseeing things well enough and not verifying work was being done that I had been told was being done. One reason I hired a project manager was so I would not have to spend all my time overseeing projects and verifying work, but you can’t always trust people. It may seem like I am complaining a lot, but the good news is we have completely revamped our systems and I now have people on my team handling the remodel projects. We have implemented systems that get bids started ASAP, work started ASAP and homes completed ASAP. I think we have already done more work this year on houses than most of last year! I have to thank Nikki and John on my team for that.
Here are some lessons I learned (I should have known all of this already)
- Never pay your contractors money for work they have not done
- Always keep tabs on your contractors (visit the site at least once a week)
- When you hire new people, check the work they are doing no matter how much you trust them
- Sometimes the best people for the job are already on your team
- The more systems you have in place, the smoother things will run
The last year has been more stressful than I would have liked, but if everything went perfect all the time, the good times would not be as good. If all of this would not have happened, my systems would not be as good as they are now. Since we have improved everything, I figured we better test out how good it runs. I am buying five new properties in March and will have a record 12 flips at once!
If you would like to learn more about flipping including how to calculate costs, how to find deals and how to finance them check out my book Fix and Flip Your Way to Financial Freedom, which is now available in paperback.