I have flipped over 130 houses in my career and had some really good and really bad experiences. Some of these disasters have been my fault, and others, I could not control. While I have had some really bad situations, I try not to let them get me down. Instead, I try to learn from them. House flipping can be risky, and you have to be able to take the good with the bad. In the end, I have lost money on fewer than a handful of projects, and most of those lost very little. I have had problems with contractors, doing the work myself, lawsuits, project managers I hired, fires, and even drug houses.
If you let these disaster stories scare you, you may not be right for this business
I have many flip and rental property disaster stories. When you buy as many properties as I do, there are bound to be some crazy stories or things that don’t go as planned. I have had many more successes than failures in this business. If you let the bad stories convince you that this is not the right business for you, it probably is not the right business for you. You have to be willing to take some risks whenever you start a business, and that is what house flipping is. I went through a nightmare scenario when I had to evict some tenants from a rental. Many people could only see the damage that was done on this one rental, not all the money I had made from my other rentals that more than made up for it. Not to mention, I always assume there will be maintenance costs and vacancies on every rental. Those assumptions made up for all the costs I incurred. You can read more about that rental and see the video here.
If you want to start a business or invest in real estate, you have to be prepared for things not to go your way all the time. When things do not go right, they can be amazing learning experiences to make your business better. I have 21 flips going at the moment and have averaged over $30,000 in profit on the flips I complete. It is a very profitable business if you can handle the ups and the downs.
Worst house flipping experience with a contractor (took almost two years to complete)
A couple of years ago, I bought a house that was in really bad condition. It was completely gutted inside because another investor had started to flip it but decided the project was not for them. The house did have a newer roof and HVAC system, but almost everything else needed to be replaced. I bought the house on 4/28/14 and sold it on 2/26/16! There were a few reasons the flip took so long:
- I did not start on the flip for months because I did not have a contractor to work on the job. At the time, I had 11 flips going at once, which I thought was a lot then.
- I hired a contractor who had done a flip for me before, but I made many mistakes dealing with this contractor.
The contractor I used quoted me about $60,000 and around 3 months to do the work. I thought those numbers sounded fair, but things did not go as planned. The house was about 40 minutes away from me, and I did not visit it as often as I should. The contractor always told me to come by at certain times, and he made sure his entire crew was there working during those times. When I came around at other times, only one guy was working…and sometimes no one was. Time dragged on and on, and the work was not getting done. The contractor had a number of excuses, but then I made a huge mistake. I paid him a partial payment for the work he had done, and then my bookkeeper paid him again because I forgot to write “paid” on the invoice. He got paid in full for the job before he was done. After that, he would almost never work, and I had to threaten to sue him multiple times to get anything done. In the end, he finished the work, but it took him almost a year! I learned that I have to check on houses more often, and I can never pay anyone in full before they complete the work. Click the link below to see the entire write up with videos.
How hiring the wrong project manager cost me over $100,000
During that flip, I realized I had to have more help. I was hiring the contractors, keeping tabs on the contractors, finding deals, getting financing, and doing almost all the work in the flipping business myself. I decided to hire a project manager whose job would be to manage all the contractors and hire new people. I thought I had the perfect candidate because he was a contractor but also had management experience.
I interviewed and hired the contractor. I was very clear about his job description, but things got off to a rocky start. When I hired him during the summer of 2015, he said he had a mission trip planned to Africa in the fall. He wondered if he could leave for three weeks. I told him yes…if he got everything put in place beforehand to handle the flips and I could cover anything that came up while he was gone. Well, when he left, he never arranged for the houses to be winterized or to make sure the heat was on. We had no disasters, but I had to run around to all the houses, hire a plumber to get some winterized, and have the HVAC company check others. Things only got worse from there:
- He would not hire new contractors. I had multiple flips and rentals that needed to be repaired, and he basically used a few guys he knew already and some contractors I was already using to complete all the work. I told him at least four times we had to hire more contractors, and he always stated he was afraid we would not have enough work for them.
- He was not keeping tabs on the contractors we had or the projects we had going. On one house that needed a ton of work, he hired contractors to put stairs in, but the landing had less than 6 feet of ceiling height! We also had a giant hole in the back of the house where an addition was removed with no safety fence. There was even a two-foot gap in the back of the house where it routinely rained and snowed on our new stairs. I found out that he had not been to that project for 6 weeks while work was being done! I ended up selling this house at a loss before it was finished. I told Nikki (my current project manager, who is awesome) never to tell me how much money I lost on this house. You can see the original video here: https://youtu.be/GeqrXEZhN4E. Here is a progress video where numerous people on YouTube tell me things are being done wrong, but I did not listen to them: https://youtu.be/KDi8OyRWgcM.
- He ended up going on a second mission trip while things were not going well.
- He was not hiring sub contractors like I had asked him to, and budgets were out of control. It turns out his son and other friends were being hired for a lot of the work, and they were not very affordable or timely.
- It took him six months to fix a rental property because I think he forgot about the job. It took him three months to fix another rental that needed $2,500 in repairs that I told him was a priority.
- He pissed off contractors I had worked with for years because he would not call them back or communicate with them after they bid jobs for us.
I ended up firing him, and we got into a yelling match in my office. I was nice enough to give him a month to find another job while he continued to work for me, and he basically did not work for me that entire month. When I fired him, he even mentioned something about me having a Lamborghini being the reason he did not work so hard.
How I ended buying a meth house at the foreclosure sale that burned down
When I was flipping houses with my dad, we usually bought properties from the foreclosure sale. In Colorado, there used to be an owner’s redemption period, which meant there were ways to buys houses from the current owner after the foreclosure sale and redeem the house as the owner. A house we wanted was sold at the foreclosure auction to other investors. We went to the house, found the owners, and offered them $500 for a quit claim deed now and another $1,500 if we ended up buying the house and under the condition that it was in good shape.
We ended up redeeming the house and becoming the new owners. We gave the previous owners a month or so to move out, but right after the sale, the owner was busted for making meth in the house. He was smart enough to get gas, not pay for it, get followed by the cops, and leave his front door wide open. The cops went into the house and found them making meth. Yay…my dad and I had never had experience with meth houses, as this was back in 2003. The guy had the nerve to ask us if he still got his money while he was in jail. Then the house caught on fire and was totaled. It turns out one of the previous owners broke into the house while he was in jail and somehow caught the basement on fire, most likely on purpose. The firefighters came and cut holes in the roof—the whole 9 yards. We learned about this when we saw the house on the front page of the local paper the next day.
Both my dad and I were interviewed by the police because they figured we may have tried to burn it down and collect insurance once we found out it was a meth house. The cops who were reading us a list of interview questions from a sheet of paper decided we had nothing to do with it and figured out it was a friend of the previous owner. Eventually, the insurance company gave us money to rebuild the house, and we sold it a year or so later for a very small profit. The only thing that was kept on the house was the foundation.
From this flip, I learned how to spot a meth house. They had cameras all over the exterior, the house smelled horrible, and they would not let us in some rooms in the basement. The really sad part was they had kids who lived in the house while all this was going on.
How doing the work myself on a house flip was the dumbest thing I ever did
Back in 2006, I decided to buy and complete all the work on a flip myself. I was frustrated with my career and was looking for ideas to make more money in real estate. My brilliant idea was to find a flip, do all the work myself, save a ton of money, and therefore make a ton of money. It did not work.
I bought the house for $120,500 on 8/22/2006, and it needed a lot of work. I ended up replacing or repairing:
- The kitchen.
- The baths.
- A ton of other little stuff.
I even took out a wall and decided I needed to mud and texture over wood paneling. It took me about six months to do all the work, which was not done amazingly well because I was not a contractor. In fact, I still had to have a contractor come in and inspect everything I did to make sure I was not going to kill anyone. In the end, after being stressed out to no end, I sold the house for $164,900 in April of 2017. If you do the math, I lost money on that flip, even though I spent six months of my life working on it. But the kitchen did look okay ( I even put up crown molding!).
In the end, that was a really dumb thing to do, but I did learn a lot. I learned how to do much of the work on a flip, and if contractors try to BS me, I can call them out on it. I also learned never to do any work on a house ever unless it involves idly tearing off wall paper while I am bored listening to a contractor or something.
How my dad and I got tied up in a lawsuit where people thought they should get their house for free
As already mentioned, buying houses from the foreclosure sale can be risky. My dad and I had another situation where we lost money on a flip because the previous owners were convinced they were going to get the house they just lost to foreclosure for free. We bought the house at the foreclosure sale because it was a newer house and we could see most of the house through the windows. It looked to be in pretty good shape. Once we bought it, we had it re-keyed and went to take a look inside. The house was in really good shape, but one thing was really off. There was a newer BMW parked in the garage. You don’t get to keep cars you find in houses, unfortunately, so we knew we had to find the owners. We tracked them down in California, and they informed us that they were going to keep the house and the courts would give it to them for free.
My dad and I were both a bit surprised since we had gotten an Ownership and Encumbrance report from the title company that showed no lawsuits. It turns out the previous owners had filed a lawsuit the day before the foreclosure sale, so it did not show up on title when we had checked it out. The owners were convinced by a paralegal that they were going to get the house for free because of all the robo-signing lawsuits going on at the time. We told them they were not going to get the house. They did not make any payments, and they lost it to foreclosure. We even offered them $5,000 to go away, and they would not take it. We waited and waited and waited for the courts to hear the case, and it kept getting delayed. Finally, we hired our own attorneys to intervene in the case since we were not a part of it. The previous owners were suing the bank, not us. Our attorneys were able to get a judge to hear the case after $10,000 in legal fees, and the judge promptly threw out the case. We had to hold the house for over a year, and after paying legal fees, we ended up losing money on the deal. What I learned from that situation is that you have no control over some things, and some things cannot be fixed.
These are just five stories of how things have gone wrong in my flipping career. I have other horror stories from rentals and being an agent. Real estate can be stressful, but so can any business or any job for that matter. I have learned a lot from all of these situations, whether from a mistake I made or from something out of my control. I did not even mention my worst contractor, who cost me a ton of money both earlier this year and last year from mistakes he made. In the end, I have made much more money than I have lost, and real estate is an awesome business to be in. It is also very exciting at times. Hopefully, this article can help you avoid some of the mistakes I have made and not discourage you from venturing into the business.