I watched a show called "Property Ladder" this weekend. It was about a young man who was an IT professional. One day he decided to quit his job and become a full time property flipper. His only experience was that he had read some books and course material. He didn't seem to have any experience actually doing "hands-on" work. Needless to say it was a shock to his wife who became the sole wage earner.
He purchased a house and got some advice from a real estate expert (part of the show), which he proceeded to ignore. He was acting as a general contractor but failed to stay at the job site and the subs didn't show up and didn't do the work per code. (Since he wasn't employed, I wonder what the heck he did all day?) He had a time table of 4 weeks that stretched to 12 and he doubled his budget. Finally, he overpriced his home compared to nicer homes on the market.
This was the first of these shows (Like Flip this or that House) which showed how to screw up a job. It was refreshing to say the least and at least allowed me to feel that I wasn't as bad a screw up in the flipping business. But I have made some mistakes this year.
I purchased one house in Buffalo that I thought I could flip wholesale easily. The seller owed $71k and the bank gave it to me for $5k. What a great deal- right? Well, I had taken Don DeRosa's advice and agreed to pay all seller costs - like Title search, back fees, etc. In addition, my attorney way over charged me ($2500) for what services he did. So I ended up spending $10k to acquire the house. I overestimated what houses in the market would sell for and probably got a little too greedy, pricing the house at $25k. We've had one verbal offer of $17 which I accepted but otherwise the house has not been shown for 3 months now and been on the market for 6 months.
Lessons learned: Don't offer to pay seller costs and start off at a lower price.
A second house I purchased was in a nice neighborhood. I had estimated the cost to rehab was only going to be about $10k but I doubled that. After the snow melted, I could see the roof was no good and once the curtains removed saw that the windows needed to be replaced. My wife and I did all of the work (I even learned how to install replacement windows), so we didn't need to bear the expense of contractors. On the downside, all of the work doubled our timeline from 2 to 4 months. The main killer for this house has been the carrying costs. We bought the house subject to the existing mortgage rather than use hard money (otherwise, we'd have gone broke already). Still, at $2k per month, that's $12k of carrying costs eating into any profit we had hoped to make.
Lessons learned: I need to increase my budget for unexpected problems. In the Buffalo market I also need to budget for much longer holding periods. This is not LA.
We have also tried to market these houses either FSBO or through flat fee listing. Neither has worked and now I am listing with full service agents. I'm hoping that will make a difference..
On the plus side, I didn't quit my day job, so I can make the payments and we are not facing foreclosure. Since we know a lot and learned a lot we also have not been ripped off by contractors. I had a boiler replaced in one house and 3 contractors gave me $5k estimates. The fourth finally understood want I wanted done and did the job for $2500. I was also able to get a really good price on the roof by finding a roofing wholesale company that sold me materials as a contractor.
I will probably have to write this year off as a learning experience. I'm not sure I will turn a profit yet. But it could happen.