July 12, 2017 BY COSMO MORABBI, THE GF PEACH GUY
If you are looking for a guide on how to flip a house. This is not it.
Instead, you are going to get the exact opposite, and I hope that through our failures you can find your success.
Here are the lessons we learned the extremely hard way.
You need a budget. Without one, we were doomed from the start. At this point we didn't even have a monthly budget of our own expenses. If you are new to flipping you may want to check out Biggerpockets. They are an online community (property owners, flippers, and investors) filled with a plethora of resources and networking opportunities to getting started with building wealth through rental homes and flipping.
We had been putting in offers for several months before saying what the heck? Let's buy it.
The only person that got to see the house prior to purchase was my mother in law (please don't get upset at me), who reported that "it looked nice." Yes, this was stupid, but it gets worse.
Make sure you get a great inspection if you are not capable of doing one yourself. And make sure you are there!
We weren't able to attend the inspection when it was done on this home. Unfortunately, the nice and concise report on the home failed to go into the significant amount of work that this home needed.
Here's where it gets even more interesting. In our case, we trusted two family friends. The first was a older plumber who showed up on time and got everything done at the price and within the time frame he stated.
The second was an electrician. He lied about everything to us. About half way through the job, this guy disappeared, hid from us, got a divorce, and fled the state. Which leads us to...
We never checked the electrician's license because he was a family friend for over 15 years. He was a commercial electrician, but he claimed to have a residential business for years. He even went as far as to get one of his buddies to lie to us about getting his services.
Every state has a open library of the contractor licences. For instance, here's South Carolina's website, where we should have gone before hiring this guy.
As you can guess, this guy was no where to be registered and we later found out he lost his license in another state for unethical behavior.
When we decided to work with our family friend, we thought it would be great to provide half pay now and half pay at completion. This was a horrible idea. Right after the first days of work, this guy was asking for more money. This is after he received thousands of dollars more than the price of materials.
After this guy disappeared we started using contracted payouts and things went smoothly with guys getting jobs done and never asking for more pay.
Being a homeowner does not make you an experienced flipper. When we were fixing up this house we assumed that "smaller" jobs like replacing a few doors, repaving cement, skimming and painting rooms, removing poor landscaping were jobs we could get done quickly and easily.
Just about every job we did took 2-3 times the amount of time we initially thought. My nights went sleepless as I continuously sanded walls and painted.
When we bought the home we didn't realize that neighborhoods in the area varied greatly from block to block. In our case, we were 1 block from a nice elementary school, but our street was filled with crime, a death, 2 abandoned homes, and late night ruckus.
Try selling this home for a premium price and every realtor will think your crazy...
And that is exactly what several realtors said.
We sold the home 8 months after purchasing it. After doing an analysis (I know, we should have done it before) we ended up losing an estimated $36,000. That does not include the amount of interest or money we lost had they gone towards student loan debt or investments.
Had we lost anymore, I think I wouldn't have been eligible for loans my last semester of graduate school and things could have gotten really ugly fast (if they weren't already). The majority of the money we used outside of a hard money loan was extra money taken from grad plus loans which put us out even further.
If we haven't scared you away from doing your first flip, we hope you are able to say "wow, they are dumb, I will never make those mistakes." And we hope that is exactly what you do should you ever flip another home
This post can continue for 10,000 words (there is so much craziness from this flip including neighbors, a guitar, pickles, and the cops), but these are lessons that hit us the hardest.
We plan to stay away from real estate investing for a very long time, maybe a decade or so. While this will likely be the biggest financial disaster in our lives, we know that the lessons we learned and the motivation we gained to be better with money can not be replaced. It is why we started budgeting, side hustles, and saving money which all led to us starting The GF Peach.