Real Estate Profits: The OMGs of House Flipping
Things to know when flipping a house
When you flip a home, you may wanna yell….LOOK Out Below.
When I did my first flip, uh, I should have been a little more aware of what could go wrong. But I wasn’t.
Here’s the story.
The market was hot. Some would argue now that it was too hot. But what did I know Robert Kiyosaki, Dolf de Roos and the gang all said it was a great time to buy.
Heck even the Today Show said it was a good idea. Not to mention, a friend of mine told me his story, how he worked his whole life, but the real money he made was through real estate sales. He owned a home in Hawaii and sold it for a handsome profit, and it put him on the map financially.
Get my gist?
Then came me….clueless. Armed with a bunch of books as my arsenal, I tackled a bad idea as I soon discovered. As said…he charged the field, fought valiantly and died swiftly.
So on to what happened.
I scouted out the area….drove up and down the streets in search for perfect beginning of my real estate riches. The Florida sun beat down on me as I jumped out occasionally grabbing the “for sale” info from the blasted little round tubes holding the current info on a property.
I came to really like the see through ones because I could tell if they had info in them before I bothered getting out of the car.
The worst was when they had everything about the property except a price. Ugh. What do ya mean, I have to call?
Eventually, there it was. It was the beater on the block and I was going to rehab it make some moolala/dinero, you dig?
The property was originally built in 1932. I bought it in an area that I felt was up-and-coming. You know how all of the gurus say buy in an area that is trending well…..
At the time in Florida there was an area that was very similar to the one I was buying in and it did very well. The home values had gone through the roof and I expected the same kind of trend to occur in this other area. My reasoning was simple. I believed that the other markets were getting too hot in the costs for homes were over inflated, so naturally the trend would progress toward the south and encompass this extended area outside of Orlando.
That was my rationale, but the truth was I didn’t have much money to invest, so I had to buy something cheap. So, I grabbed the property and I dumped in $40,000 to improve it. That’s not to mention the down payment.
Hang on just for a sec. I forgot to mention that at first I tried to only put a few grand in it to rent it out.
That didn’t work out so well. Most of the renters I attracted were pretty down on their luck or just in a bad situation all together. I ended up with 7 sets of renters in roughly 7 months. 1 set was made up of group of Mexican migrant workers. I thought they were gonna be great because renting my house was cheaper than renting a hotel for them to stay in which they had been doing. But, in the absence of maid service, they made it filthy and skipped on me to avoid paying rent. Apparently they pissed off all my neighbors and so everyone despised me when I showed up.
Yes, the cops were called a few times and as a courtesy, the neighbors called me to complain too. Nightmare on that street…at least for me.
Then I had some tenants that seemed they were going to be great. They were young and in love. Surely they’d be great, but when faced with the no pet policy, they simply ignored it and added 3 dogs to the mix. They ended up with a flea problem so bad that they moved out and the upstairs renters had to move out as well.
I couldn’t stand in the house without being attacked by hundreds of fleas. It was bad. The house was destroyed.
Flipping Houses Gone Wrong.
Once I began replacing the exterior with Hardy board we found that none of the structure was plum. Everything had settled over the past eight years or so and so everything was off. I actually had a group of pretty good carpenters that did the redid a lot of the framing but it was a real challenge.
The other major problem with the property was that it had a federal Pacific electrical system. These are all outdated and very dangerous. So I had to have everything redone.
Everything got gutted.
Being that the original price was $149,000 I reasoned that if I can keep it under $200,000 and it were worth around $250,000 I’d come out smelling pretty squeaky.
Boy was I wrong. the problem was the location. The property was close to major roadway. The traffic at night was so loud it would wake you up. Blinded by profits, I believed I could improve it to the point where I could sell it and make a handsome $40,000 or maybe even $50,000.
I spent countless mornings at 5 AM and evenings up until 11 PM working on the property myself. The problem was my general contractor really screwed me. He said he’d do a lot of stuff and then he didn’t do it. By that time, I was out of money and thought of getting attorneys involved was a distant idea.
What to look for when flipping a house
I paid the GC up front because if I paid him up front he agreed to give me a major discount. Unfortunately that bit me in the butt.
I remember showing up at the property one day where one of the contractors had decided to just start living there rent free. I called GC and explained that he thought it was a good idea, and it would allow us to get the job done faster.
Looking back it was pretty funny to show up at my property only to find that somebody was living there.
What was worse is that he had disconnected the water faucet system upstairs and so he just ran the water all day and all night into the bathroom.
He said he didn’t feel like going outside to turn the water off so we just left it running in the bathtub.
I can’t remember exactly how much my water bill was, but I believe it was around $700.
The other problem was I had not verified whether the contractor was a general contractor and if he actually pulled the permits necessary to make the modifications on the home.
I remember thinking he was the pro. He’d do it right.
I was ripped from Never Neverland back to reality real fast and furiously when the city inspector showed up.
He put a giant red tag on my front door requiring me to cease all operations until I could prove that I had substantial architectural drawings done for the changes that I was doing on the inside and pulled the appropriate permits.
Yes, it was a real nightmare. It took me nearly a year to rehab that home. I ended up trying to be my own general contractor. However as the renovations were substantial enough to require a general contractor. It was further complicated by the fact that it was a second home and not a primary residence. I found a general contractor who allowed me to use his license in order to pull the proper permitting to move the project forward.
Then I had to go find my own contractors for framing, drywall, plumbing, and electrical.
Flipping houses for a living
So that was my first real taste of being a contractor in renovating a property on my own.
Eventually the market collapsed and I was stuck with this home and realized that I could not rent it out. So the next best thing was for me to move into that home and rent out my first home that I had. This was a good move because it allowed me to pull the rest of the permits myself. I ended up with a pretty decent relationship with the city and they realized that I wasn’t trying to cut any corners.
But the end result was an over improved home.
My wife (at the time) was pissed when I told her we had to leave our current home and move into the rental. I remember her saying, “I’ll move to that city when hell freezes over.”
When I could make the mortgages without the move, she finally agreed to come along.
Needless to say, we are no longer together. That’s a whole different story all together.
