Let’s call him John. A bright and hard worker
just trading time for dollars at his regular job. His first
house flipping experience could have been a lot better.
John was watching “Property Ladder” on the
A&E network one day and got the bright idea to flip a
house himself. After all, those people were making money. A
complimentary show “Flip This House” confirmed that money
could be made, lots of money.
If you haven’t seen Property Ladder, it’s a
television show that features first time home flippers.
Usually in that show the inexperienced flipper, egged on by
Kirsten Kemp, make almost a year’s salary or more by fixing up
an old house and selling it. Kirsten Kemp is a veteran of
flipping houses and is a bit too pretty to be mistaken for Bob
John figures that the people featured in these
shows are not all that bright and certainly he could do as
well. With a bit of nervousness John put a 10% down payment on
a home that needed repairs and begin the repair process. Or
The first thing John did was to ponder what
really needed to be fixed and if he needed a contractor to do
it. Two weeks went by.
After getting several bids, John chose a
contractor to come in and totally renovate the property for
$11,000. That included paint, carpet, appliances, and a new
wall to turn an open area into another bedroom. Once it was
agreed, the contactor was to start working. As luck would have
it, the contractor had some unfinished jobs and couldn’t start
for another two weeks. John was patient, after all it was
going to be a great flip and he was going to make money. It
was just another $800 for an extra month, no big deal.
Once the contractor started he stared with a
bang. Just like on the show “Flip this House” a big yellow
dumpster was deposited on the lawn and a crew started ripping
out wall paper and junk from the house. That demolition lasted
about two days.
The next thing this “go getter” contractor did
was to disappear for another two weeks. The excuse: Men had
quit and another job was pushing them behind.
To make a long story short, the contract took 8
months to get nearly complete, and then John pulled the plug
and fired the contractor.
John paid others to come in a finish what was
started. He had now 9 months of house payments into the
project, 10% down, and construction costs.
After the house was ready, John listed it with
an agent, and it sat another month. John lowered the price a
bit with the prompting of the agent, but got cold feet after
two weeks and wanted to raise it again. Too late! The house
had a full price offer. Good news, sort of.
All said and done John made a little money and
got a whole lot of experience. It was a flop, but at least he
didn’t lose money.
Let’s review what John, now wiser, could have
done differently on his first flip.
Firstly, putting 10% is ok, but not ideal. John
should have used private money or have financed the property
at 100%. That money could have been used for fix up rather
than being tied up in the property.
Second. John waited too long to decide what he
was going to do. He should have known before he bought the
property what his plan was. This would have saved two weeks at
Third. While John got a referral for the
contractor, he should have gotten more bids. A deadline for
the completion of the job, with penalties, should have been
written in the contract.
Fourth. John waited too long to fire the
contractor once he knew there was a problem. He was afraid
that he would still owe the full amount if he terminated the
contractor before the work was done. A proper contract would
have prevented that fear.
Sixth. John listed with a realtor too early.
The property should have been for sale by owner from day one
and John should have tried to market the property himself.
Seventh. The price was set, and then changed
too quickly. Better marketing would have netted John with a
nicer profit. John should have known the selling price even
before buying the property.
A lot of mistakes were made, but John still
made a slim profit. All is well that ends well, but you don’t
need to make these same mistakes. Learn from John.