It’s easy to listen to all the glitz and glam that comes with flipping houses. I mean, if you’ve seen at least ten shows on HGTV, you should be good to go on your first flip, right? Maybe not so much.
Honestly, on our first flip, a lot went wrong, and we were only able to eke out a tiny little $7,500 profit after many months of hard work.
This is the case study of a real-life flip by first time real estate investor Jessica Lauren Vine.
Where did the flip happen? Knoxville, TN
How did those numbers work out?
Source: MLS (Owner/agent)
Purchase Price: $75,000
Reno Cost: $94,036.47
Sale Price: $233,000
Also, subtract the money costs, agent fees, closing costs, seller credits, and holding costs.
Net Profit: $7,500
If you’re asking, “Why would you do so much work for so little money?” Well, it didn’t start out that way.
The purchase price was good, and the reno only went over by $10,000, but the real cost was the holding cost when our contractor flaked, and we ended up sitting on it for many months longer than we meant to and were paying 11.99% on interest from a hard money lender.
Originally, the profit was supposed to be $40,000, but we had a lot of lessons to learn, and boy, did we learn them.
What Is the MLS?
The MLS is the Multiple Listing System. It’s where properties are listed, and then you’ll likely see them on sites like Zillow or Redfin.
Making Major Beginner Mistakes
Here are a few of the mistakes I made on this flip (and my 2nd flip that is currently—FINALLY—on the market) so that you can hopefully avoid them.
1 – Not Getting Enough Quotes from Contractors
The truth is that when I started out in real estate, I was a major people pleaser. I did not want to get a lot of quotes on things because I wanted to make everyone happy, so if their price seemed good and I could make it work, I went with them.
That’s how we ended up with the terrible contractor that didn’t know how to do anything and, at one point, had a less-than-great record with the state. This dude alone delayed our project for months. It was a nightmare.
We bought the property, and he continued to delay, and finally, in November, we fired him. You should definitely never let a contractor string you along that long. And even if you get a reference from someone, make sure you at least get a couple more—and make sure they are recent!
Once you find an amazing contractor that will really help you rock through your projects.
2 – Not Researching Product Costs and Lead Times in Our Area
Honestly, we were super overwhelmed with all of the information we were getting, so our hope was that we could learn as little of the granular information as possible and put that in the hands of the professionals.
What we found out is that not knowing product costs and lead times is a great way to get taken advantage of by overquotes, and it’s also a great way to communicate with your construction teams. You really should know the difference between quartz, granite, marble, laminate, etc., when it comes to price, how easy it is to get, how easy it is to install, and all that fun stuff.
3 – Trusting Real Estate Agents
I love my real estate agents, but that’s no excuse for a real estate investor to not do their due diligence. At first, I really trusted agents and assumed they must know what they were talking about if they were buying and selling houses, but that’s not always the case. Also, just because an agent is a good agent, that doesn’t mean they understand the flip game.
4 – General Confusion
Since we were learning how all of this stuff worked, there was a lot of confusion in the beginning. And I almost don’t want to put this under mistakes because I feel like confusion is just going to happen when you start out in anything. Learning all the different acronyms and different things like that can have you scratching your head and saying, “What just happened here?”
In fact, once, I thought I was under contract on a house when I wasn’t, but that’s a story for another time. I’m just trying to convey that even the smartest people (did I toot my own horn just a little? Maybe…) can make some pretty goofy mistakes and not understand things. And that’s ok. It’s most important to just get started.
Why Did You Choose to Do This Deal?
Well, we had just started our real estate journey in mid-June, and with it being the beginning of July, I already felt like I was very behind since I didn’t have a project. So, we kept looking, and finally, we found one where the numbers would work. It just so happened to be the first deal that came to us that we knew would work if it worked the way we thought it should.
Another reason that we chose to do this house was that it required very little cash to close since the price point was so low. And it was at a price point that a lot of people could qualify for.
How Much Money Did I Walk Away With?
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Instead of the $40,000 we projected, we only walked away with $7,500. That was due to additional holding costs, a higher rehab cost, and lots of insanity with contractors. So, again, be careful when you hire contractors. You can’t have enough references.