As a real estate broker, I have successfully fixed and flipped many houses. But things can sometimes go wrong. Here’s my sad tale about a house flip that flopped, along with some lessons I learned in the process.
Lesson #1: Expect the unexpected.
I closed the purchase of a home I expected to fix and flip just three days before a major hurricane hit the area. The storm removed most of the roof. The $1,000 deductible was the first unexpected cost in my repair budget.
To keep the house occupied during the renovation I worked out a labor for rent exchange with a painter. Two months later, with very little paint work done, the tenants skipped out leaving the heat turned off. A sudden winter cold snap froze and burst pipes under the slab. The repair required tunneling under the slab and jack hammering through the footings to replace the burst pipes.
Lesson #2: Budget extra money for contingencies.
Costs can mount up quickly. This time, the insurance company refused to pay the full cost of the $14,000 repair bill, leaving me to absorb $8,000 of the cost. Ouch! To make matters worse, the insurance company sent me a 30 day notice of cancellation due to excessive claims expense.
Lesson #3: Fix and flip quickly.
I pushed ahead to finish the repairs as quickly as possible. However, with the house unguarded, a local gang soon began targeting the home. The gang stole a storage building, broke into the house twice, and did more than $14,000 worth of vandalism damage. Since the cancellation date had not yet arrived, I filed a third insurance claim resulting in another $1,000 deductible to pay. Now at least six months behind schedule, I faced paying interest expense to renew my loan.
Lesson #4: If you don’t get out fast, you may get trapped.
The inability to flip and fix quickly put me into the midst of the recent real estate market crash. Flipping the house for a profit was no longer possible because its value had dropped below my cost.
Finding myself trapped with a house flip that flopped, I sold my own home and moved into the fixer upper.. This allowed me to obtain a homeowner insurance policy, get a tax break for ownership, take out a low fixed rate mortgage, pay down the loan, and guard the property. Market conditions are much better so now, I’m hoping to finally complete this the house flip!
More from this author:
Five Tips For Hassle Free Rental Property Management