My failed fix and flip was also my first rehab project. I purchased a home built in 1965, but it was in an upscale neighborhood near the beach in Clearwater, Florida. Although it was an older home with outdated appliances, it had many nice features including a pool and wood burning fireplace. The home was on a corner lot near schools, so I thought it had great resale potential. At the time of purchase, a comparable sales analysis provided the after repair value of $350,000. I purchased it for $260,000.
The Rehab Project
The extent of the rehab was tremendous. The electrical system was out dated and wouldn’t support the new appliances I installed so I had to replace it. The roof was also replaced, and the entire house was repainted inside and out. Most of the flooring was replaced with hardwood. Porcelain was used in the kitchen and two of the smaller bedrooms were carpeted. Sliding glass doors led from the master bedroom out to the sunroom. I felt it was awkward and would hurt the sale so they were removed, and a wall was installed. The pool was remarcited, and the yard was landscaped. The total cost of the rehab with materials and labor was $40,000.
The first mistake I made was where the home was located and the price. Larger, more expensive homes are more difficult to sell than mid-priced homes. In addition, I didn’t have a backup plan or reserve cash in case the home didn’t sell. I spent an excessive amount on the rehab and only had enough reserves left to cover holding costs for three months. I failed to research information on the home such as property taxes. I was more than a little shocked when I received a tax bill for $5200. I held the home for two years and rented it. After dealing with tenants who would not pay, damaged the home or broke the lease, I finally sold it for much less than I had invested in it.
I’ve since flipped other homes and now realize that it is much simpler if the home is moderately priced. If I had the opportunity to purchase that home again, I would have spent less on the rehab and reserved enough cash to hold it for appreciation value. It was a great investment opportunity but not a suitable fix and flip project. When choosing a property to flip, it is important to be aware of all the expenses involved and have a contingency plan if it doesn’t sell right away. Researching information on the number of home sales and days on the market can help determine how long it might take to resell the home.