In this post Aiden Win tells a story about a friend of his and how this first time house flippers experience wasn’t the most profitable. We can all learn from this experience.
One of the things that I’m always asked by curious
wannabe real estate investors is, “Aren’t you afraid of failure?”.
The answer to this question is yes.
If you have any interest in investing in real estate, it’s
important to keep an open mind and realize that not everyone enjoys great success. Every transaction is a gamble that could pay out great, pay out only marginally and, sometimes, regrettably, not pay out at all.
Even the most successful have experienced their fair share of
failure or investments that didn’t pan out like they had originally intended.
A good real estate investor refuses to be deterred by the
occasional setback or failure. They learn from their mistakes and move on. From my experience, what I’ve found is you very rarely make the same mistake more than once. You learn from their experience.
I will call my friend John. His actual name is so uncommon that he’d know I was talking about him. “John” is a bright and hard worker who felt that he was 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, makes 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 Vila.
John figured that the people featured in these shows are not all that bright and certainly he could do as well. I mean, have you watched these shows? You literally want to scream at the television set at some of the decisions these people make! Certainly you could do better, right?
With a bit of nervousness John put a 10% down payment on a home that needed repairs and begin the repair process. Or did he? John pondered 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 contractor 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.
1- 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.
2- 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 least.
3- 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.
4- 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.
5- 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.
6- 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.
My reason for sharing John’s story is to keep you from possibly
making a few of the mistakes that John – and really, many other investors – have made at one point or another. All is well that ends well, but you don’t need to make these same mistakes. Learn from John.
To Your Success!
Aiden Win
Mr. Foreclosure
Canada’s Largest Database Goldmine Of Pre-Foreclosure Real Estate For Up To 50% Below Market!
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