House Flip Sob Stories
Posted by Craig
May 6th, 2008
Flipping
What you don’t see on many of the television shows about flipping houses are the many sad tales of promising flips gone wrong. These epic tales of woe are often the precursors to financial hardships for quite some time as those who fail at their property flips work on recovering from their heavy losses and moving on with their lives.
Some are hit harder than others but the snowball effect of a bad flip are often not even hinted out on the prime time televisions shows that are so proud of the many success stories that arise because of serious and studious efforts in the house flipping arena.
If you are planning to flip a house for a real estate investment you really need to take a step back and decide that you are absolutely not going to be one of the house flip sob stories that are rumored about in Internet chat rooms. In fact, you want to be listed among the success stories. Unfortunately that takes a great deal of proper planning that is almost never shown on these television shows. In fact, to put forth your best effort you need to devote as much time to studying and planning properties, prices, and home values in your area before you even begin to search for your first property to flip as you need to invest in the entire process of actually working on your first flip. In other words, months worth of planning need to go into your first property pick in order to lower the risk of failure and to greatly improve the odds of success.
The second thing you need to do when planning your first flip and avoiding a sad tale and a sob story is to be realistic and avoid great expectations. With your first flip you are darned lucky to turn a profit at all. If you are expecting to make more money on your first flip than you made last year as a full time employee you might need to make other plans. The first flip rarely goes as expected.
Third, you need to set aside at least twice as much money (preferably three times as much) as you think you will need for the work on the property in order to cover the actual costs that will be needed. There are inevitably tools, permits, supplies, and labor that wasn’t counted on in the initial budget figures as well as the tendency to seriously underestimate the cost of the materials that will be needed in order to get the job done. If you don’t have that much or can’t spend that much and walk away without a loss then the property you are considering might not be the best property for your first flip.
Finally you need to plan everything. Every day needs to be fully planned before you show up to work on the property and you need to have all the materials you will need on hand from lunch to drinks, to tools and supplies. Trips to the hardware store, lunch breaks, and coffee runs quickly kill a day and any productivity that may have been made during that day. Avoid these costly delays by proper planning and you will discover that you have a real estate investing success story worth writing home about.
Wonderful post. I enjoyed reading it!
I must agree with you that planning ahead is key! Keep up the good work!
Posted on May 6th, 2008 at 6:40 pm
One of the most important things I learned when flipping property is that you have to purchase the property at a wholesale price. Don’t go into a project thinking that you are going to raise the price ceiling in the neighborhood. That rarely happens. If a neighborhood supports prices between $300k and $350k then try to buy a home below $300k, fix it up and then sell at retail. Don’t figure that you are going to sell for $375k.
Posted on May 8th, 2008 at 3:08 pm
House flipping has always been something that I’ve been interested in, but at this point in my life it’s too big of a risk for me to take. There is definitely some good information in your article though and there’s a bunch more articles on your blog I want to check out. Like you said about the prime time TV shows, I really wish sometimes they’d show failed flips on there too, or just an average person’s first flip. That would be much more interesting to me than just to watch an already-pro do their 1000th flip.
Posted on May 12th, 2008 at 5:00 am
I agree with this post, if you want to be successful you need to work hard for it. If you watched Pursuit of Happiness you’ll know what I’m talking about. In order to be happy, you should strive hard until you get what you want or if not, you shouldn’t easily give up.
Posted on May 12th, 2008 at 9:34 am
There are actually a lot of flipping shows where the flippers don’t know what they’re doing, run into lots of problems, go way over budget, overprice the house, and then are stuck with it for months and not receive a single offer. Certain shows definitely romanticize the whole thing and make it seem like easy money when it really isn’t. Flipping is going to die down a lot now, though. I doubt there were will be as many first time flippers in the market who think they can just quit their day job and make tens of thousands of dollars in a couple of months.
Posted on May 13th, 2008 at 6:54 pm
I agree. Nobody seems to understand that flipping houses takes a lot more effort than it looks like on TV. The preperation before a house is selected is sometimes more than half the work. It can take a long time just locating a house that is worth flipping.
Posted on May 18th, 2008 at 3:12 am
Unfortunately, there are people who think they can flip JUST BECAUSE they saw someone doing on TV. Shows on networks like HGTV, TLC, etc show successes.
As MVaughn stated, flipping is going to die down now, due to the market. I believe it will to an extent, but I still have a great amount of investors looking to flip…and they are making it. Of course, the first time flipper I try to discourage in this market.
Posted on May 23rd, 2008 at 12:38 am
My husband and I have flipped two homes at a wholesale prices as a result of a short sale. I think that investors, especially new ones, need to remember is that every time they make a mortgage payment on that property they are accruing holding costs. It’s hard to get some people to understand that when they are clinging to a “too high” asking price.
I am a real estate agent in Chicago and I get calls from “newbie” investors every month that don’t have the first clue about real estate investing. They saw a show, or attended a seminar, and now they think they know what they are doing. A lot of the foreclosure in my area are actually from investors who bit off more than they could chew.
Well said. Hopefully more people will come across this article!
Posted on June 6th, 2008 at 7:08 pm
Great post, I laugh at those shows. They talk about how much the flippers make without mentioning the costs of financing, selling or closing. Half of teh ones that said they made money probably actually came closer to breaking even.
Posted on June 24th, 2008 at 2:05 am
Good advice for flippers. In my area, there are a lot of ‘flippers’ turned ‘landlords’ while they wait for better days - you could call them ‘extended flippers’.
With the 22% reduction we’ve seen in median price, however, the pain is simply deferred.
Posted on June 30th, 2008 at 12:07 am
We really need a few more house flipping shows on cable! haha
Posted on July 18th, 2008 at 8:14 pm
I’ve been hired many times to help people flip a home. I’ve even done it a few times for myself. It doesn’t always go as planned. Especially in this market, it’s easy to get into a home, and another to turn it around quickly and still make a profit. Great post!
Posted on July 20th, 2008 at 4:36 am