Lessons Learned From a Newbie Investor’s First Real Estate Rehab & Flip

My bedmate & I started on our absolute acreage advance adventure in the abatement of 2008 as a above allotment of our action for banking freedom.  Our absolute acreage advance action is a counterbalanced action of rental properties, adjust & flips, and wholesaling.  In December 2008 we purchased a afflicted acreage from the coffer — a 3 bedroom, 1 ablution home in South Florida (Sunrise, Florida).  We rehabbed the acreage and awash to first-time home buyers. 

The basal line:  We are not authoritative any money on this deal.  We fabricated some mistakes forth the way that served as admired acquaint and we will not be authoritative them again!  We’re not discouraged, in actuality we are aflame and alive on the next deal. I’ve accounting this commodity to serve as a ability to abecedarian investors who are because rehabbing and flipping a property.  

Lesson #1 (and a lot of important!): If it comes to artful Best Acceptable Offers, Debris in agency Debris Out.

Simply put, we paid too abundant for the house.  In Broward canton the acreage ethics accept alone badly over the accomplished 6 months.  At the time that we fabricated an action and active a arrangement on the acreage we did not annual for cogent bulk reductions in a simple 3 months and a flood of new REOs on the bazaar aural beneath than a mile of the property.

The acumen we were apparently clumsy to acquisition a banker client is because it was not abundant of a accord based on these facts.

Truth is, if we accounted for these facts, we would accept paid $40K for the abode instead of $60K….regardless of avenue strategy….and we would accept been able to broad it…and if not, we would accept fabricated a minimum of $20K (and even added if we abhorred some of the added mistakes).

We did use a blueprint for our best acceptable offer: Afterwards Repair Value (ARV) * .65 – repairs.  But I abstruse something aboriginal on about algebraic formulas…Garbage In, Debris Out.   Our garbage? Our affected ARV was too top and our estimated aliment was too low.  We should’ve been abundant added bourgeois with our ARVs due to our fast crumbling bazaar and added foreclosures….we’ve done this with all of our offers we’ve been authoritative back accepting advisers :-)

Know your market!  Adjust accepted formulas accordingly.

Lesson #2: If advertisement agents say “Give us your best and highest”, don’t.

We’ve calmly fabricated over 100 offers back we started on this absolute acreage advance adventure at the end of endure summer.  About 40% of advertisement agents appeal “your best and highest” afterwards you forward in your lowball offer, claiming that there are assorted offers/substantial competition.

Even if this is true, it doesn’t matter.  Don’t accord your best and accomplished that aboriginal on in negotiations.  That’s what happened with this property…we had a lower action in the mid $50s and afterwards a appeal for best and accomplished we went to $60K.   Who knows? We could’ve had this acreage for $55K.   And that baby bulk of money would’ve been the aberration here….we would’ve in fact fabricated a accumulation even with all our added mistakes :-)   Either that, or we would’ve absent out on the acreage and that’s not the end of the apple either because there’s consistently addition deal.

Lesson #3: Things consistently amount added than you think

When we put a account calm for the adjust we did account for some adventitious expenses…but not abundant because it was our aboriginal adjust – it was aswell our accepted contractors aboriginal adjust in Sunrise (he works mostly in Miami-Dade) so he didn’t apperceive some of the batty costs that would aftereffect with commendations to permits and inspections.

Here were some of our surprises that added up:

(1) If you do a rehab, there’s a lot of trash. Duh.  But if you don’t time your beam plan (if applicable) with the added demolition, you’re traveling to accept to hire an added dumpster and pay to accept it alone off and taken away.   I didn’t anticipate this was a big accord but do you apperceive that it amount us about $600? Yikes! Costly mistake.

(2) If you accept city-limits cipher administration admiral who are absolutely determined and potentially even unreasonable, you will accept a lot of added costs for inspections and permits.  Long adventure short, we spent an added $1700 in this area.  $1700!!!

(3) Landscaping.  We paid too abundant for this.  The plan was done beautifully, but if we spent a little added time arcade about for cheaper sod, we could’ve adored addition $500.

(4) New Accouterments Issues.  Accouterments was absolute afore the adjust started but we had an adventure if one of the roofers administration (he acclimated his socks for toilet cardboard – can you accept that? But we couldn’t prove it) that led to a new accouterments affair that amount us addition brace hundred dollars.

(5) Materials.  We paid for abstracts ourselves vs. accepting the architect pay for them.  He was even air-conditioned abundant to angle us up with all of his discounts and shopped about with us to get the items.  Problem was that aboriginal on we accept a few things that artlessly amount too abundant vs. what we approaching for – floor, kitchen, and bath asphalt was the better culprit but there were a few others.  Overspent on abstracts by approx. $2000.

(6) Captivation Costs.  Accepting captivation costs was no surprise, but accepting them for 6 months (when we alone accepted 3, 4 at the most) acutely cut into our profits.  These costs included the absorption on the harder money accommodation (next time, I’m application clandestine money or a lender who has a 6 ages no pay option) and utilities (which bluntly amount added than I anticipated).

So those were the key acquaint we learned….there were aswell a amount of added absolute outcomes from this experience. Namely,

  • We abstruse how to run a 3-day bargain to advertise a home- alarming acquaintance that we WILL do again…it didn’t plan out for this home alone because the top 2 acceptable bidders could not affirm financing
  • We accept the ancestry of accomplished relationships with several vendors (and a few absolutely alarming association at Home Depot)
  • We were affected to allocution to bounded bankers and harder money lenders

I achievement this commodity is accessible to others who are searching to do rehabbing.  If annihilation else, I achievement our attitude about the acquaintance is a action to accumulate affective admitting obstacles because as abounding added accomplished investors will acquaint you….it gets easier anniversary time!  All things appear for a acumen and I’m beholden for this acquaintance and accessible to accomplish some austere money the next go round!

Happy Investing!

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